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Highly Experienced Executive Team Offers Flexible Financing Options to Small Businesses
New York City – November 2, 2017 – 6th Avenue Capital, LLC (“6th Avenue Capital”), a leading provider of small business financing solutions, announced today its securement of a $60 million commitment from a large institutional investor. The investor made their commitment based on 6th Avenue Capital’s industry-leading underwriting, compliance standards and processes. 6th Avenue Capital will draw from this commitment to offer merchant cash advances to small businesses through its nationwide network of Independent Sales Organizations (“ISOs”) and other strategic partnerships, such as banks and small business associations.
6th Avenue Capital launched formal operations in 2016 to help finance small businesses that are often ineligible for funding due to traditional underwriting criteria. 6th Avenue Capital evaluates each application for funding individually and keeps the merchant’s short and long-term needs in mind including, most importantly, what they can afford. 6th Avenue Capital also understands that small businesses may need funding quickly. The company’s data-driven underwriting processes, expertise and technology can give the merchant secure and equitable approvals of qualified requests and funding within hours.
Leading the team, CEO Christine Chang oversees all strategic aspects of 6th Avenue Capital. She also serves as COO to sister company Nexlend Capital Management, LLC. She brings more than 20 years experience in institutional asset management, including alternative lending. Previously, Chang served as Chief Compliance Officer at Alternative Investment Management, LLC, COO at New York Private Bank & Trust and Vice President at Credit Suisse. She serves on the board of Blueprint Capital Advisors, LLC and Bottomless Closet, a not-for-profit empowering economic self-sufficiency in disadvantaged NYC women.
“Our mission at 6th Avenue Capital is to help small businesses grow, and we continue to expand our existing network of ISO and strategic partners to ensure these businesses have access to capital in hours,” said Chang. “Our leadership team of financial industry experts has extensive experience navigating multiple economic cycles. We know how to serve merchants and how to deliver quickly while meeting the highest operational standards for our investors.”
COO Darren Schulman joined the team in March 2017. Schulman is a 20-year veteran of the alternative finance and banking industries. He is responsible for oversight of 6th Avenue Capital’s origination, underwriting, operations and collections, as well as strategic initiatives. Schulman served previously as COO at Capify (formerly AmeriMerchant), a global small business financing company, and President and CFO at MRS Associates, a Business Process Outsourcing (BPO) company specializing in collections. In addition, Schulman was an Executive Vice President at MTB Bank.
“We form strong relationships with the merchant and consider it essential for our underwriters to speak to every merchant, on every deal, regardless of its size,” said Schulman. “We also make our underwriters available for discussions with ISOs whenever necessary. We are proud to offer competitive volume-based commissions, buyback rates and white label solutions.”
About 6th Avenue Capital, LLC
6th Avenue Capital is changing the small business financing landscape by offering a data-driven underwriting process and fast access to capital. The company employs a unique blend of industry experts and is committed to the highest operating standards, high touch merchant service, including a policy of direct merchant access to underwriters. 6th Avenue Capital is a sister company of Nexlend Capital Management, LLC, a fintech investment management firm founded in 2014 and focused on marketplace lending (consumer loans). For more information, visit www.6thavenuecapital.com.
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Last year belonged to the brokers in alternative finance — with a phone and a few leads pulled up online, anyone could sell a loan. With seemingly no barriers to entry, alternative lending attracted auto and insurance salesmen fleeing their jobs to cash in on the gold rush in an economy which was coming out of the shadows of distrust for big banks. And it found quick ascension to grow into a trillion dollar market.
But a year on, as the dust has settled, we asked industry veterans what it means to remain successful in this business and what is the key to sustainability — is it in going for the ISO/broker channel to find deals or originating your own.
Here’s what they had to say
Don’t Break the Broker
Tom Abramov of MFS Global voted for the ISO/broker channel and said that that’s how the company strictly does deals, working with brokers who have a track record as a part of their recruitment system. The six year old company that started as an broker shop now focuses only on funding with products that are a mix of merchant cash advances and lines of credit.
“We don’t look at FICO scores or SIC codes, we only look at cash flows of businesses,” said Abramov. “I want to see if I give a someone a dollar whether they can turn it into two.”
Abramov added that his firm offers brokers 20 percent commission and their default rates are sub 5 percent.
The advantages of scoring deals through a broker channel can be alluring. It involves no overhead, no staff that needs compensation, motivation and incentives, and makes use of the existing broker-merchant relationships.
Jordan Feinstein of NuLook Capital said that his firm works with brokers exclusively and the model has helped them respond to merchants faster. “We do not have a sales team speaking to merchants directly, that’s in conflict with our model,” said Feinstein. “We decided that the best way to grow is to build relationships to avoid the overhead, compliance, training and manpower that a sales team would require,” he said.
Building a Hybrid Model
There are some others who want to make the best of both the models and work with brokers while originating and funding their own deals. Forward Financing which uses a hybrid model has strategic partnerships with some brokers while still originating their own deals. “We have a hybrid model because our goal is to have a program for any type of business and work with companies across the spectrum of risk,” said Justin Bakes, CEO of Forward Financing. “While our priority is to self originate, it is essential to create and maintain partnerships in this business,” he said.
The Original Origination
While the allure of a lean business is certainly attractive, there are some who are in the industry to build a bigger business and create value by making it robust — Jared Weitz of United Capital Source is one of them. “There is a big market for both analytical process as well as sales process. It’s important to go after your strength,” said Jared Weitz, founder and CEO of United Capital Source. “When you originate and fund your own deals, you’re in a rewarding position and in control of how merchants get treated.”
Speaking of the industry in general, these experts agreed that the business was undergoing a change with new entrants coming in and experimenting with better services and technologies.
“Last year was the year of brokers but we are still missing the education with merchants. Some brokers are interested while some are not,” said Abramov.
“I notice a clear difference between the old and the new in terms of technology and pricing model,” said Bakes.
“New funders are coming in with different products and terms with increased competition in the ISO market,” said Feinstein.
“Marketing is getting more expensive and only the ones who can afford to pay can play,” said Weitz.
The Canadian Lenders Assocation (CLA) received 124 nominations for these awards from leaders in lending across the country. The CLA’s goal is to support access to credit in the Canadian marketplace and champion the companies and entrepreneurs who are leading innovations in this industry.
The Top 25 ﬁnalists in this report represent various innovations in the borrower’s journey from innovations in artiﬁcial intelligence powered credit modelling to breakthroughs in consumer identity management using blockchain technologies. These ﬁnalists also represent solutions for a wide spectrum of borrower maturity and needs, ranging from consumer credit rebuilding all the way to senior debt placements for global technology ventures.
CEO of myBrokerBee | Ontario
After a career in commercial ﬁnance and being CEO of Transpor, Mark Co-founded myBrokerBee a mortgage broker platform that provides transparency to private lenders and their clients.
CEO of Ario Platform | Ontario
Through his experience as Product lead at Interac and Blackberry, Avinash has helped bring together an accomplished and talented group of experts in Data Science, Machine Learning, Security, Software Development to successfully develop this banking services software platform Ario.
CEO of Trust Science | Alberta
Evan is the founder and CEO of Trust Science, a leader in organizing alternative credit data. As a saas founder and CEO, Evan has done over 500mm in startup exits.
President of Lendified | Ontario
Kevin is a recognized leader in the ﬁnancial services industry with over 30 years of experience. Kevin has helped create the voice of Canada’s SME lending ecosystem through his leadership of Lendiﬁed and the CLA.
VP of Cox Automotive | Ontario
Jerome established Nextgear Capital in Canada to become the largest specialty ﬁnance company in the automotive sector. Jerome is a Globe & Mail 40 under 40 winner and previously lead RBC’s international wealth management, private banking and asset servicing business.
CEO of Innovative Assessmer | Israel
Saul is a licensed organizational psychologist and psychometrician, and a former lecturer in psychology at the University of Haifa. Saul is a global leader in the use of psychometric data for credit scoring and ﬁnancial inclusion.
CEO of Merchant Growth | BC
David is the Founder and CEO of Merchant Growth, which grew from its humble beginnings in his apartment to ofﬁces in both Toronto and Vancouver. David now leads one of Canada’s largest online small business ﬁnance companies.
COO of CMI | Ontario
Nominated for the 2018 Mortgage Broker of the Year, Bryan Jaskolka is an expert in Canadian mortgage ﬁnancing with a particular focus on the alternative lending space and mortgage investing.
CEO of Flexiti | Ontario
Peter is a leader in Canada’s retail ﬁnancing market. Before founding Flexiti, Peter was in senior leadership positions at Citi, PC Financial, and Sears Canada. Flexiti was recently named #7 on the Deloitte Fast50.
CEO of Flinks | Quebec
Yves-Gabriel Leboeuf is the co-founder and CEO of Flinks. Under his leadership, Flinks has become a Canadian leader in banking data enablement.
CEO of Corl | Ontario
Derek, also known as the “the quant from Canada” is the founder of the data-driven venture ﬁrm, Corl. Corl is one of Canada’s leaders in the use revenue-share ﬁnancing models.
CEO of Boss Insights | Ontario
Keren Moynihan is co-founder and CEO of Boss Insights, a company that uses big data and AI to accelerate lending from months to minutes. With a Joint JD/MBA, Keren has a diverse background as a commercial banker, wealth manager and former founder of an impact startup.
CEO of Goeasy | Ontario
Jason is President and CEO of goeasy, a publicly listed consumer lender. Jason has lead the company to become one of the largest and most innovative lenders in the country.
CEO of SharpShooter Funding | Ontario
After founding First Down Funding, an alternative lending ﬁrm for SMEs in Baltimore, Paul expanded his business to Canada through the subsidiary Sharpshooter Funding.
|Brendan Playford & Cate Rung
Co-Founders of Pngme | USA
Cate, ex-Uber and Brendan, a blockchain and agro-ﬁnance entrepreneur are the co-founders of Pngme, an alternative lending platform for ﬁnancial institutions in emerging markets who serve Micro, Small, and Medium-sized Enterprises.
CEO of Paybright | Ontario
Wayne is the President and CEO of PayBright. Wayne is also a director of IOU Financial Inc and of HBC. Previously, Wayne was a Principal at TorQuest Partners, one of Canada’s leading private equity ﬁrms, and a management consultant with Bain & Company in the UK, the US, and Canada.
CEO of Ledn | Ontario
Adam is a pioneer and thought leader in the digital asset backed lending space. Ledn is focused on building innovative ﬁnancial products in the emerging digital asset space, with a focused mission to help people save more in bitcoin.
CEO of LoanConnect | Ontario
Adam has played a pivotal role in building one of the largest online markets in Canada for unsecured loans.
CEO of BFS Capital | Ontario
Mark is an experienced international CEO with two successful exits and over 20 years of experience at the helm of VC backed technology and ﬁntech startups. In 2019 Mark announced BFS Capital’s expansion to Canada with a new 50 engineer data science hub in the heart of Toronto.
President of Smarter Loans | Ontario
Vlad Co-founded Smarter Loans in 2016 with the goal of helping Canadians make smarter ﬁnancial decisions. Since then, Vlad has grown the platform into one of the go-to resources for Canadian borrowers.
CEO of FundThrough | Ontario
Steven is the Co-Founder & CEO of FundThrough, an invoice funding service that helps business owners eliminate “the wait” associated with payment terms by giving them the power and ﬂexibility to get their invoices paid when they want, with one click, and in as little as 24 hours.
CEO of Turnkey Lender| Singapore
Dmitry, CEO and Co-founder of TurnKey Lender, holds a PhD in Artiﬁcial Intelligence. Dmitry was recently named SFA’s Fintech Leader of the year.
CEO of Ondeck Canada | Quebec
Neil brieﬂy practiced law before becoming President and CEO of Optimal Group Inc. where he grew the company from a start-up to a leading NASDAQ-listed self-checkout and payments company. Neil later co-founded Evolocity, which in 2019 became OnDeck Canada.
CEO of Refresh | BC
Michael has led Refresh Financial’s rapid growth since its founding in 2013, including a recent ranking of number 40 on Deloitte’s Fast 500.
It takes seven minutes for Kabbage to approve a small-business loan. “The reason there’s so little lag time,” says Sam Taussig, head of global policy at the Atlanta-based financial technology firm, “is that it’s all automated. Our marginal cost for loans is very low,” he explains, “because everything involving the intake of information – your name and address, know-your-customer, anti-money-laundering and anti-terrorism checks, analyzing three years of income statements, cash-flow analysis – is one-hundred-percent automated. There are no people involved unless red flags go off.”
One salient testament to Kabbage’s automation: Fully $1 billion of the $5 billion in loans that it has made to 145,000 discrete borrowers since it opened its portals in 2011 were made between 6 p.m. and 6 a.m.
Now compare that hair-trigger response time and 24-hour service for a small business loan of $1,000-$250,000 with what occurs at a typical bank. “Corporate credit underwriting requires 28 separate tasks to arrive at a decision,” William Phelan, president, and co‐founder of PayNet—a top provider of small-business credit data and analysis – testified recently to a Congressional subcommittee. “These 28 tasks involve (among other things): collecting information for the credit application, reviewing the financial information, data entry and calculations, industry analysis, evaluation of borrower capability, capacity (to repay), and valuation of collateral.”
A “time-series analysis,” the Skokie (Ill.)-based executive went on, found that it takes two-to-three weeks – and often as many as eight weeks—to complete the loan approval process. For this “single credit decision,” Phelan added, the services of three bank departments – relationship manager, credit analyst, and credit committee – are required.
The cost of such a labor-intensive operation? PayNet analysts reckoned that banks incur $4,000-$6,000 in underwriting expenses for each credit application. Phelan said, moreover, that credit underwriting typically includes a subsequent loan review, which consumes two days of effort and costs the bank an additional $1,000. “With these costs,” Phelan told lawmakers, “banks are unable to turn a profit unless the loan size exceeds $500,000.”
According to the National Bureau of Economic Research, the country’s very biggest banks — Bank of America, Citigroup, J.P. Morgan Chase, and Wells Fargo—have been the financial institutions most likely to shut down lending to small businesses. “While small business lending declined at all banks beginning in 2008,” NBER’s September, 2017 report announces, “the four largest banks” which the report dubs the ‘Top Four’—“cut back significantly relative to the rest of the banking sector.”
NBER reports further that by 2010—the “trough” of the financial crisis—the annual flow of loan originations from the Top Four stood at just 41% of its 2006 level, which compared with 66% of the pre-crisis level for all other banks. Moreover, small-business lending at the “Top Four” banks remained suppressed for several years afterward, “hovering” at roughly 50% of its pre crisis level through 2014. By contrast, such lending at the rest of the country’s banks eventually bounced back to nearly 80% of the pre-crisis level by 2014.
That pullback—by all banks—continues, says Kenneth Singleton, an economics professor at Stanford University’s Graduate School of Business. Echoing Phelan’s testimony, Singleton told deBanked in an interview: “Given the high underwriting costs, banks just chose not to make loans under $250,000,” which are the bread-and-butter of small-business loans. In so doing, he adds, banks “have created a vacuum for fintechs.”
All of which helps explain why Kabbage and other fintechs making small business loans are maintaining a strong growth trajectory. As a Federal Reserve report issued in June notes, the five most prominent fintech lenders to small businesses—OnDeck, Kabbage, Credibly, Square Capital, and PayPal—are on track to grow by an estimated 21.5 percent annually through 2021.
Their outsized growth is just one piece—albeit a major one—of fintech’s larger tapestry. Depending on how you define “financial technology,” there are anywhere from 1,400 to 2,000 fintechs operating in the U.S., experts say. Fintech companies are now engaged in online payments, consumer lending, savings and investment vehicles, insurance, and myriad other forms of financial services.
Fintechs’ advocates—a loose confederacy that includes not only industry practitioners but also investors, analysts, academics, and sympathetic government officials—assert that the U.S. fintech industry is nonetheless being blunted from realizing its full potential. If fintechs were allowed to “do their thing,” (as they said in the sixties) this cohort argues, a supercharged industry would bring “financial inclusion” to “unbanked” and “underbanked” populations in the U.S. By “democratizing access to capital,” as Kabbage’s Taussig puts it, harnessing technology would also re-energize the country’s small businesses, which creates the majority of net new jobs in the U.S., according to the U.S. Small Business Administration.
But standing in the way of both innovation and more robust economic growth, this cohort asserts, is a breathtakingly complex—and restrictive—regulatory system that dates back to the Civil War. “I do think we’re victims of our own success in that we’ve got a pretty good financial system and a pretty good regulatory structure where most people can make payments and the vast majority of people can get credit.” says Jo Ann Barefoot, chief executive at Barefoot Innovation Group in Washington, D.C. and a former senior fellow at Harvard’s Kennedy School. But because of that “there’s been more inertia and slower adoption of new technology,” she adds. “People in the U.S. are still going to bank branches more than people in the rest of the world.”
Barefoot adds: “There are five agencies directly overseeing financial services at the Federal level and another two dozen federal agencies” providing some measure of additional, if not duplicative oversight, over financial services. “But there’s no fintech licensing at the national level,” she says. And because each state also has a bank regulator, she notes, “if you’re a fintech innovator, you have to go state by state and spend millions of dollars and take years” to comply with a spool of red tape pertaining to nonbanks.
At the federal level, the current system— which includes the Federal Reserve, Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC)—developed over time in a piecemeal fashion, largely through legislative responses to economic panics, shocks and emergencies. “For historical reasons,” Barefoot remarks, “we have a lot of agencies” regulating financial services.
For exhibit A, look no further than the Consumer Financial Protection Bureau created amidst the shambles of the 2008-2009 financial crisis by the 2010 Dodd-Frank Act. Built ostensibly to preserve safety and soundness, the agencies have constructed a moat around the banking system.
Karen Shaw Petrou, managing partner at Federal Financial Analytics, a Washington, D.C. consultancy, is a banking policy expert who frequently provides testimony to Congress and regulatory agencies. She wrote recently that the country’s banking sector has been protected from the kind of technological disruption that has upended a whole bevy of industries.
“The only reason Amazon and its ilk may not do to banking, brokers and insurers what they did to retailers—and are about to do to grocers and pharmacies,” she observed recently in a blog—“is the regulatory structure of each of these businesses. If and how it changes are the most critical strategic factors now facing finance.”
Cornelius Hurley, a Boston University law professor and executive director of the Online Lending Policy Institute, is especially critical of the 50-state, dual banking system. State bank regulators oversee 75 percent of the country’s banks and are the primary regulators of nonbank financial technology companies. “The U.S. is falling behind other countries that are much less balkanized,” Hurley says. “Our federal system of government has served us well in many areas in our becoming a leading civil society. It’s given us NOW (Negotiable Order of Withdrawal) accounts, money-market accounts, automatic teller machines, and interstate banking. But now it’s outlived its usefulness and has become an impediment.”
Take Kabbage, which actually avoids a lot of regulatory rigmarole by virtue of its partnership with Celtic Bank, a Utah-chartered industrial bank. The association with a regulated state bank essentially provides Kabbage with a passport to conduct business across state lines. Nonetheless, Kabbage has multiple, incessant, and confusing dealings with its bank overseers in the 50 states.
“Where the states get involved,” says Taussig, “is on brokering, solicitation, disclosure and privacy. We run into varying degrees of state legislative issues that make it hard to do business. Right now we’re plagued by what’s been happening with national technology actors on cybersecurity breaches and breach disclosures. We are required to notify customers. But some states require that we do it in as few as 36 hours, and in others it’s a couple of months. We’ve lobbied for a national breach law of four days,” he adds, which would “make it easier for everyone operating across the country.”
Then there’s the meaning of “What is a broker?’” says Taussig, who as a regulatory compliance expert at Kabbage sees his role as something of an emissary and educator to regulators and politicians, the news media, and the public. “The definitions haven’t been updated since the 1950s and now we have wildly different interpretations of brokering and solicitation,” he says. “The landscape has changed with e-commerce and each state has a different perspective of what’s kosher on the Internet.”
Washington State is a good example. It’s one of a handful of jurisdictions in which regulators confine nonbank fintechs to making consumer loans. In a kabuki dance, fintech companies apply for a consumer-lending license and then ask for a special dispensation to do small-business lending.
And let’s not forget New Mexico, Nevada and Vermont where a physical “brick-and-mortar” presence is required for a lender to do business. Digital companies, Taussig says, would have to seek a waiver from regulators in those states. “Many companies spend a lot of money on billable hours for local lawyers to comply with policies and procedures,” Taussig reports, “and it doesn’t serve to protect customers. It’s really just revenue extraction.”
All such restraints put fintechs at a disadvantage to traditional financial institutions, which by virtue of a bank charter, enjoy laws guaranteeing parity between state-chartered and federally chartered national banks. The banks are therefore able to traverse state lines seamlessly to take deposits, make loans, and engage in other lines of business. In addition, fintechs’ cost of funds is far higher than banks, which pay depositors a meager interest rate. And banks have access to the Fed discount window, while their depositors’ savings and checking accounts are insured up to $200,000.
The result is a higher cost of funds for fintechs, which principally depend on venture capital, private equity, securitization and debt financing as well as retained earnings. And that translates into steeper charges for small business borrowers. A fintech customer can easily pay an interest rate on a loan or line of credit that’s three to four times higher than, say, a bank loan backed by the U.S. Small Business Administration.
Kabbage, for example, reports that its average loan of roughly $10,000 typically carries an interest rate of 35%-36%. It’s credits are, of course, riskier than the banks’. The company does not report figures on loans denied, Taussig told deBanked, but Stanford’s Singleton says that the fintech industry’s denial rate is roughly 50 percent for small business loans. “Fintechs have higher costs of capital and they’re also facing moderate default rates,” notes Singleton. “They’re not enormous, but fintechs are dealing with a different segment. Small businesses have much more variability in cash flows, so lending could be riskier than larger, established companies.”
Even so, venture capitalists continue to pour money into fintech start-ups. “I’ve gone to several conferences,” Singleton says, “and everywhere I turn I’m meeting people from a new fintech company. One of the striking things about this space,” he adds, “is that there are lot of aspiring start-ups attacking very specific, very narrow issues. Not all will survive, but someone will probably acquire them.”
Contrast that to the world of banking. Many banks are wholeheartedly embracing technology by collaborating with fintechs, acquiring start-ups with promising technology, or developing in-house solutions. Among the most impressive are super-regionals Fifth Third Bank ($142.2 billion), Regions Financial Corp. ($123.5 billion), and BBVA Compass ($69.6 billion), notes Miami-based bank consultant Charles Wendel. But many banks are content to cater to familiar customers and remain complacent. One result is that there’s been a steady diminution in the number of U.S. banks.
Over the past ten years, fully one-third of the country’s banks were swallowed whole in an acquisition, disappeared in a merger, failed, or otherwise closed their doors. There were 5,670 federally insured banks at the end of 2017, according to the Federal Deposit Insurance Corp., a 2,863-bank, 33.5% decrease from the 8,533 commercial banks operating in the U.S. in 2007.
It does appear that, to paraphrase an old expression, many banks “are going out of style.” In recent years there have been more banking industry deaths than births. Sixty-three banks have failed since 2013 through June while only 14 de novo banks have been launched. In Texas, which is known for having the most banks of any state in the country, only one newly minted bank debuted since 2009. (The Bank of Austin is the new kid on the Texas block, opening in a city known as a hotbed of technology with its “Silicon Hills.”)
One reason there’s so little enthusiasm among venture capitalists and other financial backers for investing in de novo banks is that regulators are known to be austere. “If you’re a company in the U.S.,” says Matt Burton, a founder of data analytics firm Orchard Platform Markets (which was recently acquired by Kabbage), “and you tell regulators that you want to grow by 100 percent a year – which is the scale you must grow at to get venture-capital funding – regulators will freak out. Bank regulators are very, very strict. That’s why you never hear about new banks achieving any sort of scale.”
But while bank regulators “are moving sluggishly compared to the rest of the world” in adapting to the fintech revolution, says Singleton, there are numerous signs that the status quo may be in for a surprising jolt. The Treasury Department is about to issue (possibly by the time this story is published) a major report recommending an across-the-board overhaul in the regulatory stance toward all nonbank financials, including fintechs. According to a report in The American Banker, Craig Phillips, counselor to Treasury Secretary Steven Mnuchin, told a trade group that the report would address regulatory shortcomings and especially “regulatory asymmetries” between fintech firms and regulated financial institutions.
Christopher Cole, senior regulatory counsel at the Independent Community Bankers Association—a Washington, D.C. trade association representing the country’s Main Street bankers—told deBanked that, among other things, the Treasury report would likely recommend “regulatory sandboxes.” (A regulatory sandbox allows businesses to experiment with innovative products, services, and business models in the marketplace, usually for a specified period of time.)
That’s an idea that fintech proponents have been drumming enthusiastically since it was pioneered in the U.K. a few years ago, and it’s something that the independent bankers’ lobby, whose member banks are among the most threatened by fintech small-business lenders, says it too can support. Treasury’s Phillips “has said in the past that he’d like to see a level playing field,” the ICBA’s Cole says. “So if (regulators) are going to allow a sandbox, any company could be involved, including a community bank. We agree with him, of course, because we’d like to take advantage of that.”
In March, 2018, Arizona became the first state to establish a regulatory sandbox when the governor signed a law directing that state’s attorney general (and not the state’s banking regulator) to oversee the program. The agency will begin taking applications in August with approval in 90 days, says Paul Watkins, civil litigation chief in the AG’s office. Watkins told deBanked that he’s been most surprised so far by “the degree of enthusiasm” from overseas companies. With the advent of the sandbox, he adds, “Landlocked Arizona has become a port state.”
The OCC, which is part of the Treasury Department, may also revive its plan to issue a national bank charter to fintechs, sources say (EDITOR’S NOTE: This had not yet been implemented before this story went to print. The OCC is now accepting such applications) – a hugely controversial proposal that was put on ice last year (and some thought left for dead) when former Commissioner Thomas J. Curry’s tenure ended last spring. At his departure, the fintech bank charter faced a lawsuit filed by both the New York State Banking Department and the Conference of State Bank Supervisors. (Since then, the lawsuit was tossed out by the courts on the ground that the case was not “ripe” – that is, it was too soon for plaintiffs to show injury).
Taussig, the regulatory expert at Kabbage, reports that the Comptroller of the Currency, Robert J. Otting, has promised “a thumbs-up or thumbs-down” decision by the end of July or early August on issuing fintechs a national bank charter. He counts himself as “hopeful” that OCC’s decision will see both of the regulator’s thumbs pointing north.
The Conference of State Bank Supervisors, meanwhile, has extended an olive branch to the fintech community in the form of “Vision 2020.” CSBS touts the program as “an initiative to modernize state regulation of non-bank financial companies.” As part of Vision 2020, CSBS formed a 21-member “Fintech Industry Advisory Panel” with a recognizable roster of industry stalwarts: small business lenders Kabbage and OnDeck Capital are on board, as are consumer lenders like Funding Circle, LendUp and SoFi Lending Corp. The panel also boasts such heavyweights in payments as Amazon and Microsoft.
Working closely with the fintech industry is a “key component” of Vision 2020, Margaret Liu, deputy general counsel at CSBS, told deBanked in a recent telephone interview. CSBS and the fintech industry are “having a dialogue,” she says, “and we’re asking industry to work together (with us) and bring us a handful of top recommendations on what states can do to improve regulation of nonbanks in licensing, regulations, and examinations.
“We want to know,” she added, ‘What the main friction points are so that we can find a path forward. We want to hear their concerns and talk about pain points. We want them to know the states are not deaf and blind to their concerns.”
Former Chief Operating Officer also appointed to company’s Board of Directors along with Chief Executive Officer Christine Chang
New York City – April 26, 2018 – 6th Avenue Capital, LLC (“6th Avenue Capital”), a leading provider of choice for alternative small business funding, announced today the promotion of Darren Schulman to President, effective immediately. In his new position, Schulman has oversight over originations, underwriting, operations, collections and strategic initiatives. He previously served as Chief Operating Officer, and will continue to report directly to Chief Executive Officer Christine Chang.
The company also announced today that Chang and Schulman have been appointed to the company’s Board of Directors.
“We are extremely fortunate to have a well-respected industry expert and innovator like Darren on our leadership team,” said Chang. “He’s made immeasurable contributions to our strategic direction and growth since joining us last year. I am confident Darren will continue to play a critical role in guiding our business forward in his new position as President.”
Schulman brings two decades of experience in small business financing and additional experience in banking to his new position. He joined 6th Avenue Capital in March 2017. Previously, Schulman served as COO at Capify (formerly AmeriMerchant), a global small business financing company, and President and CFO at MRS Associates, a Business Process Outsourcing (BPO) company specializing in collections. In addition, Schulman was an Executive Vice President at MTB Bank.
“6th Avenue Capital is made up of exceptional individuals who are focused daily on advancing the capital needs of small businesses. I am honored by the promotion and delighted to be joining the Board with Christine,” said Schulman. “Together we will continue to set a strategic course for our company and build on the momentum we’ve established over the past year helping small businesses across the country grow.”
For more information on these updates, or if you’re interested in discussing partnership opportunities with 6th Avenue Capital as an ISO, please contact Marc Seidel at bizsuccess@6thAveCap.com. You can also use that same email address to schedule time to meet with members of the team at the National Association of Equipment Leasing Brokers (NAELB) conference in Las Vegas from April 26 to 28.
About 6th Avenue Capital, LLC
6th Avenue Capital is changing the small business funding landscape by offering a data-driven underwriting process and fast access to capital with variable payment options. 6th Avenue Capital employs a unique blend of industry experts who are committed to the highest operating standards, including high touch service and a policy of direct merchant access to underwriters. For more information, visit www.6thavenuecapital.com or email bizsuccess@6thAveCap.com.
BOSTON – One of the oldest lenders in the nation had a hand in developing technology intended to enable banks to win back the small business loan market from alternative lenders.
A tech incubator at Boston-based Eastern Bank, founded in 1818, has spun off Numerated Growth Technologies Inc., a startup that developed an online platform designed to identify and contact small businesses eligible for loans of up to $100,000.
Numerated Growth, which was founded in March, developed its tech in Eastern Labs and has generated about $100 million of volume since 2015. The model, which features real-time approval, is based on the tact banks first took with pre-approved credit cards in the 1990s, Numerated CEO Dan O’Malley told deBanked.
“We’re just taking the same rules and applying them here,” he said. “And by the way, that’s what customers want.”
Numerated Growth, which employs 26 workers, came out of stealth mode in May with a $9 million seed funding.
O’Malley, Eastern Bank’s former chief digital officer, said Numerated is now selling the platform to other banks but declined to disclose the specific number. The cost per bank depends on the number of loans being processed, he said.
The average business loan is $40,000 and they can be approved and funded within five minutes of the business completing the online agreement.
Numerated Growth’s real-time platform could be considered loan origination software on steroids. But such software essentially enables a bank to enter an applicant’s information into a digitized system to assist in the approval process. Alternative lending startups have been improving on that model for several years. Competitors in that space include nCino Inc., Decision Lender (Teledata Communications), PerfectLO and defi solutions, LoanCirrus.
But loan origination software is very crowded and startups are constantly launching to reduce the time it takes to approve a loan without increasing the number of defaults.
“Banks need to do things that are counter to each other,” David O’Connell, a senior analyst for the Boston-based Aite Group LLC, told deBanked. “There’s a need to do a fast money transaction, but doing it diligently without making any bad loans.”
Combining the marketing and approval process is a credible approach because it keeps them on the same page in terms of targeting the most likely prospects. As a result, the number of “false positives” is lower, O’Connell said.
Instead of developing their own small business loan platforms, some banks are referring borderline borrowers to alternative lenders. But that can cause problems for the bank if the customer service doesn’t measure up to the bank’s standards and customers associate shoddy service with the entity that referred them, O’Connell said.
The best option is to develop in house. “Banks need to go as deep into the alternative lending market as they can with their own infrastructure and brand,” he said.
Because of its low value compared with other types of bank business, small business loan origination is one of the last remaining areas of banking to be targeted with innovation. “There’s not a huge price point,” said Kevin Tweddle, executive vice president for innovation and technology at the Independent Community Bankers of America.
Loan origination startups are trying to make such deals worth the bother. Yet the best tools tend to be developed by banking industry people because they understand the regulatory restrictions and integration factors, he said.
The goal of loan tech tools is two-pronged: make the approval process more efficient and make it convenient for borrowers. And so far, no software developer has risen above all the others to capture majority market share, Tweddle told deBanked.
“It’s just too early; there’s too many of them still coming out,” he said. “We’re in the early innings of a nine-inning game.”
Banks can’t afford to ignore the demand for alternative lending tools.
In May, the University of Chicago’s Polsky Center for Entrepreneurship and Innovation reported that the alternative finance market slowed but continued to grow during 2016 in the United States, Canada, Latin America and the Caribbean. The market’s value reached $35.2 billion — a 23 percent increase compared with 2015.
More than 200,000 businesses used online alternative funding sources during 2016. In the United States, marketplace and peer-to-peer consumer lending accounted for the largest share of market volume with $21 billion in the U.S. last year, a 17 percent increase. Balance sheet business lending was the second-largest model in the U.S. with $6 billion originated, the report found.
In Latin America and the Caribbean, marketplace and peer-to-peer business lending was the largest alternative finance segment with $188.5 million last year, a 239 percent rise versus 2015.
The same principles fueling the car-sharing business are being applied to peer-to-peer lending. As a result, adoption is growing as people view the credibility of peer lenders on an equal level of traditional experts, said David Wong, senior director of the innovation and acceleration lab at the Chicago-based CME Group Inc.
“Whether P2P markets reach or exceed the size of the incumbent market platforms (ala Uber and Airbnb), or not, they are driving rapid innovation and new dimensions of competition across industries,” he said.
Industry observers agree that small business loans haven’t seen enough innovation from the banking industry because of its size compared with commercial lending and real estate deals. As a result, it has a long way to go to shorten the time it takes for approvals and improving the customer experience, O’Connell said.
“Banks that fail to embrace automation for their commercial lending lines of business will lose the valuable relationships, loan outstandings, and fee-based income abundant in the commercial and industrial market,” he said.
After the 2009 global financial crisis, bank regulations tightened and data sets were required to be available and analytics-ready, providing another compelling need for commercial loan origination systems, O’Connell said.
No dominant players have emerged because neither traditional banks nor alternative lenders have figured out the best approach that satisfies both the lender and the customer, O’Connell said.
“Businesses don’t want money right away but they do want a quick and easy process,” he said. “My data tells me that in addition to providing underwhelming turnaround time, no particular lender has an edge over another. Nobody has it right.”
At Numerated Growth, O’Malley said the “initial wake-up call” signaling that a change was needed came in 2013 when Eastern Bank noticed solid small business customers paying off loans from alternative lenders such as On Deck Capital Inc. and LendingClub Corp. The pattern suggested that there was an unmet customer need.
Numerated Growth’s platform is designed to enable banks to proactively aggregate the data they need to identify prospective borrowers instead of requiring business owners to collect the data and present it to banks, O’Malley said.
“We’re making the banks do the work,” he said. “The same process that transformed the credit card industry will transform the financial products industry.”
As alternative lending gains global traction, a growing number of U.S-based alternative lenders are exploring international growth, with large companies like OnDeck, Kabbage and SoFi leading the way.
Some alternative lenders have begun their expedition closer to home by extending their reach into Canada. Others are traveling farther beyond to parts of Europe and Australia, for example, while others are eying eventual growth in Asia.
Propelling the opportunity is the fact that a number of international banks are still unprepared to offer online lending on their own and thus are more amenable to partnerships with U.S.-based alternative lenders, according to Rashmi Singh, senior manager in the wealth management practice at EY.
It also helps that the options for local partners are somewhat limited. “There are not a lot of digital lenders [outside the U.S.] at the same level as some of the folks here,” Singh says.
To be sure, international expansion requires extensive time, money and regulatory know-how, and some U.S. alternative lenders may never reach the critical scale to be able to compete effectively. Nonetheless, as globalization proliferates, industry observers expect that additional forward-thinking companies will push beyond the limits of their current geographical borders.
“The question is not if, but when (and where) U.S. fintech companies will expand internationally,” contends Ryan Metcalf, chief of staff and director of international markets at Affirm, a San Francisco-based fintech that has partnered with Cross River Bank of Fort Lee, New Jersey, to allow shoppers pay for purchases over time with simple-interest loans.
Affirm—which works with more than 900 retailers and recently announced that it had processed its 1 millionth consumer installment loan—has focused on domestic growth so far, but the company is now considering a number of options for international expansion, Metcalf says.
SIZING UP THE MARKET
Certainly, there are numerous opportunities for homegrown lenders to expand internationally given the healthy growth alternative lending is experiencing in other parts of the world. Each market, of course, has its nuances and individual growth patterns.
Europe, for instance, has seen substantial growth over the past few years, with the U.K. leading the way in alternative finance. It has four times higher volumes in aggregate than the rest of Continental Europe, according to a 2016 report from KPMG and TWINO, one of the largest marketplace lending platforms in Europe. (P2P consumer lending is the largest component of alternative online lending in Europe, capturing 72 percent of the total in the first through third quarters of 2016, according to the report.)
After the U.K., France, Germany and the Netherlands are the top three countries for online alternative finance by market volume in Europe, according to a September 2016 report by the Cambridge Centre for Alternative Finance.
Asian markets, meanwhile, show significant promise for alternative finance players to make their mark due to the sizeable population of digitally savvy consumers who are still largely underbanked. China is by far the largest market for alternative lending in Asia. It’s also the world’s largest online alternative finance market by transaction volume, registering $101.7 billion in 2015, according to the March 2016 Cambridge Centre for Alternative Finance report. This constitutes almost 99 percent of the total volume in the Asia-Pacific region, the research shows. To date, most of the growth in China specifically has been from local firms, but that could change as the market there continues to develop.
Although there are many possible international markets to explore, U.S. lenders have to tread carefully before planting roots elsewhere, observers say. Some smaller U.S. lenders may find domestic expansion easier and more cost-effective because of the time, regulatory and financial commitment that goes along with exploring international markets. It’s a lot easier, for instance, to expand from New York to California, than it is to build out internationally.
“Why take on all the added costs and regulatory pressures, when you haven’t fully explored your home market, unless the business that you’re in deems it necessary,” says Mark Abrams, partner with Trade Finance Global, a London-based international corporate finance house, specializing in crossborder trade.
“It doesn’t make sense to start as a U.S. lender, do a few loans and then jump over to the U.K,” he contends.
What’s more, foreign banks looking for alternative lending partners typically prefer to work with larger, more established players. Even though new players’ technology may be ahead of the curve, the banks still want a longer track record. “It’s reputational for these banks,” says Singh of EY.
MANY CHALLENGES TO INTERNATIONAL EXPANSION
Several alternative lenders say they see significant growth opportunities by expanding internationally. At the same time, however, they are mindful of the substantial headwinds they face.
Regulation is among the biggest, if not the biggest, challenge. A lot of firms in the U.S. have invested a lot of time and money to get up to speed on U.S. regulations. When they look to Europe or to Canada or Mexico or elsewhere, there are different regulations. “If you’re speaking to folks in three continents, now you are looking at regulations times three,” says Singh of EY.
Certainly there’s a time commitment involved; it can take six to eight months for a U.S. lender to get their U.S.–based platforms compliant with regulations in another country, she says.
What’s more, regulatory barriers can vary greatly country to country, notes Metcalf of Affirm. Take Canada for example where very low barriers to entry exist with some provincial exceptions. In the U.K., on the other hand, it can take eight months or more to receive a lending license, he says.
That’s why it’s so important for online lenders to make strategic decisions about where they want to invest their time and resources—even if they have sound technology that’s easily adaptable outside the U.S. “The minute you throw in cross-border regulations, it gets very complicated,” Singh says.
Understanding the local culture of the market you’re trying to tap is also crucial, according to Rob Young, senior vice president of international at OnDeck, where he oversees all aspects of the company’s non-U.S. expansion efforts.
Within the past several years, OnDeck has begun offering small business loans to customers in Canada and Australia. Frequently Canada is a first step for U.S. companies that want to expand internationally because of the shared language and similarities between the economies, Young explains.
After the Canadian operation was successfully underway, the opportunity arose for the online lender to expand to Australia—which shares several similarities with the Canadian market. OnDeck doesn’t break out how much of its overall loan portfolio comes from these two markets, but it has announced publicly that it’s delivered more than CAD$50 million in financing to Canadian small businesses since 2014.
“So far we’re very satisfied with the performance,” Young says, referring to its expansion into both Canada and Australia.
Young notes that while a U.S.-based alternative lender can leverage certain things like technology from a central location within its home country, having dedicated teams on the ground in local markets is also critical. Marketing and pricing all have to be competitive with the needs of the local market, he says.
In Canada and Australia, for example, OnDeck has found that the “personal element” is really important. Young says customers there expect to interact with sales representatives who have ties to the community, understand the local market and can relate to the issues small businesses there are facing.
“I don’t think you can establish that rapport if you are trying to serve them with a sales team overseas,” he says.
U.S.-based alternative lenders also need to be careful to create products that fit the culture and needs of a particular market. For instance, alternative players that focus on luxury asset-based lending would want to look at countries with high concentrations of wealth. “It doesn’t make sense to grow to a country where there’s very little wealth because you’re not going to have much success,” says Abrams, of Trade Finance Global.
Even knowing the market well doesn’t guarantee results, which Lending Technologies, a white label technology provider for the MCA space, has discovered first hand.
Markus Schneider, the company’s chief executive, is originally from Switzerland and he knows the market there well, so he set out to fill a void he saw for an MCA-like product. However, Lending Technologies, which has offices in New York and Zurich, has hit some roadblocks along the way.
“It’s a very different mind-set there. People are more risk-adverse,” Schneider says.
The company already has a Swiss distribution partner in place, but has had trouble finding a lender willing to underwrite the funds. Schneider would also be willing to work with a U.S. lender that wants to partner with Lending Technologies to provide MCA services to merchants in his home country.
“We’re going to do this. It’s just a matter of time,” he says. “There’s a tremendously underserved segment of the market there.”
FINDING THE RIGHT FIT
To be successful internationally, U.S. companies also have to be willing to shift gears as needed when things aren’t working out as expected.
Take Kabbage, for example. The small business lender expanded into the U.K. in 2013, two years after its U.S. debut. But the company found that having its own small business lending business in the U.K. was too challenging for regulatory and capital reasons. It no longer offers new loans from this platform.
Instead, the funding company decided that a better global strategy was to license its technology to financial institutions in international markets a less capital-intensive, yet economically sound way of doing business.
Kabbage—which recently announced the establishment of its European headquarters in Ireland—has licensing arrangements with Santander in the U.K., Kikka Capital in Australia, Scotiabank in Canada and Mexico and ING in Spain. The company plans to launch operations in several additional countries this year where banks use Kabbage’s technology to offer online loans to their clients, says Pete Steger, head of business development at Kabbage.
“We are partnering with local experts. That’s our strategy,” Steger says.
Funding Circle has also made changes to its international strategy. Earlier this year, the company—which got its start in the U.K.—announced that it would stop issuing new loans in Spain. The Spanish version of the company’s website says that it continues to monitor ongoing loans so investors receive monthly payments for the projects they have invested in.
A spokeswoman for Funding Circle said the company continues “to look at new geographies, but we have no immediate plans for expansion and are focused on building a successful business here in the U.S., U.K., Germany and the Netherlands.” She declined to comment further.
Without divulging too many details, a handful of U.S.-based alternative financiers say they continue to look at additional markets outside their home turf.
For its part, SoFi has announced plans to expand to Australia and Canada this year. The company’s chief executive has also talked about European and Asian expansion in the future.
On the international front, Affirm is currently evaluating markets that make the most sense for its business model, Metcalf says. Affirm is also looking at possible acquisitions in developed markets such as the U.K. and Sweden as well as considering “serious investment” in new distribution models in southeast Asia, Mexico and Brazil, he says.
LendingClub, meanwhile, last November announced a significant partnership with National Bank of Canada and its U.S. subsidiary Credigy. The agreement provides for Credigy to invest up to $1.3 billion over the subsequent twelve months. A spokeswoman for LendingClub said the company has nothing to share about plans for international expansion.
As for OnDeck, Young says the company is exploring a number of options; it’s a matter of finding markets where gaps exist in small business lending and where potential customers have a willingness to borrow online.
“We want to be the preferred choice for small businesses. It’s not necessarily defined geographically,” Young says. “We review markets all the time. There are a number of markets that are interesting to us.”
Transcript of the CFPB hearing from earlier today courtesy of: https://www.captionedtext.com/client/ViewTranscript.aspx?EventId=3263140&ParticipantId=ad67099c-16c3-40cf-885a-7e0a1468a30f
Event ID: 3263140
Event Started: 5/10/2017 1:50:29 PM ET
Please stand by for real time captions.
We are delighted that you were here and we are delighted that you are in the city of Los Angeles. We are grateful to have the Honorable Mike fewer. City attorney for the city of Los Angeles. The Honorable Commissioner Jan Lynn , Commissioner of business oversight and California’s Attorney General. We are grateful to be representatives of the small business Association and the Federal Reserve.
That we tell you about what you can expect today. You will hear from city attorney Mike fewer and then Commissioner Jan Lynn and the attorney general. You will hear from the consumer bureaus director Richard Cordray. Following the remarks David Silberman the acting deputy director and associate director to four markets and regulations will frame the discussion with the panel of experts. There will be an opportunity to hear from members of the public. Today’s field hearing is being live streamed at Today’s field hearing is being live firstname.lastname@example.org.
Let’s get started. Los Angeles city attorney Mike Fuehrer has long been one of California’s lighting — leading lawmakers. As his chief since July 2013. He has brought an innovative problem-solving focus to the office that combines tough and effective execution with creative initiatives to improve public safety and the quality of life throughout the city. His efforts have also sparked change throughout the state and the nation. Under the city attorney’s broad authority Mister fewer has secretly — frequently secured. He announced in historic settlement against Wells Fargo for opening unauthorized customer accounts. He and the CFPB joined forces to get restitution for its customers, put protections and place and in penalties. Previously he served as majority policy leader and chair of the judiciary community worry — he authored the homeowners Bill of Rights. You may now have the floor. [ Applause ].
Thank you. The introduction was longer than remarks. That was generous. Thank you. I want to on behalf of all of us welcome our director Richard Cordray to our city. Just a word about the collaboration. I was extremely proud of the work of our office, some of whose lawyers are here with us today. In pursuing the Wells Fargo littered — litigation. That aesthetic evolution — catalytic affect. And want to underscore, there is no way that litigation could have had the profound impacted has had without the deep collaboration with the consumer financial protection Bureau under Mister Cordray’s leadership. We also worked with the leader of the office of currency. This collaboration was essential. In that regard, I must say while we’re here in Washington, their efforts underway to either diminish the authority of the CFP be or eradicated altogether. I have the opportunity to be in Washington including discussing how we should work together to ensure the continued viability and strength of the CFPB. Director Cordray leadership has been remarkable and it’s been instrumental in protecting consumers across the nation. I would say, anybody who cares about consumer protection should be standing up and loudly denouncing efforts to undermine the CFPB. I did a radio interview this morning cuppa I did get some applause. [ Applause ] that applause was for Richard and his team. I was interviewed this morning on the radio and I was asked, the purpose of which was not about this but the commentator shifted to what was happening here today and said to me, do you think in light of what’s happening in Washington, the attacks on the CFPB , is a Trump administration to business friendly? Given this is the focus on small business, I want to focus on that. We should all be business friendly. That is a key role for government to play. Being business friendly does not mean protecting businesses violate the rules, at the expense of consumers. Being business friendly does not mean protecting businesses who violate the rules who are in competition with those who play by the rules. That’s what being business friendly means, supporting businesses who are playing by the rules to do better. Which is why I am pleased to be here, as we focus on access to capital and other issues that focus on small businesses, especially those in disadvantaged areas of our nation. With this is my special assistant, Capri Bad Axe. — Mattox. Capri is in charge of my office outreach to the business community. We are working to connect businesses that are trying to improve and expand and hire more people, especially in disadvantaged areas to capital and training on how they could do better. I am eager to hear what more we need to know and what more we need to do, to assure that small businesses can succeed, especially in neighborhoods of our city and our nation, where we should be compelled to do better. Everybody who wants a job should have access to a job. Our small businesses are the way that we will assure that an America, we are a nation where the dignity of work is elevated to a place where it needs to be. Thank you Mister Cordray. You will be hearing from two other partners with who I am extremely proud to share this room today. I am eager to learn more today so we can do better. Thank you very much.
Map grant — [ Applause ]
Thank you for your remarks. Our next speaker is Jim Leonard 01. — Commissioner Jan Lynn . She was appointed in 2013 and previously’s served as the Commissioner as the Department of corporations appointed by the Governor in December 2011. Part two that Ms. Selin was that — Commissioner Owen was a manager at Apple ink from 2009 two 2010. Vice president at J.P. Morgan Chase, state director of government industry affairs at Washington Mutual from 2002 through 2008 and executive director of the California mortgage bankers Association from 2000 until 2002. She also has extensive experience in public service. She was acting commissioner of the Department of financial institutions from 1999 until 2000 after serving as deputy commissioner from 1996 to 1999. She also said as exactly director of California investment network program after serving several years as consultant to the Senate, state banking community. Commissioner Owen you have the floor. [ Applause ]
Every time I hear that introduction, I think holy moly I am really old. I will spend a few minutes to think my partners, Mr. Feuer, the attorney general and my partner in crime Director Cordray. I want to give you some data. We have done some data collecting. We get some information that I think is important for you to look at as we discussed this issue the Department of business oversight overseas over 360,000 licensees from banks, credit unions, mortgage lenders, pay day lenders, securities brokers, dealers and investment advisers. Also, we supervise franchisees and we approve proposed state securities permits. Our job is daunting, exciting and rewarding. With my partners, it is truly a challenge I wake up and want to do every morning. In 2015, California’s GDP surpassed $2.5 trillion. Hence, were the six largest economy in the world. That same year our non-bank licensees reported to us that they originated 400 that they originated 412 that they originated $412 billion in loans, in California. That’s more than the total of 35 states GDP. These non-bank lenders make more than 78% of their loans to commercial enterprises. Most of which are small businesses. California is home to more than 3.8 million small businesses. These firms employing 50% of California’s workforce and drive our economy. Our small businesses are respected globally for their innovation and their fortitude. The vast majority employee 500 or fewer workers and collectively make up 99% of all the businesses in California. Two years ago the U. S. small business administration reported California leads the country in several different categories. The number of small business employees, 6.5 million. The number of self-employed individuals, 2.5 million. The number of self-employed minorities, 1.1 million. The number of self-employed women, 900 973,000. According to the U.S. Census Bureau, California leads the nation with 1.6 million minority owned businesses. LA County leads the nation with 55% of local businesses, minority owned, more than half of those by Latinos. California is also proud to be the nation’s greatest number of women owned businesses, nearly 1.5 million. Women owned firms employing more than 1 million people and generate more than 200 222 $222 billion in annual revenue. Women-owned firms is larger than the number of employees, because many are one-woman ventures and many women owned more than one firm or multiple firms. To assist them, the governor created an office to service California’s single point of contact for economic development and job creation efforts, especially for small businesses. Affectionately, this department is called goby is. — Last week to Governor proclaimed May to be the small business month in California. California’s is the nation’s leading market for online landing. We are home to headquarters for several most prominent players in the sector. Lending club, Prosper, a firm, funding Circle and others. I bring up online lending because from 2010 until 2014 companies reported online consumer and small business financing activity increased over 900% to $2.3 billion. State regulators are getting a bad rap. The industry says that a state-by-state regulatory system is too costly and carries too much compliance risk and inhibits innovation. State regulators do not totally agree with these criticisms. I will tell you, we do acknowledge the companies have some legitimate concerns about the state system and we are moving to address them. As the state’s main financial regulator, let me tell you what I expect from the sector as it stands today. In many ways, we treat them no different than any other licensee we expect the same from all of our licensees, compliance transparency accountability, sound financial practices and most important, fair and honest treatment of our consumers. No one should think that they can gouge small business borrowers are any consumers, because they operate online. I know the CFPB agrees that regulators will work hard to keep up with technological innovations and consumer protections will be as sharp and clear as ever. As the bank regulator or financial services regulator, I am committed to serving the needs of California’s small business community and to being a partner to small business stakeholders in California. We welcome your feedback. Call us, call me. Let me know what you are thinking and what we can do to help. Thank you. I look forward to a fruitful day. [ Applause ]
Thank you, Commissioner Owen for the generous remarks. Our next speaker is Xavier Becerra. He is the 33rd attorney general of the state of California and is the first Latino to hold the office in the history of the state. The state’s chief law enforcement officer, Attorney General Xavier Becerra has decades of experience serving the people of California through appointed and elected office. He has fought for working families, the vitality of Social Security and Medicare programs, and issues to combat poverty among the working poor. He is also championed the states economy by promoting and addressing issues impacting job generating industries such as healthcare, clean energy, technology and entertainment. Attorney General Xavier Becerra previously served 12 terms in Congress as a member of the U. S. House of Representatives. While in Congress, Attorney General Xavier Becerra was the first Latino to serve as a member of the powerful committee on Ways and Means. He served as chairman of the house Democratic caucus and was ranking member of the Ways and Means subcommittee on Social Security. Prior to serving in Congress, Attorney General Xavier Becerra served one term in the California legislature as a representative of the 59th assembly District in Los Angeles County. He is a former Deputy Attorney General with the California Department of Justice. The attorney general began his legal career in 1984, working in the legal services offices representing the mentally ill. Attorney General Xavier Becerra, you have the floor. [ Applause ]
I have to make sure I take her wherever I go. I love the way she pronounces my name, Xavier Becerra. I don’t even say it that well. I know that Director Cordray hired her for more than the fact that she can pronounce my name . We are thrilled that you are here representing us on behalf of the consumer financial protection Bureau on the West Coast, the forward leaning movement of America. I want to say a few things, I have to cheer the man who is our quarterback when it comes to providing consumers, whether you are a small business person, an immigrant family trying to navigate your way through this country or you are a recent graduate from college, hoping to open up your rings. Richard Cordray is our quarterback. We should do everything we can to make sure he can take the team down the field and scored touchdowns all of the time for the men and women who want to make America work. If Richard Cordray succeeds as our director of June 20, he is keeping doors open and that’s all we need. You talk to almost anyone and all they want to know, is there some predictability behind what they will do whether it’s taxes, regulations, the business climate — if they have a way of knowing how to get there they will do it. It’s the uncertainty that causes the real difficulties for small businesses. Richard Cordray is a guy who make sure that that door remains open and we can all shoot for that point on the horizon. We have an obligation to help our quarterback comic he has been spectacular even under some of the most difficult circumstances. I am thrilled that Mike Feuer is my partner in crime. That word is used often, in this case it is really true. I love committing crime with Mike Feuer. He knows how to do it well. We are very fortunate in Los Angeles to call him our city attorney. He is served us in so many different places. He does it so well. Whenever I am with Mike Feuer, I feel like the marathon runner that just came in the top 10 and Mike is the Ironman contestant who does the triathlon like nothing and just passes me by. It’s hard to keep up with them, he is the best. Commissioner Owen, thank you for what you do for giving us the perspective so that we need to know why California is so important not just to us but to the nation. You have made it clear why the numbers count, but why the people make the numbers count. I just want to mention the micro, it is this, it’s you if you have a business, if you do spend — defend small businesses or people like my parents who started their own business, not knowing what they were getting into. My father had a sixth grade education my mother did not come until she was a teenager. They did it. They knew the micro of starting a business. They bought a small house and they rented it and then they bought another and rented it. Before you know it, they were making more in retirement than when they were both working. I consider myself a small businessperson. Island for my parents. I know this, I don’t have time to navigate everything going on in the business world. It’s like “Ghostbusters”, who are you going to call? When it comes time to making sure your business is doing okay, Consumer Financial Protection Bureau and Richard Cordray is who you call. We need them to be there for us every step of the way. The Attorney General’s office will do everything to partner with the consumer financial protection Bureau with our partners at the state level, Commissioner Owen and all those at the state who work on behalf of the people and with our city attorneys and district attorneys who try to protect does daily. We need your help. This is where these types of workshops and forums are so important. The get to connected to the people who are willing to help. My job is to enforce the laws for 40 million bill bill — people in the state of California. We have a very robust consumer protection division in the Attorney General’s office. One of the people who are just hired to be my special assistant, dealing with the issues involving consumers is Ellie Bloom, whom I stole from the Consumer Financial Protection Bureau. Yes. She is here. I also have Alyssa I had of the external affairs, so we can reach out to people and find out what you need us to know. Under the Constitution of the state, I have the authority to begin independent investigations of any activity where Californians are impacted and harmed. I intend to use that authority to the hilt. On behalf of the people of this country, who are like my parents, who worked very hard and were able to establish a business and now I’ve done so much to make it — in the past college was unknown to the family and to make it in the past, that forever we will only dream of being able to do things for our kids and make it something that’s in the past to believe like my father as a young man could not walk into a restaurant because of a sign that said no dogs or Mexicans allowed. That is all in the past. California’s forward leaning. One of the reasons we have succeeded is because we do not stop, we do not look back, we understand this is a tough place to do business. Our environment makes it difficult for businesses to establish her, our air and water are tough to keep clean. We must impose requirements on the gasoline we pump into our cars on how much we can put into this LA basin before gets a polluted your kids cannot go out and play or they get asthma. 40 million people, that is tough to organize. All of that we do, we’re high-cost state and we are high quality as well. That requires a lot of effort on the part of all those willing to work with quarterback Richard Cordray to make sure we keep those doors open. That’s our job. No that you got the Chiefs on form is — chief law enforcement officer of Los Angeles with you, the person the Governor has appointed to make sure businesses have the opportunity to have those doors open and Commissioner Owen with you. Know that the Attorney General is willing to work with them and with you but most importantly, I will do everything I can to make sure that regardless of Washington we don’t abandon our quarterback at the can — Consumer Financial Protection Bureau . We know what success means when you have Richard Cordray fighting for you. We won’t stop scoring and we will work with Richard Cordray to make sure everyone in America benefits the way California has by having a forward leaning policy in the way we do with consumer issues and help our people. Thank you, Director Cordray. They think all my colleagues and I thank you for knowing it was important to be here this morning. Have a great day. [ Applause ]
Thank you, Attorney General Xavier Becerra. I am now extremely pleased to introduce Richard Cordray. Prior to his current role he led the CFPB’s enforcement office, he served on the front lines of consumer protection as Ohio’s Attorney General. In this role he recovered more than $2 billion for Ohio’s retirees, investors and business owners and took major steps to protect its consumers from fraudulent foreclosures and financial predators. Before serving as Attorney General, he served as an Ohio State Representative, Ohio Treasurer and Franklin County Treasurer. Director Cordray . [ Applause ].
Thank you. My football career peak in the seventh grade, I do remember Vince Lombardi saying that when the going gets tough the tough get going. It’s great to be here with three of our closest and most productive and for me personally, our most dear partners anywhere in the country. I think them all for being here. I think them and their teams for the work they have done, are doing and will continue to do with us to stand up for Americans who expect and deserve the right kind of support and protection for their government officials. Thank you. Thank you all for coming it’s good to hear — be here today the Consumer Financial Protection Bureau is announcing an inquiry into ways to collect and publish information about the financing credit needs of small businesses. Especially those owned by women and minorities. We are aware of the role they play in the our lives. Small businesses dropped the — drive the economic engineering. It is estimated they’ve created two out of every three job since 1993 and they now provide work for almost half of all employees in the private sector. We perceive large gaps in the public’s understanding of how well the financing credit needs of these entrepreneurs are being served. As you probably know, the Congress provided the consumer bureau with certain responsibilities in the area of small business funding. There is a strong logic behind this. When I served as the Ohio Attorney General we recognize the need to protect small businesses in nonprofits by accepting and handling complaints on their behalf, just as we did for individual consumers. And approach that proved to be very productive. The line between consumer finance and small business finance is quite blurred. We heard that at a roundtable this morning with community and consumer advocates. Or than 22 million Americans are small business owners and have no employees. According to data from the Federal Reserve, almost 2/3 of them rely on their business as their primary source of income. This is embedded in many people’s lives. Congress has charged the consumer bureau with the responsibility to administer and enforce laws including the equal credit opportunity act. Unlike others, it governs not only personal learning but some commercial lending as well. We have now conducted a number of supervisor examinations and small business lending programs at financial institutions. Through that were learning about the challenges they face in identifying areas where risk may exist and were assisting them developing the property to manage that risk. In the Dodd Frank Wall Street Reform and consumer priest — protection act Congress took a further step to learn more about how to encourage and promote small businesses. To determine how well the market is functioning and facilitate enforcement of the fair lending laws, Congress directed the Bureau to develop regulations for financial institutions that went to small businesses, to collect information and report. The request for information will be released and asks for feedback to help us understand how to carry out this directive in a way that is careful, thoughtful and cost-effective. We have considerable enthusiasm for this project. In my own case, I’ve seen how small business financing can have a number — economic impact. I will tell you a story, when I served as a treasure of Ohio, we had a reduced interest loan program to support job creation and retention by small businesses. The way the program worked was that the state could put money on deposit with banks at a below market rate of interest in this deposit will send link to the same size loan to a small business and a correspondingly below-market rate. This link to posit has been authorized more than 20 years earlier but it had fallen into the disuse. At its core, the program maintenance. Small businesses are often in need of financing to update and expand. Often not at large amounts of money, if they can get an expensive financing they can fertilize their ideas for growth and be more successful. We diagnosed this program and found after its initial success it had become too bureaucratic. We heard from both banks and businesses that the program which was the paper-based was so slow and cumbersome, nobody wanted to bother to use it. We changed it. We put the process online, rebranded it and made specific commitments to those who wanted to participate. We told them they could fill out an application and less than 60 minutes and promised they would have a yes or no answer within 72 hours. That was not easy. It required very close coordination with the bank that took heart. We did it and the Grow no program took off. Only $20 million was advocated but in two years we deployed more than $350 million helping 1500 small businesses create and retain 15,000 jobs across the state. It was also exciting to see how the businesses were able to use the loan funds. I can recall a construction business that needed a loan to about — bike a piece of equipment. They got the money, the got the equipment and they thrived. I recall a manufacturer that needed money to turn their factory sideways to utilize more space and employ more people. We found the put, revenue and jobs. I recall a company in Western Ohio that started as a caterer and begin to make their own tents for events. They recognize they might succeed is tentmakers and needed financing to bid on a project with the U. S. Defense Department. We got them that loan, they got the bid and they were named as one of the 500 fastest growing businesses of the year. The moral of this story is business opportunity, especially those for small businesses often hinge on the availability of financing. People have immense reserves of energy and imagination. Nowhere is that more true than in the state of California. Human ingenuity is the overwhelming power that allows human beings to reinvent the future and make it so. These forces unleashed what Joseph Schumpeter called the gales of creative construction a constantly mold our economic life. Innovation has sharpened our nations edge for generation after generation. When credit is unavailable, creativity is stifled. To make the meaningful contributions that are capable of making to the economy, small businesses particularly women and minority owned need access to credit. Without it they cannot take it vantage of opportunities to grow. With small businesses so deeply woven into the nation’s economic fabric it is essential that the public along with small business owners themselves can have a more complete picture of the financing that is available to this Key Center — sector. We are releasing a white paper today that lays out the limited information we currently have about key dimensions of the small business lending landscape. According to census data and depending on the definition use, there an estimated 27,600,000 small businesses in the United dates. We estimate that together they access $1.4 trillion, that’s trillion not billion in credit. Businesses owned by women and minorities play an important role in the space. Women-owned businesses account for over one third, 36% of all non-farming private sector firms. The 2012 survey of business owners, the most recent indicates that women-owned firms employed more than 8.4 million people and minority owned firms employed more than 7 million people. Those are huge numbers by comparison in 2014 fewer than 8 million people were employed in the entire financial services sector. That was the big paragraph on the facts and figures, I was inspired to get through it by you Commissioner Owen. When small businesses succeed they send ripples of energy across the economy and throughout our communities. 2013 study by the Federal Reserve Bank of Atlanta found that counties with higher percentages of the workforce employed by small businesses showed higher local income, higher employment weights and lower poverty rates. In order to succeed they need access to financing to smooth the cash flows for current operations, meet contingencies and invest in their enterprises to take advantage of opportunities, as they arise. Another study found the inability to obtain financing may have prompted one in three small businesses to trim their workforces and one in five to cut benefits. Unfortunately, much of the available data on small business lending is to dated or two spotty to paint a full picture. Especially, those owned by women and minorities. We do not know whether certain types of businesses or those in particular places may have more or less access to credit. We do not know the extent to which mall business lending shifting from banks to alternative lenders. Nor do we know the extent to which the credit constraints that resulted from the great recession persist and to what extent. The beige book produced by the Federal Reserve is a survey of economic conditions that contains huge amount of anecdotal information about business activity around the country. It has no systematic data on how small businesses are fearing and whether they are being held back by financial constraints. Given the importance of small businesses to our economy and the critical need to access financing if there are to prosper and grow the Porton to fill in the blanks and the how-to’s on how they can engage. That is why Congress required institutions to report about applications in accordance with regulations to be issued to the consumer bureau. That is why we are here today. The inquiry we are launching is the first step towards crafting this mandated rule to collect and report on small business lending data. To prepare for the project we’ve been building an outstanding team of experts in small business lending. We are enhancing our knowledge and understand based on our equal credit opportunity act complaints work with small business lenders just helping us learn more about the credit application process, existing data collection processes and the nature and extent and management of fair lending risk. We have learned more work on the reporting of home loans under the home loans mortgage act which has evolved considerably. At the same time, we recognize a small business lending market is much different from the mortgage market. It’s more diverse in its range of products and providers which range from large banks and community banks to Marketplace lenders another emerging players and the Ventech space communities play an outsized role in making credit available. Unlike the mortgage market, many small business lenders have no standard underwriting criteria or widely accepted models for scoring. For these reasons and more we will proceed carefully as we work toward meeting our responsibilities. We will seek to do so in ways that minimize the burden’s on industry. I request for information released focuses on several issues, we wanted to determine how best to define small business for these purposes. Despite the importance of these firms to our economy, the surprisingly little consensus on what constitutes a small business. The small business administration and overseeing federal contracting sometimes looks at the number of employees, receipts and applies different thresholds for different industries. For our part the consumer bureau thinks about how to put — develop a definition that’s can this — consistent and can be tailored to the purposes of collecting data. We looking at how the lending industry define small businesses and how that affects the credit application process. Having this information will help us develop a practical definition that advances our goals and aligns with the common practices of those Inland to small businesses. Second, we want to learn more about where small businesses seek financing in the kind of loan products made available to them. Our research tells us term loans, lines of credit and credit cards of the all-purpose products used most often by her small businesses. They make up an estimated three fourths of the data in the small business finance a market, excluding the financing of merchants for service providers extend to their customers to finance purchases. We want to find out if other important financing sources are being tapped by small businesses. Currently we have limited ability to measure accurately of the prevalence of wonders in the products they offer. We also want to learn more about the roles that Marketplace lenders, brokers, dealers and other third parties may play in the application process. At the same time, we are exploring whether it’s specific types of institution should be exempt from the requirement to collect and submit data on small business funding. We are seeking comment about the categories of data on small business lending that are currently used, maintained and reported by financial institutions. In the statue, Congress identify specific uses of information that should be collected and reported. Include the amount and type of financing applied for, the size and location of the business, the action taken on the application and the race, ethnicity and generate — of the owners. The reporting of this information would provide a major boost in understanding small business funding. At the same time, were sensitive to the fact that various institutions may not currently be collecting and reporting all of this information. We understand that the changes imposed will create implementation and operational challenges. We will look into clarifying the precise meaning that some of these require dellavedova — data elements to make sure they are understand and reported. We will be considering whether to add a small number of additional data points to reduce the possibility of misinterpretations or incorrect conclusions working more limited information. To this and were seeking input on the kinds of data different types of lenders are currently considering in their application process as well as any technical challenges posed by collecting and reporting this data. We will put all of this information to work and think carefully about how to fashion the regulation mandated by Congress. Finally come of the request for information seeks input on the privacy implications that may arise from disclosure of the information that’s reported on small business funding. The law requires the consumer bureau to provide the public with information that will enable communities come a government entities and creditors to identify community development needs and opportunities for small businesses come especially those owned by women and minorities. We are also authorized to limit the data dismay public to advance privacy interest. We will explore options to protect the privacy of applicants and followers and the Compostela — confidentiality. The announcement we are making today and the work we are doing cure reflect central tenants of the consumer financial protection Bureau. Were committed to evidence-based decision-making. We aim to develop rules that need our objectives without creating unintended consequences or burdens. We went to see a financial marketplace that offers fairness an opportunity not just to some, but to all. The marketplace it does so without regard to race, ethnicity, gender or any other element of our fabulous American mosaic. Small businesses are powerful they supplied jobs, teach skills and service backbones of the community. We need to meet obligation to develop data that will shed light on their ability to access much-needed financing. It is essential to their growth and prosperity and therefore to the growth and prosperity of us all. What Cicero observed an agent Rome, still holds true today. He said, nothing so cements and holds together all the parts of our society is faith or credit. Our communities depend on both of these precious things just as much today. As we launch this inquiry want to remind you that we value the feedback we get. We take it seriously, consider carefully and integrated into our thinking and our approach as we figure how to go forward with his work. We ask you to share thoughts and experiences to help us get there. We thank you for joining us here today. Thank you. [ Applause ]
Thank you Director Cordray. I would now like to invite the panelists to take the stage. While they are doing so, I will introduce them. David Silberman is the bureaus act in director and associate director to her. Cheryl Parker Rose Sirs at the assistant director for the bureau’s office of intergovernmental affairs. Grady Hedgespeth serves as the assistant director for the bureau’s office of small business lending markets. Our guest panelist include Elba Schildcrout , East Los Angeles Community Corporation . Makin Howell , Main Street Alliance . Josh Silver, Kate Larson , U.S. Chamber of Commerce . Todd Hollander , Union Bank and Robert Villareal , CDC Small Business. David.
Thank you. I can still say good morning but just barely. I am David Silberman the acting deputy director and associate director for research marketing regulations. It’s a pleasure to be here and share this portion. As you’ve heard, we will hear from a number of respected panelist consumer advocates and industry participants. Each panel member will give us some background and provide perspective. We will then post questions to our panelist and engage in discussion. The panel discussion will be followed by public testimony. Before we begin, let me frame the issues we will talk about. Is Director Cordray noted, and as we discussed today in the white paper we released. Small businesses play a key role in fostering community development and fueling economic growth both nationally and in their local communities. To do so, these businesses and particularly women and minority owned be fair and equal access to credit to allow entrepreneurs to take advantage for the opportunities for growth. As the director explained in section set 10.7 one of the Dodd Frank act Congress amended the equal credit opportunity attack to require institutions to compile, maintain and report information concerning credit applications made by small businesses. Congress directed the bureau to it — issue a regulation to govern and report. The purpose is twofold, to facilitate enforcement of the fair lending laws and second to enable communities, governmental entities and creditors to identify needs and opportunities of women-owned, minority owned and small businesses. Is Director Cordray explained were in the early stages and were focused on outreach and research. Today’s hearing and the our five we issued our them Porton steps as we seek to enhance our understanding of the 1.4 train dollars small business financing to discharge our abilities. As context, I will provide — invite our panelist. They will each of 10 minutes for a statement and we will moderate a discussion with the panelists. We will start on my far left, Elba Schildcrout , East Los Angeles Community Corporation .
I am privileged to be here. I’m thinking of my mother on Mexican mothers today. I am privileged to be here and while we came here from Guadalajara. At East Los Angeles Community Corporation , we advocate for economic and social justice in the greater LA area by building grassroots leadership, developing affordable housing in providing access to economic development opportunities for low and moderate income families. In 2013 we began working with local businesses to preserve the vitality of the small business community. Our commercial corridor project is part of a strategic effort towards responsible community economic development by developing leadership connecting Rick and Morty businesses with technical assistance and hosting monthly meetings. We are empowering our business community to take ownership and be involved in their community. In 2015, we held a shared vision of economic stability and inclusive 50 for all residents including two brick-and-mortar businesses, street vendors and mariachi groups. To help them thrive, they need new resources such as micro-lending and lines of credit. Many rely on friends and families limited resources for loans. The also need case management to ensure they can make use of resources that already exist, such as technical assistance for writers and others doing business to support — business support services. It is through this relationship building with small business owners who are primarily Latino, immigrant, and women that we have learned of their needs and challenges. Some of these challenges have been difficult in getting credit from banks, especially small loans under $250,000, some of these owners need anywhere from $5000-$10,000 to get started. They also need data transparency to show which lenders are making loans and to which groups and where they are being made. We think things should partner and do joint outreach and address specific needs such as language access. The data should be segregated for Latino and other groups. Small business owners need greater protections to prevent discrimination. We’re excited and supportive of tran 20 ‘s efforts — tran 20 — we’re excited and we thank you.
Makini Howell , Main Street Alliance .
Hello. I am a member of the Main Street Alliance of Washington coalition of 2000 small business owners. I have been running my family’s business for 13 years. We have been in business for a total of 40 years, were a food service. I am six vegan restaurant concepts in Seattle. I employ over 40 people. I offer health coverage, I start my minimum wage at $15 an hour. I have grown our family business from grossing $200,000 in last year we close to $3 million. I did nothing without a bank loan. When I went into apply for a loan, I don’t know if it was because I was a woman or if it was because I was black. It could be any number of things that are risks for a banker. I understand when I speak to consultants that they had no concept of why it wasn’t doing stake and people would ask if I would ask fish. My menu is 100% plant-based. Anyone of these things I can understand would be a reach, not only did we succeed but I toured as Stevie Wonder’s personal chaff — chef in 2015. Nothing was possible without lending. We have to change our understanding around what can be successful. As opposed to framing it is let us collect data and let some well deserving minorities and women in, people of color and women are the majority of people that are providing jobs. They are the majority that are small business owners. Bankers and banks have to change their framing around who is deserving and who actually can provide jobs for the community. Small businesses are the engine of the economy. The engine of the economy currently is being run by people of color and by women. That Pinkie Master change. That lending will then change along with what is happening in Washington. Someone told me when you go into a bank they decide right away whether they will lend to you. That I dress well enough, Amite fallen off, — the change has to come from understanding who helps to run the economy. I would still love to get a small business loan. I haven’t tried because they don’t need money and I am 13 years in. I am attractive to a lender at this point that I don’t need money now. I needed money then. I won’t ask a bank for money now, in order to get to where I am, I had to use predatory lending, cash advances, my father gave me $10,000. I did get one from a community lender that took me months of rewriting my business plan to get that. It’s a challenge and I feel I would’ve been a $6 million company if I had gotten the lending necessary at the beginning. I had the education and the support necessary from the banks. That’s my story. Thank you.
Thank you. Josh Silver.
Good morning I’m senior advisor of the National Community Reinvestment Coalition. I thank you for this hearing today. There are some lending’s those lenders on the panel that may be encouraged to give you a loan after this. I think there are well-intentioned lenders. Last week USA Today reported a survey showing improved small business confidence. Things are looking up for small businesses after the great recession. Not so fast. The survey was sparse and on which businesses were surveyed. Research shows that women minority owned and very small-businessess experience difficulties growing because barriers accessing credit. Considered the following, women-owned firms are significant force but they remain small. 90% of women-owned small businesses have no employees other than the owner. Part of the difficulty women faces lack of credit. Just 5% of women-owned businesses use bank loans to start their businesses compared to 11% of mail and businesses. Minorities also faced difficulty starting and growing a small business. Nonminorities are twice as likely as minorities to own employer businesses. If minorities owned businesses at the same rate as nonminorities, our country would have 1 million additional employer businesses and more than 9.5 million additional jobs. Surveys have found that African American small businesses are more likely than a why don’t business to not apply for credit, due to fear of rejection. And CRC researchers from the smallest businesses, those with revenues below $1 million at the most trouble accessing credit. In 2010, 8% of these businesses received loans compared with 20% of all small businesses. Access to credit is critical yet inequalities in access contribute to overall inequality. NCRC found in a report that in 2010, the business funding let an economically distressed counties in Appalachia was 44% of national rates. The Woodstock Institute found that in Los Angeles and San Diego, businesses and minority census tracts were 31% of all businesses but they received only 21% of the loans under $100,000. A variety of reasons exist for these disparities, some due to the characteristics is also do two on — discrimination. In section 10.71 of the Dodd Frank act it will be on — they will draft a predecessor appearing in bills in the future. It requires data collection from lending institutions regarding demographic characteristic of small businesses including race and gender into report the data publicly. The active data collection and dissemination is a powerful motivator for lenders to increase responsible lending to underserved businesses. As Director Cordray says, former justice Louis Brandeis talks about sunlight and the electric light of data disclosure. No lender wants to be highlighted for shirking any part of the community and they want to get up to speed with the lenders that are doing a better job. Use data for a spur of competition. We have saying that data drives a movement for economic justice. In the arena, better data will respond — result in more employment and more wealth building in underserved communities. Isn’t that what we are about? Making capitalism work. Thank you.
Thank you. Kate Larson, U.S. Chamber of Commerce Good afternoon. As a proud Trojan I’m happy to be here today and LA. I would like to thank the Bureau for holding this hearing on this important issue and especially to Grady for their outreach over the past few months. They have been fantastic. We are excited to engage with them on the request for information. As previously mentioned, I’m the director at the U.S. Chamber of Commerce , the largest business Federation representing more than 3 million companies. We represent all small businesses and lenders. We have a unique perspective of seeing the entire picture of small business market and how it affects the end-users. More than 96% of business come when he said fewer than 100 employees. Small businesses are the lifeblood of our economy. Not only to produce goods and services we depend on but to create jobs, provide stability to millions of Americans. Remarkably, 28 million mainstream institutions account for over half of the sales of the United dates, 55% of all jobs in the country and are responsible for 65% of all new job creation. I’m sure you can all recite these data. It is hard to overstate the importance of credit for small businesses and support their inventory, open locations and hire more employees, manage downturns and otherwise push forward. We asked the Bureau to conduct a comprehensive sound report on potential barriers to small business lending in the United it’s including regulatory burdens that it may fully understand the credit products used by small businesses, inform forthcoming rulemaking to ensure it promotes, not inhibit small business funding and propose a tailored rule to include not only necessary business and products but also fulfilling the well-meaning purpose of statute. We hope the SPA will also lend their expertise in this area. Unfortunately, small business lending is not fully recovered from the great recession. The most recent small business credit survey that was mentioned jointly conducted by the Federal Reserve banks found cash flow remains a challenge for small firms, only half of applicants were seen — received financing and 18% received nothing. 32% had to delay expansion as a result of the shortfall. 21% had to reach into their personal finances. This is not okay. Much of this and I know we will all have differing opinions. We think it’s due to post crisis over regulatory overhaul and increasingly risk adverse financial institutions, that have to meet safety and soundness and know your customer requirements when issuing alone. Asked — as we begin the fact-finding process we hope to consider the true spirit of the statute and include in the definition to be tailored to only the most vulnerable populations, specifically the SBA definition of 500 employees does not seem small at this juncture. Every small business has different needs and approach credit differently. This market is different than the mortgage lending and data collection is not close to the home mortgage disclosure act. It’s a misnomer. The needs are different and small business lending is a complex market with many sources. Depending on the needs of the small business, owners may turn to friends and family, home equity lines of credit, credit cards, SBA loans,’s private loans or a combination of multiple sources. Larger and middle-market firms get more complicated. This is why the definition needs to be tailored. Employee training will be incredibly complicated, given the sources of business credit. Home-equity credit officers issuing a HELOC, flight attendants and a credit card, a trucking company offering leasing for trucks, retail clerks offering branded credit cards, they may not understand they will have to capture small business lending data. Without a firewall, — it will be difficult to create a firewall between the employee accepted credit application and the one making the underwriting decision. Without a firewall institutions will violate the equal credit opportunity act. That will be more difficult at smaller institutions. Business representatives applying for loan, if this applies to more than just the owner of the business, may not have the information to create confusion and prolonged credit application. They may not know how much they have for annual revenue or the other data points. It is unfeasible for lenders to know if the business changed in status. That is a hurdle. It will be impossible for institutions to report individual credit transactions. My wonderful mother who drove 2 1/2 hours to be here is a small business owner. If she’s buying something on a credit card for her business, is that also going to be the same thing as home goods? That is difficult way if you are going credit by credit transaction. In conclusion, we think the Bureau for soliciting information but stressed the importance of the Bureau conducting a sound, robust study on the roadblocks inhibiting small business lending, including potential regulatory considerations. To understand where small businesses are attaining credit and where they are not, ensure the rulemaking will not curtail the sources and an environment where access to small business credit is constrained, it’s imperative we energize that marketing encourage growth. I appreciate the opportunity to stuff I and thank the Bureau for its approach. Look forward to working together and I’m happy to answer any questions.
Thank you. Todd Hollander from Union Bank.
Hello. I am also currently serving as the chairman for the small business community for the consumer bankers Association and a serve on the California bankers Association. I’m proud to represent all the groups in this testimony. We wish to express our appreciation for the collaborative and transparent manner in which the CFPB — tran 20 is under Katy — undertaking these rules. The environment, private lending groups and lenders share a common goal. We want to provide loans to small businesses to help generate jobs, tax revenues and economic growth and prosperity. Lent to all market segments without bias or discrimination enable identification of business and community development needs, ensure regulatory has the ability to hold lenders comfortable and avoid saddling lenders with rules that are unnecessarily costly to implement and execute and that could generate misleading data or curtail access to needed capital. In terms of the current small business lending environment the CBA seen signs of improvement. Members say charge-offs and delinquencies have decreased from the great recession and are currently at all-time lows. SBA programs are still vital. In 2016 they had to record your exhausting their appropriation of $30 billion. From the peak in 2008, small business lending saw a steady decline until early 2011. Small business lending has seen sharp decline, while the Elba Schildcrout proved it is still significantly less than prior to the downturn as evidenced by utilization rates. Historically, 40%. I’ve been doing this for almost 30 years, I’ve worked for large banks and I’ve worked for community banks. Between those you could, usually when you loan to a large population you could set your watch by 40% utilization in that population. After 2008, we saw those rates come down and businesses weren’t borrowing what they had available. Postrecession we have more conservative population of business owners then we had going in, they felt the pain of firing people they felt the pain of downsizing and those things. Not only is the lending environment important, the optimism that businesses feel when they are confident, they feel economic growth and borrow and by and do all the things they need to do. Small business credit card utilization is also declined yearly since 2008 but one. New accounts have been well below levels in the past. FDIC numbers reported decline from 2008. In our view, there’s a miss conception that the decline and small business lending. If banks don’t lend money we don’t make money. Our job is to deploy capital and we want to continue to do that. We noted a decline in demand on such loans. The next her to will be the 10.71 action while the CBA supports the goals we believe they should keep in mind that although it mandates the role it is not a can to data collection on others — lending products such as mortgages. The CFPB needs to take great care in the creation of these regulations. We are pleased to see that they are pursuing formal information gathering processes to ensure it is well-informed which will enable it to put forth regulations that the mandated proffering requirements while avoiding costly and burdensome regulations that could be drier cost and less credit available. Specific to the challenges the notion that some old that business lending parallels nicely to residential mortgages is misplaced. Residential lending has the same collateral type and business collateral types can vary. Residential lending has with rare exceptions, consumers as applicants and businesses have all sorts of applicants limited liability sky missiles — sole proprietorship’s, all of these things run the gamut of borrowing and lending business owners have a much shorter and varied duration than mortgages. 3 to 5 years as opposed to 1530 years. — The address of the business had come up with have to unofficial owner the applicants to be debated and have no easy answer. Residential mortgages typically have wanted to borrowers. Small businesses have multiple borrowers, large partnerships, and that also runs the gamut. These challenges must be considered when constructing these loans and it’s daunting and twofold. Determining which data fields to collect that will yield meaningful conclusions from the small business lending community is likely to be more challenging. In light of these issues and current lending trends, to streamline credit processes in order to extend credit with greater speed to qualified applicants, the CBA and member institutions cannot stress enough the importance of a well-balanced to avoid overly extended data requirements. While the CFPB has discretion under 1071, in order to issue fair and achievable rules the result in these meaningful useful data, they may need to request from Congress changes to certain aspects of the rule. Examples of well-meaning definitions or requirements are outlined in the rule, but must be made optimum. First, primary address of the business whether it serves a business minority for the address of the borrowers regardless of the location. The definition of minority women, necessitates the determination of both ownership and earnings allocation. Access to this data including incidental access, unlike the mortgage-based is thickly prohibited for underwriters and in the event they do not those they do have access mandates disclosure to applicants. This is impractical and unnecessary. Thank you for the opportunity to testify and we look forward to continuing to work with you for a successful outcome.
Thank you. Robert Villareal . That’s what I said.
Thank you to all of you. We appreciate you coming to Southern California and Los Angeles. It’s important that you are here, in the city 50% of the businesses are minority owned and in the county it’s 55%. That’s five years old and we know those numbers have changed. It’s a greater amount. I am with CDC Small Business were headquartered in San Diego, that city that gave you that football team that you did not want. [ Laughter ] I am also the Executive Vice President there and the CEO of the bank or small business CDC of California that’s part of the CDC small business family. CDC Small Business finance is a 39-year-old company we are certified development company. We provide the SBA 504 product real estate lending product. We partner with banks such as Union Bank, we as an agent to 40% in the small business only puts 10% down. We’re NSBA community event is under. That is a program that allowed mission based lenders such as ourselves to do is seven a loans — the gentleman to my left created that when he was with the SBA and it’s had a wonderful impact on the small business and minority communities. SBA lenders do lesson 4% of their loans to African Americans across the country. Community advantage lenders to 13% of their loans to Latinos and African-Americans. It’s been a great program. We are the largest organization that does the both — we work in the states of California, Arizona, and Nevada. We are an economic development organization. While we’ve done $13 billion in lending, most of it is been through the commercial real estate area, $2 billion has gone to women, minority and veterans. To our non-504 program we are a micro-lender and at one point we had three different CD FIs and we have done $70 million in lending, particularly in Southern California. I am to the right of the banker. Might take will be different than that industry, I think it’s important that we are here. I think it’s important that those in the audience are here. I look forward to hearing from everyone in regards to why we’re here and why can 71 is important. Let me give you three reasons why I think it is important and why, as a state attorney Xavier Becerra said we need our quarterback and we need his support. Racial discrimination still exists. There was a study done by Utah State, BYU and Rutgers published in the Washington Post in June 2014, they took nine individuals, three African-Americans, three Latinos and three in close and gave them the exact same resume. Just them the same and went into banks. There was clear differentiation in the way the people of color were treated. It still exists in the world. More recently, I think Josh quoted the Woodstock Institute patterns of disparity that was done in January, they looked at Chicago, LA and San Diego and lumped in Los Angeles. He talked about the lack of lending in those census tracts. If there had been lending to the amount of small businesses in those census tracks that were of color, that was a 1.6 that was a $1.6 billion opportunity that was lost, for those census tracts in communities of color. Y 1071 is critical, all we have is that we can look at CRA, we don’t know who is getting or what individual’s are getting the loan. In 2015, there was $4.7 billion — this is reportable on the website. In the same year the SBA there were 750 loans for $136 million. In terms of units, the SBA was let’s then .5% — I’m looking at Michael and I was told him it was 4% and in dollars it was less than 3%. There was 99% of the loans going out in the County of Los Angeles, we don’t know who they went to. We can look at the census tracks and say they are praying all but — predominately minority, we can’t find out who they went to and with 1071, we will find out who applied and what happened to those individuals when they did not get the loan. I am for the folks here — I implore the folks here and my colleagues, this is important and it will take a lot of work. We must come to an agreement. It is very important that we take this mandated rule and implemented. We look forward to working with everyone here to get that done.
Thank you to all of the panelists. Might colleague Grady Hedgespeth and Cheryl Parker Rose will now ask the panelists some questions for further discussion. I get the first question Robert, talk about the challenges that financial institutions face when extending commercial credit to small businesses, particularly minority and women-owned.
I will try to be brief. There are lenders and there are a lot of reasons. I will base it on my 12 years of experience working at CDC small business, I had conversations with my colleagues and CDC Small Business finance just had a report done on Latino small businesses in the state of California . It was done for us by the national Association for Latino community asset builders and hopefully that will be public at the end of the month. While all small businesses face similar challenges, entrepreneurs that are women or are people of color have particular challenges. One is, record-keeping or financial documentation or it’s the lack there of. There could be a variety of reasons, maybe they are cash-based but it comes down to financial literacy. When I say that, I’m not saying that small businesses are financially illiterate. Far from that, with the challenge is that lenders whether you are a Union Bank or a small business finance have certain criteria and documentation that we require. We put people through some awful loops for a loan at the SBA. A lot of folks don’t have the background. Since mothers were used, I will use my father who came with a sixth grade education and ran two very successful businesses. He never received a loan from a bank. He never could have put together the documentation that I know my company asks for from someone. He was not financially literate, he just did not understand the way the system work. As lenders, it’s working with the small business and working around and educate and have the patience to get them through the process. Is a mission-based lender, we put money into paying business advisors to help individuals with that. The second one is also what’s known as a thin credit file or poor credit. Experience did a study that was released in September of last year that showed businesses, minority owned businesses, their business score was five points lower than a nonminority and their personal credit score was 15 points lower. A lot of lenders, one of the first questions asked will be what is your credit score? There is a threshold and if you are not at 680 and you are at 679, a lot will ask you to leave or they will not finance you. That is the challenge as lenders, how do we work with those that have a poor credit, that does not completely dictate their ability to pay and how do we look at other factors. The third and fourth are combined, I have learned from individuals and we have seen it, it takes just about as much money to underwrite and process and $50,000 loan than a $500,000 loan. If you are a profit driven organization, who are you lending to? As a mission-based lender we will work with those that want $5000 or $10,000, how do we build efficiencies with that and how do we deal with fintech? Those competitors are charging 94% and we of refined Tensed — refinance loans, how do we do that when they can answer someone in minutes and finance them within days. That’s difficult and that’s a challenge for reputable lenders who are trying to do right and treat people with respect.
Josh, what are some of the current barriers to understanding the small business lending landscape?
Thank you Cheryl, current barriers lack of data. Longer answer, 1071 will mandate — I’m sorry it’s hard to swallow and talk at the same time.
Type of lender, large bank, small bank, non-bank, fintech, we need data on the mall because we need to know which ones are making responsible and sustainable loans. We need to know which needs more oversight. The literature talks about smaller banks being relationship lenders and getting to know the small business owner and having more flexibility in their underwriting. The bigger banks tend to use automated underwriting and some of the study suggest it’s a smaller banks that have an easier time reaching an underserved population. We haven’t had the data for the smaller banks for number of years. In the mid to thousands, the bank regulators exempted the smaller banks from community reinvestment act data reporting requirements. We need that to understand the market and to know who is making responsible loans to underserved businesses. I should say NCRC did a study for the Appalachian region and the smaller banks were 20% of the market in several states. It’s important to understand what they are doing. Loan type, this is huge, whether the loan is an origination, whether it’s a refinance, whether it’s a renewal, a line of credit, different credit needs are served by different loans. I talked about the community reinvestment act data which large banks report. This is the most systematic data that we have. There are significant limitations. You can’t — the reporting rules are strange, there is renewals be reported with originations, think it’s mostly originations but there are renewals in there as well and you can’t separate them and that clouds the understanding. Credit card lending is higher cost lending, it is needed. Term loans are also needed and basically there is a crude way to differentiate had a card lending from term lending in the CRA data. We need better data, there has been some SBA studies that have shown minorities rely upon credit card lending. If we had better data, we could use this spur of competition to encourage more term lending by traditional banks. Factoring, a form of high cost lending, the white paper and when you look at the number of transactions it looks like factoring was higher than term lending. We need more data on high cost lending, to make sure it’s not the new subprime lending that is actually stripping wealth instead of responsibly serving credit needs. Loan action, we need data on applications and denials, currently it’s only originations and to really know whether it’s unmet demand or is there low demand and what could be ways to increase the demand in some communities. Revenue size is huge, most small businesses have sales of less than $100,000 as shown in the white paper. The CRA data only tells you whether it’s above — whether it’s made above or below $1 million in revenue. I could go on. We need data on reasons for denial, insufficient collateral, credit history, inadequate documentation, is the business too new, the zip and mentioned. I am not asking for the sky. I am asking for well-defined — there are statutory requirements like race and gender of the owner, the CFPB has some discretion data elements to add and if we do it carefully we can understand weather controlling if there are still disparities that need further investigation. Through robust collection, hopefully we can make American capitalism work better. Isn’t that what we are about? Shouldn’t there be a bipartisan consensus, better data and more transparency increases lending and ultimately people who are working hard and playing by the rules can provide. This should be beyond question.
Todd, CBA are always very thoughtful in your remarks. You have mentioned some but what are the unique aspects to consider when you extend credit for commercial purposes or credits, what’s unique about that?
There are a few things that are unique when you extend credit to any small business, first is a complicated ownership structures and how you assess each ownership structure and determine the ability. The next is the difficulty in separating the ability and willingness to repay. As mentioned, especially for smaller businesses, the interrelated nature of their personal credit and business credit make it hard to separate. You would need to consider how they repay their debt after as part of the picture. Very collateral, a lot of lending that we do is unsecured. We don’t put EU cc file on the company. Some is partially secured. We take direct collateral in real estate. There are multiple purposes for the loans, we went for anything from working capital to fixed access — assets, it’s relatively straightforward. As I mentioned, the closely interrelated nature between the personal and business finances are hard separate. The last couple things are relative agent up the balance sheets of small businesses tend to be less deep and with less reliable data than large businesses. It becomes an art and the quality information is less. And as Roberto mentioned, the cost at which we need to process these economically and still make money for the bank and protect our depositors makes it difficult but not impossible to do.
Makini Howell , can you talk about small business owners and their access to credit to grow businesses.
Yes. My name is Makini Howell . It’s like zucchini. Could you repeat the question?
To small business owners have credit?
In my experience, I did not have access to a traditional bank loan. I had access to credit. I had access to a fintech loan, merchant cash advances, which is basically predatory lending. You purchase funds and if you need a $30,000 loan, you can purchase it for $15,000 and pay back $45,000. One question was how do reputable lenders come — combat that and they have to reconsider their bottom line and what they need to make off of a $50,000 loan and a $500,000 loan. When we raised the minimum wage, all business owners said to have a different understanding of their profit margin. If you really want to help, the predatory lenders have gotten a hold of the market, you have to rethink your profit margin as illegitimate lender. There is always available capital. It could bankrupt to, if you take that. If you have to pay it back in two or three months and that’s generous. Some of the problems around it by that you get junk fees which are anywhere upwards of $800 weekly or they will take payments daily. You can get borrowers paid in average of [ Indiscernible ] 44% of small businesses rely on credit cards are financing. Stalled growth, if you’ve taken a cash advance and you hit a slow season and you aren’t making money and your fixed assets those costs have not changed. That could tank your business. You still have to pay back this exorbitant loan and it’s not considered alone, it’s considered purchasing funds. You have to pay that back in addition to your fixed expenses. There is money available, it’s not necessarily the money that will help you grow your business. More than likely it will bankrupt your business.
My question is for Kate, what should small businesses be aware of in terms of accessing credit from financial institutions?
Thank you Cheryl, I will mimic a lot of what Robert said earlier. Documentation, documentation, documentation. You must know your business plan inside and out. Understand that institutions, it’s not that they just don’t want to give it credit, it’s that they have various stringent safety and soundness requirements that are from the regulators. We don’t want to relive the Great Recession. A lot of that was ability to repay, suppose it requires is — regulators are more strict about repayment. That is why we are concerned about maintaining access to credit, while giving it out and is saved in some manner. To small businesses, as prepared as possible with any financials or projections to give institutions the cover to explain to the regulators that we know this person is going to be able to pay this loan back. They cannot just say they seems nice and they have a great idea. It won’t work like that. I would say any documentation that you have available. And really understand your business planned and what would be right for you, is it Marketplace lending, traditional lending or SBA loans, that would be a good avenue for the Bureau and I would be happy to work collaboratively to identify those types of different credit. A lot of people don’t know what is available. That’s also a financial literacy piece.
Albert, what type of credit is available to owners who cannot access loans from traditional lenders?
It’s similar to what Makini Howell mentioned , the predatory loans including cash advances. They are similar to payday lending’s, some of the small business owners use personal credit and credit cards. They get into high interest credit card debt. There’s also loans from family members or friends. Some things that we have worked that along with members of the California reinvestment coalition and others, is looking at how we can expand and help the business owner with technical assistance and helping them with their credit score. A lot of times there is no dissension between personal finance, credit score and their business score. A lot of people are talking about financial literacy and it’s more that they need options and know how they stand and how that can be utilized. A lot of the availability loans can be made, they cannot be made by as much as we would like a lot of them need more funding and there needs to be more education about what is available. With us at East Los Angeles Community Corporation , we have social lending loan, it is for social loans, people lend and borrow to and from each other. We have done in partnership with the Bay area [ Indiscernible ], we have done small loans for them to improve their credit. There is no interest and there are no fees. They are lending to each other and it’s being reported to the credit bureaus. We are starting with some of the micro vendors so they can work towards credit. This comes with financial education, coaching and technical assistance, to help them get to the documentation were talking about. A lot of our people are small business owners are business immigrants and bilingual Spanish speakers. They trust our organization and others like us. We have earned their trust and they are able to come to us and we can speak to them in regards to their options.
One last question which we will ask all panelists and give you all a chance for closing remarks. I will ask you to keep your answers brief. What are the benefits and challenges to conduct small business lending data and make it available to the public?
It’s a good way to distinguish who the good and bad players are and we can see who is doing the loans and who is not into his potentially discriminated against. I see it as an opportunity. It will be an opportunity not only for the traditional institutions, they will see opportunities in new markets. Los Angeles County, 55% of the small businesses are minority owned. We don’t approach this completely as a challenge but as an opportunity to see where you can grow your market, in the next phase of your financial institution.
There are definitely benefits to this and challenges. We do a lot of data collection. Whatever we do with the 1071 action, I caution that we not double up on the were getting to the cost. We need to establish a minimum set of data standards to take into account, we did a survey among the 60 banks that belonged to the consumer bankers Association in any would be surprised on how it they matched, if any. I caution you to take all those things into consideration. The risk of inaccurate or drawing a wrong conclusion from the data that’s extract and remains high. If we’re not careful in the way we disseminate the information and the way we interpret it, it’s not completely objective and we run the risk of increasing legal costs leading to incorrect conclusions with the output of the data and how it can be manipulated. In conclusion, it’s necessary and banks want to put capital in the hands of the people who will use it. The better the business community does the better the banks do. We just reflect the community we represent. We look forward to working with you to establish the right rules and thank you for the collaborative nature and engaging in this.
I will be brief. As stated the challenges that we have been looking at. This is a common goal. I totally agree with Director Cordray statement in his opening, when that it is unavailable, creativity suffers. We’re all working together to ensure there are — there is credit for the small businesses that need it. I would like to underscore that we hope to minimize the regulatory hurdles and decrease the cost of underwriting. After Dodd-Frank, the cost of underwriting for any commercial loan has escalated to about $7000 per loan. As was indicated, for $100,000 loan or a $4 million loan. We want to make sure that the hurdles that institution have to go through are minimized to get credit to the people who will repay and so we can grow small businesses. In terms of privacy, there are concerns about the publication in the day of data breaches, governmental agencies are not immune. That is always a concern. Re-identification, in terms of the different loans and there could also be an anti-competitive nature if the loans are re-identified. I am very excited to work with you going forward.
My grandparents were grocery store owners and started shortly after the Great Depression. I wonder how they did it. Did they get loans? If we had more information then I think we would have more economic — it would’ve helped the Great Depression. We are now in the years after the great recession and I want to caution some statements that were made. Overregulation is stifled a retarded lending. In the years before the financial crisis, it was the reverse. It was a lack of regulation the Federal Reserve board had on the books in 1994, they have the ability to curb abusive lending and they didn’t do anything. We all know about the lending beyond people’s ability to repay. We know that not only caused the recession but a global recession. Small business funding — I think has been under regulated. We don’t have the same consumer protections. Yes, it’s a balancing act. It’s a balancing act but if anything there is not enough regulation and oversight in the small business lending arena. More data will not stifle lending, it will not delay loan processing. We have had 40 years of experience with the home or just disclosure act — Homewood — yes, there are costs but even for financial institutions, the benefits outweigh the cost’s. They want to know how competitive they are doing. When the new data becomes available in March and you requested, it’s not consumer groups that are the biggest request these, it’s banks asking other banks so they can see how other competing in all markets. Data, if it’s done well and you have good information on loan terms and conditions, it makes the lending marketplace more competitive. Also, if you do it carefully you won’t get wrong conclusions are unnecessary litigation. We have had 40 years of come to experience, there have been instances where there has been agree just behavior — egregious behavior and it has been stopped before it continued to do damage. We won’t know what the extent of the egregious behavior is if there is no data. If there is more data, there will be less harmful behavior. Lastly, we have a lot of CRA small business data reporting that we can build on to make this — I think we lost $14 trillion in the recession because of abusive lending. If we had better transparency in the marketplace we could gain trillions of dollars in wealth. Thank you.
Makini Howell .
I think it’s a great opportunity to not only collect data, whether it’s a black women or an Asian man Representative flying — applying for loan. It’s an opportunity to create an understanding that education comes before literacy. To change the culture of lending, if we work on the culture of lending and understanding the engine that the people of color and women create for small businesses and understand how much money is sitting there, sometimes lost on the table. We understand that it’s not an unwillingness to pay back, there — the literacy and education must come prior to and that way you can lend safely to a community, understanding that they understand how to pay that money back.
We think the benefits will outweigh the challenges. There will be a better understanding in the market to help the government decide how to allocate resources and identify discrimination. This data is very important. There will be better and more lending once we know where this lending is happening. The evaluation of products are rich in the communities in need and with the right loan products. That is important and we don’t know that right now. Make assessments and address issues and inform policy.
This concludes the panel portion of our program. Please join me in thanking all of our panelists for thoughtful discussion.
Crap crap — [ Applause ]
Panelists, please take your seats. I will note turn it over to Zixta Martinez who will moderate the next portion of the hearing.
Thank you, David. I will now turn to one of my favorite parts which is to hearing from you all. An important part of how the Bureau helps consumer finance markets work is to hear from consumers, state and local partners and community advocates. One way that we gather feedback is through that such as these we have had events across the U. S. events across the U. S. You can submit is consumer complaint through our website www.consumerfinance.gov. Our website will walk you through. We take complaints and we also have another feature called ask CFPB, you can find answers to over 1000 frequently asked questions as well as additional resources. We have Spanish-language website. It provides access to central consumer resources and answers to consumers frequently asked questions. I encourage you to visit our website to learn more about the resources and tools to help consumers make the best decisions. It’s time to hear from members of the public that are here today, a number of you have signed up to provide comments and observations about today’s discussions. The public comment is an important opportunity for the consumer Bureau to learn into your about what’s happening in consumer finance markets in your community. Each person that has signed up to provide testimony will have two minutes to do so and what we hear is invaluable. We want to hear from as many of you as signed up. I encourage you to stick to the two-minute limit, so that everyone who signed up to provide comment has the opportunity to do so. Our first commenters are members of the federal and state community. I would invite Arthur Zaino with the Federal Reserve 10 San Francisco. Our staff will bring a microphone to you.
Hello. I’m with the community development group here in Southern California with the Federal Reserve Bank of San Francisco. The subject of data collection, with small business funding is something that between the local reserve banks and the board of governors in Washington is a very important concern. We have extensive data on the subject and in particular we have data around small business ownership and the connection to auto loan financing. Some of our great concern was happening with discrimination in that market, with funders of all sizes large and small and independent auto lease agents or lenders. We are here to listen to what is happening with the CFPB and to provide support and advice, as we do in our responsibility with 1071. Thank you.
Thank you. We appreciate the outreach and we look forward to engaging in substantive efforts with you. Round foam — R Fong.
Good afternoon. My comments on the need to continue to improve the collection of more detailed data. As the nation continues and the population we recommend the nation adopt the national content test for proposed minimums. We recommend these categories be applied in three areas including the home mortgage, small business [ Indiscernible ] and small business administration loans. The data will result in a better assessment of our community’s needs, better targeting of solutions from both public and private sector, greater access to services and capital for our communities small businesses and healthier Asian-American and native Hawaiian Pacific Islander communities. Thank you.
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