1 00:00:06.060 --> 00:00:09.569 Andrew Duke: ElLeSo good morning to everyone in the room and to 2 00:00:09.640 --> 00:00:14.132 those watching via livestream at consumerfinance.gov. My name is 3 00:00:14.203 --> 00:00:17.923 Andrew Duke. I serve as the Bureau's Policy Associate 4 00:00:17.993 --> 00:00:21.995 Director for External Affairs, and Consumer Education and 5 00:00:22.065 --> 00:00:25.926 Engagement divisions. Welcome to the Consumer Financial 6 00:00:25.996 --> 00:00:30.418 Protection Bureau's Symposium on section 1071 of the Dodd Frank 7 00:00:30.489 --> 00:00:34.771 Act, which is being held here at the Bureau's headquarters in 8 00:00:34.841 --> 00:00:38.702 Washington, DC. This symposium is the third in a series 9 00:00:38.772 --> 00:00:42.843 announced earlier this year to explore consumer protection 10 00:00:42.914 --> 00:00:47.266 protections in today's dynamic financial services marketplace. 11 00:00:47.336 --> 00:00:51.548 In a moment, I'll have the honor of introducing the Bureau's 12 00:00:51.618 --> 00:00:55.760 director Kathy kraninger, who will provide opening remarks. 13 00:00:55.830 --> 00:01:00.042 But before I do so please let me tell you about what you can 14 00:01:00.112 --> 00:01:03.482 expect today at today's symposium. Following the 15 00:01:03.552 --> 00:01:07.764 directors remarks, the Bureau's Assistant Director for small 16 00:01:07.834 --> 00:01:11.204 business lending markets in research markets and 17 00:01:11.274 --> 00:01:15.345 regulations, Grady hedges will moderate a panel discussion 18 00:01:15.415 --> 00:01:19.768 entitled The current and future outlook for the small business 19 00:01:19.838 --> 00:01:23.980 lending marketplace. The first panel is scheduled to end at 20 00:01:24.050 --> 00:01:28.192 about 10:55am, after which there will be a 10 minute break. 21 00:01:28.262 --> 00:01:31.842 Following the break. The second panel entitled 1071 22 00:01:31.912 --> 00:01:36.264 implementation issues will begin it will be moderated by Elena 23 00:01:36.335 --> 00:01:39.845 ballenas. Managing counsel in research markets and 24 00:01:39.915 --> 00:01:44.267 regulations. The symposium will conclude at about 12:20pm. For 25 00:01:44.337 --> 00:01:48.900 those unable to attend in person or watch via livestream today, a 26 00:01:48.970 --> 00:01:52.972 recording will be made available on the Bureau's website. 27 00:01:53.042 --> 00:01:57.605 Finally, as a friendly reminder, the views of our panelists today 28 00:01:57.675 --> 00:02:01.746 are their views. They are greatly appreciated and welcome, 29 00:02:01.817 --> 00:02:05.607 yet they do not necessarily represent the views of the 30 00:02:05.678 --> 00:02:09.468 Bureau. It is now my honor to introduce Director Kathy 31 00:02:09.538 --> 00:02:13.540 kraninger. Director kraninger became the second confirmed 32 00:02:13.610 --> 00:02:17.471 Director of the Consumer Financial Protection Bureau in 33 00:02:17.541 --> 00:02:21.823 December 2018. From her early days as a Peace Corps volunteer 34 00:02:21.893 --> 00:02:26.105 to her role establishing the Department of Homeland Security 35 00:02:26.175 --> 00:02:30.458 to policy work at the Office of Management and Budget. Now to 36 00:02:30.528 --> 00:02:34.950 the CFPB. Director Kraninger has dedicated her career to public 37 00:02:35.020 --> 00:02:39.022 service. It is my privilege to welcome her to the podium, 38 00:02:39.092 --> 00:02:41.760 Director Kraninger the floor is yours. 39 00:02:48.210 --> 00:02:50.460 Director Kraninger: Thank you, Andrew. Good morning, everyone. 40 00:02:50.490 --> 00:02:53.880 I'm excited to welcome you today to this symposium to discuss 41 00:02:53.880 --> 00:02:58.470 section 1071 of the Dodd Frank Act. I'd like to thank all of 42 00:02:58.470 --> 00:03:02.400 our panelists for participating today, and our moderators 43 00:03:02.400 --> 00:03:05.790 gradient Elena. Through our Symposia Series, we have 44 00:03:05.790 --> 00:03:09.540 convened experts in a variety of different fields to tackle legal 45 00:03:09.540 --> 00:03:13.590 and policy issues facing the bureau. Today we are focused on 46 00:03:13.590 --> 00:03:17.700 section 1071, which requires financial institutions to 47 00:03:17.700 --> 00:03:22.410 collect, report and make public certain information concerning 48 00:03:22.410 --> 00:03:26.670 credit applications made by women owned minority owned and 49 00:03:26.670 --> 00:03:31.350 small businesses. Small small businesses, including that those 50 00:03:31.620 --> 00:03:35.130 owned by women and minorities are critical engines for 51 00:03:35.130 --> 00:03:38.850 economic growth. According to the census bureau, there are 52 00:03:38.850 --> 00:03:42.810 more than 27 point 6 million small businesses in the United 53 00:03:42.810 --> 00:03:47.280 States. More than 7.9 million of these businesses are minority 54 00:03:47.280 --> 00:03:52.410 owned, and over 9.8 million are women owned. access to financing 55 00:03:52.410 --> 00:03:56.040 is a critical component of the success of these businesses. To 56 00:03:56.040 --> 00:03:59.580 contribute meaningfully to the US economy. Small businesses 57 00:03:59.580 --> 00:04:02.670 including minority and women owned small businesses need 58 00:04:02.670 --> 00:04:06.420 access to credit to smooth out business cash flows, and to 59 00:04:06.420 --> 00:04:09.540 enable entrepreneurial investments that take advantage 60 00:04:09.540 --> 00:04:14.010 of and sustain opportunities for growth. The bureau understands 61 00:04:14.010 --> 00:04:17.880 that the market these businesses turn to for credit is vast and 62 00:04:17.880 --> 00:04:21.240 complex. Small businesses have many different options when it 63 00:04:21.240 --> 00:04:25.290 comes to financing, including products and providers, using 64 00:04:25.290 --> 00:04:28.380 publicly available data and informed by conversations with 65 00:04:28.380 --> 00:04:31.710 market participants. The Bureau estimates the small business 66 00:04:31.710 --> 00:04:38.220 financing market is roughly $1.4 trillion in size. Section 1071 67 00:04:38.220 --> 00:04:41.880 would increase public data about small business lending. Congress 68 00:04:41.880 --> 00:04:44.940 wanted the Bureau and the public generally to better understand 69 00:04:44.940 --> 00:04:48.270 the landscape for all small businesses, and specifically 70 00:04:48.270 --> 00:04:52.020 those owned and operated by women and minorities. And the 71 00:04:52.020 --> 00:04:55.470 law specifically directs the bureau to develop a rule for the 72 00:04:55.470 --> 00:04:59.940 collection, reporting and publication of certain data. We 73 00:04:59.940 --> 00:05:02.610 Know that the data collection rule is something that has been 74 00:05:02.610 --> 00:05:06.720 a lot on your minds for some time now. Early on in order to 75 00:05:06.720 --> 00:05:10.260 help meet our statutory mandate, the bureau created the small 76 00:05:10.260 --> 00:05:13.950 business lending markets office. This office in close 77 00:05:13.950 --> 00:05:17.880 collaboration with other offices across the Bureau has focused on 78 00:05:17.910 --> 00:05:21.270 outreach and research to enhance our understanding of small 79 00:05:21.270 --> 00:05:24.780 business financing. We have heard feedback from various 80 00:05:24.780 --> 00:05:28.560 stakeholders and know that there is concern with the burden to 81 00:05:28.560 --> 00:05:31.920 small entities, possible curtailment of credit and 82 00:05:31.920 --> 00:05:35.370 privacy considerations, as well as a general desire for 83 00:05:35.370 --> 00:05:39.660 consistency with current business practices. The bureau 84 00:05:39.660 --> 00:05:43.140 fully recognizes the sensitivities here, and we know 85 00:05:43.140 --> 00:05:45.780 that the rule needs to be done with great care and 86 00:05:45.780 --> 00:05:49.530 consideration, in order that the rule not impede the ability of 87 00:05:49.530 --> 00:05:52.740 small businesses, including minority and women owned small 88 00:05:52.740 --> 00:05:57.120 businesses to access the credit they need. That is why we are 89 00:05:57.120 --> 00:06:00.900 seeking your input. today's symposium explores how to 90 00:06:00.900 --> 00:06:04.380 efficiently collect appropriate data without imposing 91 00:06:04.380 --> 00:06:07.710 unnecessary or undue cost that could limit access to credit 92 00:06:07.890 --> 00:06:11.070 from existing market participants or discourage new 93 00:06:11.070 --> 00:06:14.460 entrants into the market for small business credit. This 94 00:06:14.460 --> 00:06:17.310 symposium will provide an opportunity for academics, 95 00:06:17.340 --> 00:06:21.450 market participants, and policy makers to discuss the hurdles 96 00:06:21.450 --> 00:06:25.770 and goals of an effective rule. Among the myriad issues around 97 00:06:25.770 --> 00:06:29.640 section 1071. The panelists will explore the definition of small 98 00:06:29.640 --> 00:06:33.990 business, what data points are important to collect, and what 99 00:06:33.990 --> 00:06:36.750 information lenders are currently using to evaluate 100 00:06:36.750 --> 00:06:40.260 credit to small businesses. I'm looking forward to today's 101 00:06:40.260 --> 00:06:43.290 symposium and the opportunity to hear from experts on these 102 00:06:43.290 --> 00:06:47.190 issues. Our first panel will focus on the current state of 103 00:06:47.220 --> 00:06:50.700 and future outlook for the small business lending marketplace. 104 00:06:51.270 --> 00:06:54.240 Our second panel included discussions surrounding the 105 00:06:54.240 --> 00:06:58.320 implementation of section 1071. We have a great need to 106 00:06:58.320 --> 00:07:02.190 understand more about small business financing market, the 107 00:07:02.190 --> 00:07:05.160 products that are offered to small businesses, and the 108 00:07:05.160 --> 00:07:09.120 financial institutions offering the credit. So thank you so much 109 00:07:09.120 --> 00:07:12.030 for your participation. I look forward to the discussion. 110 00:07:20.310 --> 00:07:23.670 Andrew Duke: Thank you, Director. At this time, I'd like 111 00:07:23.670 --> 00:07:29.220 to invite Grady Hedges and the panelists to come please take 112 00:07:29.220 --> 00:07:45.630 their seats on the panel. With that Grady the floor is yours. 113 00:08:00.900 --> 00:08:03.960 Grady Hedges: Good morning. Thanks again, Andrew. I 114 00:08:03.990 --> 00:08:07.230 appreciate that. And yes, my name is Grady Hedges Pathan and 115 00:08:07.230 --> 00:08:10.050 I'm the Assistant Director for the small business lending 116 00:08:10.050 --> 00:08:13.860 markets group here at the Bureau. And in that capacity, 117 00:08:13.860 --> 00:08:17.880 it's my honor and privilege to be the executive sponsor of the 118 00:08:17.880 --> 00:08:21.270 section 1071 project team that we've assembled to help us 119 00:08:21.270 --> 00:08:25.200 implement this rule. As the director mentioned, we have a 120 00:08:25.200 --> 00:08:28.920 very robust agenda this morning to cover. So we want to get into 121 00:08:28.920 --> 00:08:31.710 that just as soon as possible. And this first panel will 122 00:08:31.710 --> 00:08:34.440 provide a general overview of a small business lending 123 00:08:34.440 --> 00:08:37.980 marketplace and its dynamism. But before we get into the 124 00:08:37.980 --> 00:08:41.550 panel, there's a lot of ground to cover. But we have a few 125 00:08:41.550 --> 00:08:44.520 housekeeping details that I need to take care of. Before we get 126 00:08:44.520 --> 00:08:48.600 started. In the interest of time, all of our panelists 127 00:08:48.600 --> 00:08:52.140 provided a brief written statement, an opening statement, 128 00:08:52.140 --> 00:08:56.430 if you will, which we will be entering into the record rather 129 00:08:56.430 --> 00:08:59.040 than read this morning so we can really get into the discussion 130 00:08:59.040 --> 00:09:03.210 quickly. These statements will be available on the CFPB website 131 00:09:03.630 --> 00:09:08.340 very shortly. Next, I will dispense with introducing all of 132 00:09:08.340 --> 00:09:12.780 our panelists now in favor of introducing each of them prior 133 00:09:12.780 --> 00:09:16.440 to the first time they speak. I hope this will make it easier to 134 00:09:16.440 --> 00:09:20.160 connect their backgrounds with their viewpoints reflected in 135 00:09:20.160 --> 00:09:23.010 the comments they'll make this morning, especially for those 136 00:09:23.010 --> 00:09:29.130 listening in the our livestream webcast. So without further ado, 137 00:09:30.270 --> 00:09:32.610 the first section in the panel was going to look at emerging 138 00:09:32.610 --> 00:09:39.090 trends in the small business financing ecosystem, especially 139 00:09:39.090 --> 00:09:43.890 since the great recession in 2008. To lead us off, we have 140 00:09:43.890 --> 00:09:47.730 Claire Kramer mills. She is an assistant vice president at the 141 00:09:47.730 --> 00:09:51.300 Federal Reserve Bank of New York. She writes she directs the 142 00:09:51.300 --> 00:09:55.110 Bureau's analytic and outreach work on consumer and small 143 00:09:55.110 --> 00:10:00.120 business finance issues. In 2014. She initiated it An 144 00:10:00.120 --> 00:10:03.270 important effort to gather intelligence on small business 145 00:10:03.270 --> 00:10:07.440 conditions, which led to the Feds 2017 small business credit 146 00:10:07.440 --> 00:10:12.060 survey. And she served as one of its lead offers authors. So to 147 00:10:12.060 --> 00:10:14.700 get us started, Claire, why don't you you've been looking at 148 00:10:14.700 --> 00:10:18.630 the data that's been available for small business lending. You 149 00:10:18.690 --> 00:10:21.360 looked at a lot of trends from a lot of different survey 150 00:10:21.360 --> 00:10:26.100 respondents in 2017. What do you see happening in the in the 151 00:10:26.100 --> 00:10:28.410 marketplace since the great recession? 152 00:10:29.610 --> 00:10:31.590 Claire Kramer Mills: Well, first of all, thank you, Grady, for 153 00:10:31.590 --> 00:10:35.100 that introduction, and thank you for inviting me to participate 154 00:10:35.100 --> 00:10:38.580 in this forum. I will begin before I make any remarks by 155 00:10:38.610 --> 00:10:41.070 making the standard fed disclaimer, which is that the 156 00:10:41.070 --> 00:10:45.690 views I I speak about today are my own and do not necessarily 157 00:10:45.690 --> 00:10:47.850 reflect those of the Federal Reserve Bank of New York or the 158 00:10:47.850 --> 00:10:53.070 Federal Reserve System. So with that aside, I think there are 159 00:10:53.070 --> 00:10:57.990 four trends in small business financing that are, we've seen, 160 00:10:57.990 --> 00:11:01.080 we're tracking and that are likely to have an impact on 161 00:11:01.080 --> 00:11:07.230 credit access and affordability in the near term. For reference, 162 00:11:07.620 --> 00:11:12.750 I'm going to use the definition of small, small dollar loans as 163 00:11:13.140 --> 00:11:16.320 those under $1 million, which is the typically the standard 164 00:11:16.320 --> 00:11:21.390 definition of small business, both CNI and cre loans. First, 165 00:11:21.480 --> 00:11:24.120 what we've seen since the financial crisis and into the 166 00:11:24.120 --> 00:11:27.720 recovery is that lending to small businesses declined 167 00:11:27.720 --> 00:11:32.700 considerably during the financial crisis, and now, a 168 00:11:32.700 --> 00:11:37.050 decade into the recovery. bank lending to small firms is now 169 00:11:37.080 --> 00:11:42.450 really approaching pre crisis levels. So it's been a long road 170 00:11:42.540 --> 00:11:46.470 in the recovery for small business lending. The second 171 00:11:46.470 --> 00:11:51.360 trend is that the composition of bank lending is changing, with 172 00:11:51.360 --> 00:11:54.300 large banks gaining market share relative to smaller and 173 00:11:54.300 --> 00:12:00.480 community banks. So that's, that's that's a big change. That 174 00:12:00.480 --> 00:12:04.080 does not mean that community banks are not significant 175 00:12:04.080 --> 00:12:07.200 lenders to small businesses, relationship lending has not 176 00:12:07.200 --> 00:12:12.270 gone away. Community banks are important remain important 177 00:12:12.270 --> 00:12:17.310 lenders to small businesses, and they hold approximately 40% of 178 00:12:17.310 --> 00:12:21.840 bank originated small business loans at this point. Third, 179 00:12:23.700 --> 00:12:26.670 evidence from our survey and small the Federal Reserve's 180 00:12:26.880 --> 00:12:29.820 small business credit survey indicates that much of small 181 00:12:29.820 --> 00:12:33.690 business demand even though we use the proxy of $1 million, and 182 00:12:33.690 --> 00:12:40.080 under much of the demand 57% by our last estimate, is really for 183 00:12:40.410 --> 00:12:44.340 origination amounts of $100,000 or less. So it's it's really 184 00:12:44.340 --> 00:12:50.010 small dollar credit. And that's a tough space. From a bank 185 00:12:50.040 --> 00:12:52.980 perspective. From a profitability perspective, 186 00:12:53.010 --> 00:12:55.410 analysis from the bank administration Institute 187 00:12:55.410 --> 00:12:58.380 indicates that these loans are particularly unprofitable 188 00:12:58.590 --> 00:13:01.350 because of the fixed costs involved in making those 189 00:13:01.350 --> 00:13:06.030 originations. The fourth trend that we've been paying attention 190 00:13:06.030 --> 00:13:08.910 to and is likely to only increase in importance is that 191 00:13:09.120 --> 00:13:13.890 online lenders, which is itself a broad definition, and we'll 192 00:13:13.890 --> 00:13:17.670 get into the details of the array of online lenders and 193 00:13:17.670 --> 00:13:21.750 providers, they're able to leverage technology to originate 194 00:13:21.750 --> 00:13:25.920 loans both efficiently and to deploy capital quickly to small 195 00:13:25.920 --> 00:13:30.090 businesses, and their growing presence in the marketplace. By 196 00:13:30.090 --> 00:13:33.630 2020. Morgan Stanley forecasts, online lenders or fintechs, will 197 00:13:33.630 --> 00:13:38.970 reach $47 billion, or 16%, of of total US Small and medium 198 00:13:38.970 --> 00:13:44.220 enterprise approvals. That's a big, big number. Small firms are 199 00:13:44.220 --> 00:13:48.570 taking note of this. They are using online providers, they are 200 00:13:48.570 --> 00:13:51.390 seeking they're applying to them. And we've been tracking 201 00:13:51.390 --> 00:13:54.510 that in our small business credit survey, our latest 202 00:13:54.510 --> 00:13:58.020 estimate is that 32% of our respondents to our survey 203 00:13:58.230 --> 00:14:01.530 applied for a loan from fintechs. And this is up from 204 00:14:01.560 --> 00:14:05.580 19% in 2016. So in a two year period, we saw an increase from 205 00:14:05.580 --> 00:14:10.320 19% to 32%. So I think that these these four trends are 206 00:14:10.320 --> 00:14:13.020 things that obviously, you know, we're paying attention to, and 207 00:14:13.020 --> 00:14:15.780 they are changing the dynamics and of the small business 208 00:14:15.780 --> 00:14:16.470 lending market. 209 00:14:18.870 --> 00:14:20.940 Grady Hedges: Thank you very much that that's a great 210 00:14:20.940 --> 00:14:24.480 overview. And you've been able to capsulate in just four 211 00:14:24.480 --> 00:14:28.350 points, kind of the cardinal points of how the dynamism is 212 00:14:28.350 --> 00:14:32.070 really reshaping the marketplace in many ways. For reaction, 213 00:14:32.070 --> 00:14:35.280 maybe a little bit more color. One of those points you made is 214 00:14:35.640 --> 00:14:39.180 the increasing use of technology to try and combat some of the 215 00:14:39.180 --> 00:14:42.240 cost issues and the cost structures in delivering small, 216 00:14:42.270 --> 00:14:46.530 especially smaller dollar loans. And to give a first response or 217 00:14:46.530 --> 00:14:50.820 reaction to that we have with us, Nora Breslow, who is the 218 00:14:50.820 --> 00:14:55.230 chief executive officer and chairman of on deck and also was 219 00:14:55.230 --> 00:14:58.650 his first employee I might add OnDeck is one of the nation's 220 00:14:58.650 --> 00:15:02.220 leading online Small Business Lenders and pioneer the use of 221 00:15:02.220 --> 00:15:07.170 data analytics and digital technology to make real time 222 00:15:07.170 --> 00:15:11.310 lending decisions, and deliver capital rapidly to solve small 223 00:15:11.310 --> 00:15:13.920 businesses online, what are your reactions, Noah? 224 00:15:15.450 --> 00:15:17.610 Noah Breslow: Thank you, Grady. And thanks to the CFPB and to 225 00:15:17.610 --> 00:15:21.960 the director for having us here today. OnDeck was founded in 226 00:15:21.960 --> 00:15:24.780 2006, with a very simple mission to help small businesses 227 00:15:24.780 --> 00:15:29.010 succeed. And we saw at the time, a huge structural gap in the 228 00:15:29.010 --> 00:15:32.400 market, serving these smaller dollar loans to entrepreneurs, 229 00:15:32.610 --> 00:15:35.430 who essentially had regular personal credit, but the moment 230 00:15:35.430 --> 00:15:37.800 they decided to start a business, the system didn't know 231 00:15:37.800 --> 00:15:40.710 how to serve them anymore. The amount of credit they were 232 00:15:40.710 --> 00:15:43.380 seeking was relatively low. Our average loan size today is 233 00:15:43.380 --> 00:15:47.340 around $55,000. And at the time, that process would take many 234 00:15:47.340 --> 00:15:51.270 weeks, even months to get a decision from a bank. And many 235 00:15:51.270 --> 00:15:53.790 times that decision would be no so it was a very inefficient 236 00:15:53.790 --> 00:15:56.820 market. We started the company with the belief that digital 237 00:15:56.820 --> 00:16:00.240 data and technology held the key to solving this problem. And 238 00:16:00.240 --> 00:16:03.270 that was the company's first employee, I made our first loan 239 00:16:03.450 --> 00:16:06.510 to an auto repair shop in Connecticut, that is still in 240 00:16:06.510 --> 00:16:10.230 business today, we're very happy to say. And since then, we've 241 00:16:10.230 --> 00:16:13.980 made $12 billion of loans to 110,000 businesses. And so 242 00:16:13.980 --> 00:16:16.380 what's been really staggering, I think about the growth of this 243 00:16:16.380 --> 00:16:20.130 industry is the economic impact for every dollar we lend. We 244 00:16:20.130 --> 00:16:24.300 think the business makes an average of $2.31 in additional 245 00:16:24.300 --> 00:16:29.010 sales, and that $1 results in $3.79 of gross output in the 246 00:16:29.010 --> 00:16:32.130 borrower's communities, we've been able to revolutionize that 247 00:16:32.130 --> 00:16:35.550 process. So weeks and months, has now become hours or maybe 248 00:16:35.550 --> 00:16:38.970 several days for larger loans. So that dramatic Time 249 00:16:38.970 --> 00:16:41.130 Compression allows business owners to focus on what they 250 00:16:41.130 --> 00:16:43.410 love, which is running their business and getting back to 251 00:16:43.410 --> 00:16:47.460 work. Even today, we sort of thought maybe after 10 years of 252 00:16:47.460 --> 00:16:49.770 running on Deck, the problem would be solved. But recently, 253 00:16:49.860 --> 00:16:52.740 the Federal Reserve research that Claire oversees found that 254 00:16:52.740 --> 00:16:56.610 business owners still spend 26 hours of their time applying for 255 00:16:56.610 --> 00:16:58.410 loans to traditional institutions, they apply to 256 00:16:58.410 --> 00:17:00.780 nearly three institutions on average. And if you think about 257 00:17:00.780 --> 00:17:03.270 your own personal life, when's the last time you spent 26 hours 258 00:17:03.270 --> 00:17:07.170 in anything? It's a really, really cumbersome and can be an 259 00:17:07.170 --> 00:17:11.010 intimidating process, which gets us towards section 1071. We are 260 00:17:11.010 --> 00:17:13.290 one of the leading practitioners and have the largest scale in 261 00:17:13.290 --> 00:17:16.290 small business lending. We are very supportive. We think online 262 00:17:16.290 --> 00:17:19.230 lending has been net positive for delivering capital to 263 00:17:19.230 --> 00:17:22.320 underserved communities, women owned businesses, minority owned 264 00:17:22.320 --> 00:17:25.140 businesses, businesses where English may not be the first 265 00:17:25.140 --> 00:17:28.680 language of the small business owner. These are all populations 266 00:17:28.680 --> 00:17:31.530 that historically have not been well served by the traditional 267 00:17:31.530 --> 00:17:36.510 lending process. However, as we implement section 1071, we want 268 00:17:36.510 --> 00:17:39.360 to be cognizant of pragmatic realities of delivering capital 269 00:17:39.360 --> 00:17:42.450 at speed. And it would be sort of a not a great thing for small 270 00:17:42.450 --> 00:17:45.870 business capital access to go back in time, if you will, in 271 00:17:45.870 --> 00:17:48.330 the delivery of capital that should only get faster and 272 00:17:48.330 --> 00:17:51.090 easier for small business owners. But we believe there's a 273 00:17:51.090 --> 00:17:54.060 middle ground here where if we focus on, you know, being 274 00:17:54.060 --> 00:17:57.090 pragmatic, and approaching this with a thoughtful point of view, 275 00:17:57.330 --> 00:18:00.510 we can accomplish both goals maintain speed and frictionless 276 00:18:00.510 --> 00:18:03.060 access to capital for entrepreneurs, while expanding 277 00:18:03.060 --> 00:18:04.740 access to capital to underserved classes. 278 00:18:06.270 --> 00:18:09.120 Grady Hedges: Thank you Noah, and potentially to represent 279 00:18:09.300 --> 00:18:11.760 maybe a slightly different point of view. And we're going to go 280 00:18:11.760 --> 00:18:18.450 from very high high volume to very high touch lending model 281 00:18:18.450 --> 00:18:22.230 which is represented by our next respondent in this area. And 282 00:18:22.230 --> 00:18:26.220 that's Luis Urrutia. She became the CEO of Opportunity Fund in 283 00:18:26.220 --> 00:18:30.660 2017. After the career in both large commercial and mission 284 00:18:30.660 --> 00:18:34.380 oriented financial institutions, Opportunity Fund is one of the 285 00:18:34.380 --> 00:18:38.550 nation's largest nonprofit small business lenders with over $180 286 00:18:38.550 --> 00:18:42.480 million loan of loans under management. Her goal is to 287 00:18:42.480 --> 00:18:47.910 quadruple opportunity fund size and impact by 2023. Luis has 288 00:18:47.910 --> 00:18:51.060 served on the Consumer Financial Bureau's community advisory 289 00:18:51.060 --> 00:18:54.600 board Consumer Advisory Board, and is also on the Consumer 290 00:18:54.600 --> 00:18:58.350 Advisory Council of the Federal Reserve Bank. Luis, you want to 291 00:18:58.350 --> 00:18:59.010 take this one? 292 00:19:00.720 --> 00:19:02.850 Elena Abernathy: Thank you. Great. And thank you to the CFPB 293 00:19:02.850 --> 00:19:06.090 and to the director for giving us this great opportunity. We've 294 00:19:06.090 --> 00:19:09.060 been looking forward to this discussion for a very long time. 295 00:19:10.020 --> 00:19:12.510 I think one of the things that that we need to be cognizant 296 00:19:12.510 --> 00:19:15.390 about, and we see it and Claire talked about it, you know, since 297 00:19:15.390 --> 00:19:20.040 the Great Recession, there's been a significant number of 298 00:19:20.040 --> 00:19:23.100 alternative lenders that have entered the market to fill the 299 00:19:23.100 --> 00:19:29.040 vacuum left by lending from from traditional banks. Claire talked 300 00:19:29.040 --> 00:19:32.040 about this, that banks are not generally focused on small 301 00:19:32.040 --> 00:19:34.530 business loans, particularly, you know, under a million 302 00:19:34.530 --> 00:19:38.460 dollars, which which seems like a significant large amount, but 303 00:19:38.460 --> 00:19:42.630 they're not and that the market share of small loans to small 304 00:19:42.630 --> 00:19:45.870 businesses, as a percentage of commercial loans, and this 305 00:19:45.870 --> 00:19:49.590 percentage of total bank assets has been declining steadily, 306 00:19:49.860 --> 00:19:54.120 ever since. What we see from our perspective is, you know, as 307 00:19:54.120 --> 00:19:56.760 Noah mentioned, there's a lot of good actors that have come into 308 00:19:56.760 --> 00:20:00.210 the space and that are really deploying quality technology. GE 309 00:20:00.240 --> 00:20:04.050 data analytics, Process automation, digital underwriting 310 00:20:04.050 --> 00:20:07.260 and customer service online customer acquisition. And 311 00:20:07.260 --> 00:20:09.960 they're really doing a good job in expanding access to 312 00:20:09.960 --> 00:20:13.260 responsible and affordable capital. But by the same token, 313 00:20:13.260 --> 00:20:17.010 there's a significant number of bad actors who are coming into 314 00:20:17.010 --> 00:20:20.400 the market who are mostly unregulated, that are providing 315 00:20:20.400 --> 00:20:25.140 extremely high costs, and are in their lending rates and are 316 00:20:25.140 --> 00:20:30.120 really reaping havoc across America's small businesses. And 317 00:20:30.120 --> 00:20:33.000 so we're going to talk more about this, but that is what we 318 00:20:33.000 --> 00:20:35.730 see, you know, with our boots on the ground and with all the 319 00:20:35.730 --> 00:20:39.540 customers that that we get coming to us, either directly 320 00:20:39.690 --> 00:20:44.400 through third parties are even online through our partnership 321 00:20:44.400 --> 00:20:45.060 with Lending Club. 322 00:20:46.380 --> 00:20:48.840 Grady Hedges: Thank you Luis. And yet you mentioned, I'm going 323 00:20:48.840 --> 00:20:51.600 to have you and know what kind of go more toe to toe on this a 324 00:20:51.600 --> 00:20:54.510 little bit later in our panel, because I think it's really an 325 00:20:54.510 --> 00:20:58.440 important thing to focus on. It really is the tension that 326 00:20:58.440 --> 00:21:01.920 exists right now as the small business lending marketplace is 327 00:21:01.920 --> 00:21:05.970 evolving. And one of the points that Claire mentioned, in terms 328 00:21:05.970 --> 00:21:09.480 of the things that has to be solved for to maximize credit 329 00:21:09.480 --> 00:21:13.380 availability availability in the marketplace, is the role of 330 00:21:13.380 --> 00:21:18.120 government. And what effect does government bring on that whole 331 00:21:18.120 --> 00:21:21.870 equation? Let's sort of take that point on, I want to 332 00:21:21.870 --> 00:21:25.980 introduce David Burden. He's the senior fellow in economic policy 333 00:21:25.980 --> 00:21:29.640 for the Heritage Foundation. He has served as general counsel 334 00:21:29.640 --> 00:21:33.270 for the nation, National Small Business Association, and was 335 00:21:33.270 --> 00:21:37.050 CFO and General Counsel for two small firms, including 336 00:21:37.170 --> 00:21:42.330 multinational manufacturing company, David, what role if 337 00:21:42.330 --> 00:21:45.600 any, has government played in the changes you're seeing in the 338 00:21:45.600 --> 00:21:49.350 marketplace, and the impact of regulation in this post 339 00:21:49.350 --> 00:21:50.190 recession world? 340 00:21:52.230 --> 00:21:55.650 David Burden: It's a mixed record. But in general, it's 341 00:21:55.650 --> 00:22:00.420 been counterproductive. And it really depends on context, in 342 00:22:00.420 --> 00:22:07.080 terms of lending. the ever increasing burden on banks has 343 00:22:07.500 --> 00:22:12.510 caused Community Bank smaller banks to decline relative to 344 00:22:12.510 --> 00:22:15.960 money center Bank, which I think has a pronounced negative impact 345 00:22:15.960 --> 00:22:19.740 on small business lending, you can see that in the numbers, you 346 00:22:19.740 --> 00:22:23.430 can also see that in terms of firms seeking equity investment 347 00:22:23.430 --> 00:22:28.080 and the dramatic decline in the number of broker dealers and, 348 00:22:28.410 --> 00:22:33.600 and the merger or exit of small broker dealers. And that's 349 00:22:33.600 --> 00:22:37.470 primarily a function of the regulatory burden, some of which 350 00:22:37.470 --> 00:22:40.590 is banking regulation, some of which is AML regulation, some of 351 00:22:40.590 --> 00:22:45.300 which is its other forms of regulation. One of the things I 352 00:22:45.300 --> 00:22:51.840 wanted to talk about today, because CFPB can conceivably 353 00:22:51.840 --> 00:22:56.370 could play a constructive role is peer to peer lending. Peer to 354 00:22:56.370 --> 00:23:01.230 peer lending is basically where consumers through an internet 355 00:23:01.230 --> 00:23:05.490 platform, lend money to other consumers and an effect and 356 00:23:05.490 --> 00:23:11.070 rather than the bank being the intermediary, the platform is 357 00:23:11.520 --> 00:23:18.390 the intermediary. Once upon a time, prosper and Lending Club 358 00:23:18.390 --> 00:23:24.360 did peer to peer lending for small businesses. And the SEC 359 00:23:24.420 --> 00:23:28.530 jumped them basically said, every time a business goes in 360 00:23:28.530 --> 00:23:34.110 and and seeks to borrow $10,000, through your platform from 361 00:23:34.290 --> 00:23:37.800 consumers, they should have to do a registration statement, I 362 00:23:37.800 --> 00:23:42.000 become a public company. Since it costs roughly one and a half 363 00:23:42.000 --> 00:23:44.850 million dollars in legal and accounting fees to become a 364 00:23:44.850 --> 00:23:47.310 public company. That usually doesn't make sense if you're 365 00:23:47.310 --> 00:23:52.440 seeking to borrow $10,000. So the SEC in effect shut down peer 366 00:23:52.440 --> 00:23:57.000 to peer lending to small businesses. Now there's 367 00:23:57.030 --> 00:24:02.280 workarounds, some prosper and Lending Club, I believe are 368 00:24:02.280 --> 00:24:06.270 still raising Regulation D private placement capital on on 369 00:24:06.270 --> 00:24:10.380 lending some of that to small businesses. But in effect, the 370 00:24:10.410 --> 00:24:14.700 regulatory environment has hurt consumers because they're 371 00:24:14.700 --> 00:24:16.950 getting lower interest rates from banks, and they would if 372 00:24:16.950 --> 00:24:20.490 they were lending to small firms or servers, and it's hurting 373 00:24:20.520 --> 00:24:27.390 small businesses, and it really has done nothing constructive. 374 00:24:27.810 --> 00:24:32.190 There are three ways to get around this. One is what was in 375 00:24:32.190 --> 00:24:36.030 the original house version of Dodd Frank, which is to exempt 376 00:24:36.030 --> 00:24:41.280 peer to peer lending from the securities laws. And in point of 377 00:24:41.280 --> 00:24:45.330 fact, banks are exempted and credit unions are exempted. So 378 00:24:45.360 --> 00:24:49.410 peer to peer lending should probably be exempted. Second way 379 00:24:49.410 --> 00:24:53.640 is to use the medium of title three jobs, crowdfunding under 380 00:24:53.640 --> 00:24:57.930 the Jobs Act, and in fact create a special category of security, 381 00:24:58.290 --> 00:25:02.520 which is a debt security And exempt them from many of the 382 00:25:02.520 --> 00:25:06.300 ongoing disclosure requirements that are appropriate in the case 383 00:25:06.300 --> 00:25:10.410 of equity, finance, and a third way and it's been proposed by a 384 00:25:10.410 --> 00:25:14.430 number of people, there's an effect allow the CFPB to create 385 00:25:14.640 --> 00:25:19.620 a regulatory regime focused on peer to peer lending. In a 386 00:25:19.620 --> 00:25:23.760 sense, that's the least ideal because it created a whole new 387 00:25:23.760 --> 00:25:27.480 regulatory regime. And it would almost certainly have to have 388 00:25:27.480 --> 00:25:31.230 some statutory basis, although not necessarily the long the 389 00:25:31.230 --> 00:25:34.410 short of it is, we need to create a regulatory regime that 390 00:25:34.410 --> 00:25:37.470 doesn't totally shut down peer to peer lending in the United 391 00:25:37.470 --> 00:25:42.060 States. And just a short show how out of it, our regulatory 392 00:25:42.060 --> 00:25:46.740 regime is, it's quite common in Europe, which isn't exactly free 393 00:25:46.740 --> 00:25:51.780 market paradise. That peer to peer lending to small 394 00:25:51.780 --> 00:25:55.440 businesses, but in the United States, it's almost unheard of. 395 00:25:56.370 --> 00:26:00.690 And we've created a regulatory regime that creates a duopoly 396 00:26:00.690 --> 00:26:03.930 for prosper and Lending Club, they have to file a new 397 00:26:03.930 --> 00:26:09.030 registration statement every three weeks or so. And that's a 398 00:26:09.030 --> 00:26:12.210 tremendous barrier to entry created by our regulatory 399 00:26:12.210 --> 00:26:12.630 regime. 400 00:26:14.760 --> 00:26:17.250 Grady Hedges: I was really, I was really looking forward to 401 00:26:17.250 --> 00:26:21.450 this this conversation this morning, because it is not lost 402 00:26:21.450 --> 00:26:25.260 on me that we have a dichotomy of place where I think I would 403 00:26:25.260 --> 00:26:28.110 agree with you regulation has had an impact. As Claire has 404 00:26:28.110 --> 00:26:31.650 mentioned, I'll ask her to come back for comment. But that you 405 00:26:31.650 --> 00:26:35.250 also propose that CFPB maybe has a role in the peer to peer 406 00:26:35.250 --> 00:26:38.760 lending. And for comment on that, I would like to just turn 407 00:26:38.760 --> 00:26:41.820 to the last member who hasn't been introduced of our panel 408 00:26:42.330 --> 00:26:45.690 this morning. And that's Glenn Christensen. He is the Garrett 409 00:26:45.690 --> 00:26:49.740 Research Fellow and associate professor of marketing at the 410 00:26:49.740 --> 00:26:54.240 Marriott School of Business at BYU Dr. Christensen's research 411 00:26:54.240 --> 00:26:58.920 focuses on the internal mental and emotional life of customers 412 00:26:59.130 --> 00:27:02.340 as they experienced the marketplace. Recently, this 413 00:27:02.340 --> 00:27:06.000 concerns the effects of discrimination on minority 414 00:27:06.000 --> 00:27:09.720 entrepreneurs sense of identity and self. And we're going to 415 00:27:09.720 --> 00:27:12.660 have you speak a little bit to that in our third section. But I 416 00:27:12.690 --> 00:27:16.050 wanted wondered from your perspective, as a business 417 00:27:16.050 --> 00:27:20.850 school professor in the marketing area, or your own 418 00:27:20.850 --> 00:27:24.180 experience, reaction to so this peer to peer or other kinds of 419 00:27:24.180 --> 00:27:26.010 lending models that might help get capital? 420 00:27:28.260 --> 00:27:31.260 Glenn Christensen: Well, thank you very much Grady for inviting 421 00:27:31.260 --> 00:27:34.980 us to participate. And I say us and I use not the royal wheat, 422 00:27:34.980 --> 00:27:39.150 but but my co authors here are here as well. And thank the 423 00:27:39.150 --> 00:27:42.930 director for inviting all of us to come and participate to drum 424 00:27:42.930 --> 00:27:47.220 Williams at Rutgers and Sterling bone at the University of Utah. 425 00:27:47.940 --> 00:27:51.690 We've been looking at this marketplace and the experience 426 00:27:51.720 --> 00:27:55.770 of customers, consumers really, who are going in to seek 427 00:27:55.770 --> 00:27:58.290 financing for their small businesses, we've been looking 428 00:27:58.290 --> 00:28:01.770 at it from a multitude of lenses, whether it'd be field 429 00:28:01.770 --> 00:28:07.710 experiments, and academic experiments. And also video 430 00:28:07.710 --> 00:28:10.590 ethnographies, where we've gone into the lives of customers in 431 00:28:10.590 --> 00:28:14.970 this marketplace and what what their experiences. And we come 432 00:28:14.970 --> 00:28:18.000 out we can't came at this from the consumer point of view as 433 00:28:18.000 --> 00:28:22.620 marketing professors, not realizing that what we were 434 00:28:22.620 --> 00:28:25.080 stepping into just trying to understand the experience of 435 00:28:25.080 --> 00:28:28.680 customers in the marketplace. And it's been a gratifying 436 00:28:28.680 --> 00:28:31.830 journey and a frustrating one too, because every time in one 437 00:28:31.830 --> 00:28:35.400 of our research projects, we get significant effects. That means 438 00:28:35.430 --> 00:28:39.030 society is not working correctly, because we've been 439 00:28:39.060 --> 00:28:43.110 doing testing in the marketplace that I'll talk about more later. 440 00:28:43.290 --> 00:28:46.950 The bottom line and to degree this question, and I'll talk 441 00:28:46.950 --> 00:28:49.770 more about the axis and the things that we've found later. 442 00:28:50.040 --> 00:28:55.890 But, but to the point about peer to peer lending, our global 443 00:28:55.890 --> 00:28:59.010 takeaway after 10 years of studying this from all these, 444 00:28:59.040 --> 00:29:04.890 these myriad of lenses is that consumers need options, they 445 00:29:04.890 --> 00:29:08.190 have got to have places that they can go especially when 446 00:29:08.190 --> 00:29:13.290 traditional large and small banks, even community banks have 447 00:29:13.290 --> 00:29:19.710 been as loot pointed out had been or retrenching and pulling 448 00:29:19.710 --> 00:29:24.390 back they need opportunities. And if we can create regulatory 449 00:29:24.390 --> 00:29:26.520 environments where more opportunities are available to 450 00:29:26.520 --> 00:29:31.890 them through more more more points of contact, that that is 451 00:29:31.890 --> 00:29:37.350 a serious concern that we see again and again and again in the 452 00:29:37.380 --> 00:29:40.950 lives of customers as we as we do testing in this area. So 453 00:29:41.640 --> 00:29:46.230 we're supportive of non traditional lenders like on deck 454 00:29:46.350 --> 00:29:51.240 peer to peer lenders and because the especially as new 455 00:29:51.240 --> 00:29:59.070 technologies allow less sort of personal implicit or explicit 456 00:29:59.070 --> 00:30:03.180 biases to come didn't come to bear in the, in the search for 457 00:30:03.180 --> 00:30:04.710 lending in the marketplace. 458 00:30:06.240 --> 00:30:08.550 Grady Hedges: Thank you very much, Glen. Claire, would do you 459 00:30:08.550 --> 00:30:10.770 want to comment a little bit more? Because that was one of 460 00:30:10.770 --> 00:30:14.040 your points about the regulatory burden and its impact? 461 00:30:14.580 --> 00:30:17.130 Claire Kramer Mills: Yeah. So thank you. Um, you know, I won't 462 00:30:17.130 --> 00:30:21.090 speak extensively on this. I just say that, you know, the 463 00:30:21.090 --> 00:30:26.160 Federal Reserve Banks, do have regular meetings with community, 464 00:30:26.490 --> 00:30:29.340 community banks and community lenders. And certainly, 465 00:30:29.850 --> 00:30:34.590 compliance is is an issue for them, that they raise quite 466 00:30:34.590 --> 00:30:38.220 frequently, the compliance costs. And and so if we think 467 00:30:38.220 --> 00:30:44.370 about as we move forward and implementation of 1071, I think 468 00:30:44.400 --> 00:30:51.960 that is a consideration. How might increased compliance costs 469 00:30:51.990 --> 00:30:57.600 and obligations impact, ultimately, the end user, which 470 00:30:57.600 --> 00:31:00.570 I think is something that we're all concerned about, we want to 471 00:31:00.570 --> 00:31:04.050 make sure that there are options in the market. And if you kind 472 00:31:04.050 --> 00:31:07.890 of can go down a path where you could say, Me increased costs, 473 00:31:08.340 --> 00:31:11.340 might have an impact on potential consolidation, further 474 00:31:11.340 --> 00:31:14.790 consolidation in the market. So that is, I think, something that 475 00:31:14.790 --> 00:31:15.630 we need to talk about. 476 00:31:17.940 --> 00:31:20.220 Grady Hedges: Excellent, I should have probably said that 477 00:31:20.220 --> 00:31:23.130 Andrew's disclaimer about the points of view of the panelists 478 00:31:23.220 --> 00:31:26.190 reflecting their own points of view, and not the organizations 479 00:31:26.190 --> 00:31:32.010 with which they represent applied moderators to things I 480 00:31:32.010 --> 00:31:37.710 might say dark, the official position of the CFPB. But thank 481 00:31:37.710 --> 00:31:40.830 you very much for that, that that discussion. And that sort 482 00:31:40.830 --> 00:31:44.760 of signals the first the end of the first of three sessions in 483 00:31:44.760 --> 00:31:48.570 this panel. And we're going to make a pivot now, to focus focus 484 00:31:48.570 --> 00:31:52.620 a little bit more deeply on the impact of new players, 485 00:31:52.650 --> 00:31:56.910 partnerships and products that are that are emerging in this 486 00:31:56.910 --> 00:32:01.470 industry. And we're going to get back to Noah to come in a little 487 00:32:01.470 --> 00:32:05.460 bit more on how he sees the emergence of FinTech lenders 488 00:32:05.460 --> 00:32:10.110 transforming this marketplace. And especially in their use of 489 00:32:10.110 --> 00:32:13.620 ultimate data and ultimate models. Is that helping to 490 00:32:13.620 --> 00:32:18.090 expand credit access, especially for underserved populations? Do 491 00:32:18.090 --> 00:32:22.980 you have any sense of that in any more detail? And also, 492 00:32:23.820 --> 00:32:27.630 you're a pretty large player in this, but they are a whole lot 493 00:32:27.630 --> 00:32:32.040 larger technology firms like square into it and PayPal who 494 00:32:32.040 --> 00:32:34.950 have expressed some interest in this space. What do you see 495 00:32:34.950 --> 00:32:38.730 their potential emergence in here or current emergence doing 496 00:32:38.730 --> 00:32:40.110 to affect the space in the future? 497 00:32:41.640 --> 00:32:44.190 Noah Breslow: Great, thank you Grady. So on the first point, 498 00:32:44.340 --> 00:32:48.420 regarding data and the use of more and better data to make 499 00:32:48.420 --> 00:32:50.970 better credit decisions, I think that's absolutely true. And I 500 00:32:50.970 --> 00:32:53.580 think it unquestionably is expanding access to capital. And 501 00:32:53.580 --> 00:32:57.660 a very simple example of this is, you know, when we started 502 00:32:57.660 --> 00:33:00.540 OnDeck, the traditional bank lending process, there was a 503 00:33:00.540 --> 00:33:03.000 lookup where where a small business had to be in the Dun 504 00:33:03.000 --> 00:33:06.210 and Bradstreet credit database. And we did a survey of the 505 00:33:06.210 --> 00:33:09.510 target market we were looking to serve. And we found that I think 506 00:33:09.510 --> 00:33:12.630 it was less than 30% of our customers were actually present 507 00:33:12.900 --> 00:33:15.420 in the Dun and Bradstreet database. And so what that means 508 00:33:15.420 --> 00:33:17.970 is, you know that that application at the bank would be 509 00:33:17.970 --> 00:33:20.220 dead on arrival, right? If you can't look someone up in Dun and 510 00:33:20.220 --> 00:33:23.520 Bradstreet, you're not going to be able to provide them alone. 511 00:33:23.520 --> 00:33:27.390 And so today, the OnDeck score, which we've created is on its 512 00:33:27.390 --> 00:33:30.390 fifth generation, which is a alternative to the FICO score, 513 00:33:30.390 --> 00:33:32.550 and really grades the credit worthiness of a small business. 514 00:33:32.760 --> 00:33:36.090 We've designed it to gracefully handle situations where 515 00:33:36.090 --> 00:33:38.970 businesses may be present or absent in one data source. And 516 00:33:38.970 --> 00:33:41.460 we now collect about 1000 data points on every single loan 517 00:33:41.460 --> 00:33:44.580 application. And so what we're able to do is if you're missing 518 00:33:44.580 --> 00:33:47.910 from one database, we can wait other data sources slightly 519 00:33:47.910 --> 00:33:51.240 higher to compensate for that, and provide access to credit 520 00:33:51.240 --> 00:33:53.820 where before you would be denied. So that's one simple 521 00:33:53.820 --> 00:33:56.700 example. But I think it's a very concrete one. And I know many of 522 00:33:56.700 --> 00:33:59.880 the other online lenders employ similar techniques. The second 523 00:33:59.880 --> 00:34:02.340 point I'll make about data is, you know, when we started the 524 00:34:02.340 --> 00:34:07.380 company, you know, we already did it with a decade ago, we 525 00:34:07.380 --> 00:34:10.020 thought there was enough data digitally available to serve 526 00:34:10.110 --> 00:34:12.900 this customer base, a decade later that that data 527 00:34:12.900 --> 00:34:16.380 availability has exploded point of sale systems now generate a 528 00:34:16.380 --> 00:34:19.080 ton of data about how our business is doing in real time. 529 00:34:19.770 --> 00:34:23.220 95% plus of small business owners now use online banking. 530 00:34:23.220 --> 00:34:26.550 So there's a ton of information in the online banking, checking 531 00:34:26.550 --> 00:34:29.400 accounts, and other accounts that are managed by the business 532 00:34:29.400 --> 00:34:32.940 owner. And a lot of Government and Public records are moving 533 00:34:32.940 --> 00:34:36.840 online as well. So I would also argue that increased diversity 534 00:34:36.840 --> 00:34:40.440 and availability of new data sources that are granular third 535 00:34:40.440 --> 00:34:44.640 party verified and current. These are very important to 536 00:34:44.640 --> 00:34:48.210 increasing access to capital. In terms of who provides access to 537 00:34:48.210 --> 00:34:50.940 capital. I think what you're seeing now in the online lending 538 00:34:50.940 --> 00:34:54.420 industry is a maturation. Larger, more sophisticated 539 00:34:54.420 --> 00:34:57.930 companies are competing in this industry to your point some of 540 00:34:57.930 --> 00:35:00.060 what we call the closed loop players the payment process 541 00:35:00.060 --> 00:35:03.570 stores have added access to capital to their product or 542 00:35:03.570 --> 00:35:06.300 roster. We welcome that. And overall, it gets back to what 543 00:35:06.300 --> 00:35:09.510 Professor Christensen was saying, the ATA did a study of 544 00:35:09.510 --> 00:35:14.670 small business owners and found that 90 plus percent of them say 545 00:35:14.670 --> 00:35:17.850 that in the last five years, they now have more options for 546 00:35:17.850 --> 00:35:21.540 accessing capital than they did before. And 98% of them say that 547 00:35:21.540 --> 00:35:23.550 that's a good thing. So we believe that more customer 548 00:35:23.550 --> 00:35:26.550 choice Equals better outcomes for customers and and a better 549 00:35:26.550 --> 00:35:29.490 product set in the market. Overall a good thing, but I 550 00:35:29.490 --> 00:35:31.770 think there is this issue and this gets to someone loses 551 00:35:31.770 --> 00:35:34.770 comments, were just like any industry, there's going to be a 552 00:35:34.770 --> 00:35:39.000 set of reasonably well run actors who, who I think are in 553 00:35:39.000 --> 00:35:41.820 the public eye and trying to advance the industry forward. 554 00:35:42.030 --> 00:35:44.880 And maybe a set of actors who aren't so strong are not always 555 00:35:44.880 --> 00:35:47.580 playing by the same rules. And I think frankly, it's not so much 556 00:35:47.580 --> 00:35:51.600 a toe to toe, but we share an interest in in reforming the 557 00:35:51.600 --> 00:35:53.940 industry to a place where business owners can trust the 558 00:35:53.940 --> 00:35:55.980 products they're receiving. And they're they're provided by 559 00:35:55.980 --> 00:35:57.750 companies that that value their success. 560 00:35:59.700 --> 00:36:02.580 Grady Hedges: Excellent. And in trying to channel the oh point 561 00:36:02.580 --> 00:36:06.570 counterpoint. The days that a few in this room might remember 562 00:36:06.840 --> 00:36:09.990 of Bill Buckley and I can't remember that all the female 563 00:36:10.170 --> 00:36:13.020 correspondent who went toe to toe with him on many occasions, 564 00:36:13.290 --> 00:36:17.370 but we're going to turn to lose Arusha. Again, full disclosure, 565 00:36:17.370 --> 00:36:21.210 I've run two national CDFIs. And she is now one of the premier 566 00:36:21.210 --> 00:36:26.790 CDFI CEOs who have basically argued we really need to slow 567 00:36:26.790 --> 00:36:29.370 touch approach if we're going to reach a lot of those underserved 568 00:36:29.370 --> 00:36:33.090 markets. And she's seen a lot of the results of the spread of 569 00:36:33.450 --> 00:36:37.200 ondeck type of lending model and other high tech lenders, and 570 00:36:37.200 --> 00:36:39.480 they have a slightly different perspective on that. 571 00:36:42.060 --> 00:36:46.380 Elena Abernathy: So yes, you know, I think the comments that 572 00:36:46.380 --> 00:36:49.800 Noah has made are true. I mean, there has been an evolution in 573 00:36:49.800 --> 00:36:53.460 product innovation and lenders that have really expanded access 574 00:36:53.460 --> 00:36:56.310 to capital for underserved populations, minority women 575 00:36:56.310 --> 00:37:00.810 owned businesses. However, I think the industry has evolved 576 00:37:00.840 --> 00:37:04.980 much more rapidly than regulators can keep up. And, you 577 00:37:04.980 --> 00:37:08.220 know, mixed in with the stories of businesses that are accessing 578 00:37:08.340 --> 00:37:12.120 online loans and alternative financing, and are being 579 00:37:12.120 --> 00:37:16.710 successful. There are also far too many businesses that are 580 00:37:16.740 --> 00:37:21.090 failing as a result of getting access to capital that is not 581 00:37:21.090 --> 00:37:25.680 responsible is not affordable. Because there are many to Noah's 582 00:37:25.680 --> 00:37:29.820 point, lenders out there that are preying on and they have an 583 00:37:29.820 --> 00:37:33.960 eye on the small businesses, you know, some lenders have really 584 00:37:33.960 --> 00:37:36.600 high approval rates. And the reason for that is because 585 00:37:36.600 --> 00:37:41.880 they're charging, triple rate, interest rates, and mostly to 586 00:37:41.880 --> 00:37:44.520 minority and underserved communities. They're really not 587 00:37:44.520 --> 00:37:48.780 doing any thoughtful, methodical underwriting of the credit that 588 00:37:48.780 --> 00:37:52.410 they're delivering. You know, many of these products are 589 00:37:52.410 --> 00:37:55.410 really unaffordable and unhealthy for small businesses. 590 00:37:55.680 --> 00:37:57.810 And there's a lot of conversation really, that's 591 00:37:57.810 --> 00:38:01.080 focused on the nuances of the products, you know, is it an 592 00:38:01.080 --> 00:38:04.620 MCA? Is there a daily debit, how much alternative data and 593 00:38:04.620 --> 00:38:09.270 analytics is being used? What are the product features, you 594 00:38:09.270 --> 00:38:11.970 know, and so on. But, but the financing of many of these 595 00:38:11.970 --> 00:38:16.110 products are mostly very, very high cost, and they're having a 596 00:38:16.110 --> 00:38:19.770 lot more harm than than goats. So we really cannot lose sight, 597 00:38:19.980 --> 00:38:23.040 that ultimately the the businesses that are being 598 00:38:23.040 --> 00:38:26.790 impacted are being impacted to the point of no longer being in 599 00:38:26.790 --> 00:38:27.360 business. 600 00:38:28.890 --> 00:38:33.150 You know, I think that there are risks, right, that these 601 00:38:33.150 --> 00:38:40.260 borrowers are taking on, because this new class of lender really 602 00:38:40.290 --> 00:38:44.700 does not have their interests aligned with the success of the 603 00:38:44.700 --> 00:38:49.050 small business. And the fundamental risk that we see is 604 00:38:49.050 --> 00:38:52.050 that there is a lack of oversight on commercial lending. 605 00:38:52.410 --> 00:38:56.340 And there's a lack of regulation on small businesses that are 606 00:38:56.340 --> 00:39:00.060 accessing capital in this country. You know, more than 50 607 00:39:00.060 --> 00:39:04.140 years ago, Congress passed the truth in lending for consumers 608 00:39:04.980 --> 00:39:09.660 to help avoid, you know, some of the deceptive credit offers that 609 00:39:09.660 --> 00:39:12.750 they were getting and engaging in, you know, abusive 610 00:39:12.750 --> 00:39:15.630 Collections Practices. But unfortunately, that does not 611 00:39:15.630 --> 00:39:20.070 exist today for for small businesses. Also, today, we 612 00:39:20.070 --> 00:39:24.600 don't have a data set to assess how much small business lending 613 00:39:24.600 --> 00:39:27.660 is taking place. So we really need to start with the basics, 614 00:39:27.750 --> 00:39:31.740 who is and is not getting the capital that they need? Who are 615 00:39:31.740 --> 00:39:35.430 the providers that are offering capital? And then are the 616 00:39:35.430 --> 00:39:39.090 products that are available? Are they the best fit, to help 617 00:39:39.090 --> 00:39:42.960 businesses grow and thrive? You know, this is what we're here to 618 00:39:42.960 --> 00:39:46.080 discuss. We need to start collecting this data. And we 619 00:39:46.080 --> 00:39:50.370 really cannot manage what we don't measure. You know, the 620 00:39:50.370 --> 00:39:53.430 small business owners, particularly women and minority, 621 00:39:53.610 --> 00:39:58.050 they're really stuck between denials of loans from banks, and 622 00:39:58.080 --> 00:40:02.490 a lot of predatory all First from alternative lenders, and 623 00:40:02.490 --> 00:40:06.480 without enough data to, to measure this challenge at the 624 00:40:06.480 --> 00:40:09.840 national level, we really cannot assess the scope and the 625 00:40:09.840 --> 00:40:15.060 magnitude of this problem. We did a study, we reviewed about 626 00:40:15.090 --> 00:40:18.840 150 contracts of small businesses that came to us 627 00:40:18.960 --> 00:40:21.780 looking to refinance debt that they had from alternative 628 00:40:21.780 --> 00:40:25.470 lenders, you know, online and MCA. And we found that the 629 00:40:25.470 --> 00:40:30.420 average APR was 94%, there was a contract in there with a rate as 630 00:40:30.420 --> 00:40:34.770 high as 385%. Many of these borrowers were paying twice the 631 00:40:34.770 --> 00:40:39.060 amount of available cash flow in debt. And about 25% of the study 632 00:40:39.150 --> 00:40:42.600 showed that these businesses were in so much debt that they 633 00:40:42.600 --> 00:40:45.780 could not get out from under it. So you know, again, the reason 634 00:40:45.780 --> 00:40:49.800 for these very high aprs is because many lenders are not 635 00:40:49.800 --> 00:40:53.910 doing underwriting. And they're, they're charging, you know, 636 00:40:53.910 --> 00:40:58.140 triple digit rates, and making decisions, mostly on monthly 637 00:40:58.140 --> 00:41:01.530 income, as evidenced by the merchant data that they're 638 00:41:01.530 --> 00:41:05.310 gathering as well as the deposit inflows that are coming into 639 00:41:05.340 --> 00:41:10.500 into the accounts. So I think we need to, you know, I want to 640 00:41:10.500 --> 00:41:14.250 share because you know, the data and the numbers say a lot. But 641 00:41:14.280 --> 00:41:17.190 the anecdotal and the evidence, I want to share a story, which 642 00:41:17.190 --> 00:41:20.940 is a pretty tragic story, we had a small business, medium age 643 00:41:20.940 --> 00:41:25.350 minority woman come to us, and she wanted to refinance, she was 644 00:41:25.350 --> 00:41:28.920 making about $7,000 a month in net profit in her business, she 645 00:41:28.920 --> 00:41:32.730 had taken $70,000 worth of credit from three different 646 00:41:32.730 --> 00:41:35.760 alternative lenders, and her debt service payments was 647 00:41:35.790 --> 00:41:40.530 $42,000 a month, that's almost six times the amount of her take 648 00:41:40.530 --> 00:41:43.830 home pay. We looked at it, we did the underwriting. And we 649 00:41:43.830 --> 00:41:47.280 quickly recognized that she could not afford $70,000 worth 650 00:41:47.280 --> 00:41:51.660 of debt, even with a lower rate and the longer terms. And so 651 00:41:51.660 --> 00:41:55.470 what we learned is several years later, her business failed 652 00:41:55.530 --> 00:41:59.340 because of the burden of this high cost debt, we are able to 653 00:41:59.370 --> 00:42:03.060 even finance 50% of borrowers that come to us from alternative 654 00:42:03.060 --> 00:42:06.180 lenders. And when we do that, we see that their payments fall 655 00:42:06.300 --> 00:42:11.310 about 60%. And rates come down from an average of 94%, down to 656 00:42:11.310 --> 00:42:14.850 around 20%. So that's responsible credit. And that's 657 00:42:14.850 --> 00:42:17.490 sort of what we need to be looking at and providing to 658 00:42:17.490 --> 00:42:18.870 American small businesses. 659 00:42:20.340 --> 00:42:22.980 Grady Hedges: Thank you Luis, I'm gonna let Noah come back 660 00:42:22.980 --> 00:42:26.190 with a response. But I do want to say one thing that I should 661 00:42:26.190 --> 00:42:29.430 have cautioned myself about, we love acronyms here in the 662 00:42:29.430 --> 00:42:32.850 nation's capital. And I mentioned one CDFIs. That's 663 00:42:32.850 --> 00:42:35.790 community development financial institution. So it was the tooth 664 00:42:35.790 --> 00:42:38.580 that I ran that Lewis also happens to run when you 665 00:42:38.580 --> 00:42:41.280 mentioned two acronyms that if I would just want to make sure 666 00:42:41.580 --> 00:42:45.000 allow you to say what they are MCAs and APRs? 667 00:42:45.930 --> 00:42:48.780 Elena Abernathy: Merchant cash advances and annual percentage 668 00:42:48.780 --> 00:42:49.260 rates. 669 00:42:49.620 --> 00:42:52.230 Grady Hedges: And OnDeck's business model is not an MCA. 670 00:42:52.500 --> 00:42:54.510 Correct. Okay. Noah, do you want to come back? 671 00:42:55.320 --> 00:42:59.100 Noah Breslow: Sure. So you know, I think Luis brings up a lot of 672 00:42:59.100 --> 00:43:02.790 very valid points. online lenders have a responsibility to 673 00:43:02.790 --> 00:43:04.860 help their borrowers be successful. It's just that 674 00:43:04.860 --> 00:43:07.680 simple. And that involves several things involving risk 675 00:43:07.680 --> 00:43:10.230 based pricing, right, so charging a higher quality 676 00:43:10.230 --> 00:43:12.900 borrowers a lower rate, than then you would charge riskier 677 00:43:12.930 --> 00:43:16.290 borrowers. It also I think, involves reporting back to 678 00:43:16.290 --> 00:43:19.440 credit bureaus, something on Dec has done since the beginning of 679 00:43:19.440 --> 00:43:21.480 our inception, where we can actually report on the debt 680 00:43:21.480 --> 00:43:24.540 outstanding with an online lender such as us. So other 681 00:43:24.540 --> 00:43:27.840 lenders can factor that into their loan decision, which is a 682 00:43:27.840 --> 00:43:30.930 very, very important thing again, you know, in more mature 683 00:43:30.930 --> 00:43:32.820 industries, like credit cards, many of you probably have 684 00:43:32.820 --> 00:43:34.980 several credit cards in your wallet, it's not necessarily a 685 00:43:34.980 --> 00:43:37.620 bad thing, that you might have a Capital One and an American 686 00:43:37.620 --> 00:43:40.470 Express credit card at the same time. But What's critical is 687 00:43:40.470 --> 00:43:42.990 that when Capital One makes that loan decision, they know you 688 00:43:42.990 --> 00:43:45.300 have the American Express credit card, and they know what your 689 00:43:45.300 --> 00:43:49.440 balance outstanding is with them. You know, I think when you 690 00:43:49.440 --> 00:43:54.000 look at the CDFI market, we applaud the work that CDFIs do 691 00:43:54.000 --> 00:43:56.940 they make loans that for profit lenders, like on Deck are not 692 00:43:56.940 --> 00:44:00.030 able to make either because they have a hurdle rate or an 693 00:44:00.030 --> 00:44:02.820 economic return threshold that that's lower than where we can 694 00:44:02.820 --> 00:44:06.840 play. And, or because the borrower requires much more 695 00:44:06.840 --> 00:44:09.180 comprehensive technical assistance than you can do in an 696 00:44:09.180 --> 00:44:11.880 online model. But I think it would be a little bit 697 00:44:12.870 --> 00:44:15.510 unfortunate to not also acknowledge the relative size of 698 00:44:15.510 --> 00:44:18.240 the capital gap that's facing Small Business and the size of 699 00:44:18.240 --> 00:44:22.680 the nonprofit and CDFI model. So in 2017, CDFI, has provided a 700 00:44:22.680 --> 00:44:25.920 billion dollars in capital to small business owners in this 701 00:44:25.920 --> 00:44:28.950 country. It's a laudable number in the single year on deck 702 00:44:28.950 --> 00:44:32.580 provides two and a half billion, which is more than the 232 CDFI 703 00:44:32.580 --> 00:44:37.530 loan funds combined. So on Deck is just one player. When you add 704 00:44:37.530 --> 00:44:39.900 up the entire industry, it's probably delivering around 15 705 00:44:39.900 --> 00:44:42.840 billion a year to small businesses in the US. So again, 706 00:44:42.960 --> 00:44:45.840 that's not a source of capital. I don't think it would be good 707 00:44:45.840 --> 00:44:48.660 for the economy to simply turn that off. I think we have to be 708 00:44:48.660 --> 00:44:53.370 very, again, pragmatic and work to eliminate bad actors who by 709 00:44:53.370 --> 00:44:55.920 the way, are a very small fraction of that volume, 710 00:44:56.100 --> 00:44:58.800 preserve the flow of capital to small business owners, and we'll 711 00:44:58.800 --> 00:45:01.410 all I think be in a better replays. And by the way, it's 712 00:45:01.410 --> 00:45:04.800 not impossible for CDFIs and online lenders to work together 713 00:45:04.950 --> 00:45:07.140 Opportunity Fund has a partnership with Lending Club. 714 00:45:07.290 --> 00:45:09.900 We've partnered with Justine Peterson and other CDFIs over 715 00:45:09.900 --> 00:45:12.630 the years who have used our platform to deliver capital to 716 00:45:12.630 --> 00:45:15.390 their customers. So there's ways for these institutions to work 717 00:45:15.390 --> 00:45:18.930 together. But we have a massive, massive problem to solve. And I 718 00:45:18.930 --> 00:45:22.170 think both online lenders and CDF CDFIs will play an important 719 00:45:22.170 --> 00:45:23.760 part in in closing the gap. 720 00:45:25.080 --> 00:45:26.970 Grady Hedges: Thank you both for teeing that up on the turn to 721 00:45:26.970 --> 00:45:27.240 other. 722 00:45:27.240 --> 00:45:29.520 Glenn Christensen: Grady, Can I chime in on that one real quick. 723 00:45:29.790 --> 00:45:34.620 So that I'm sorry to interrupt but I just this, this whole 724 00:45:34.620 --> 00:45:36.870 conversation underscores something that we've seen again, 725 00:45:36.870 --> 00:45:39.390 and again, and that's why our first paper seminal paper that 726 00:45:39.390 --> 00:45:41.490 was published in this area was in the Journal of Consumer 727 00:45:41.490 --> 00:45:48.630 Research. And that is that with, with 8080 plus percent of all 728 00:45:48.630 --> 00:45:52.200 small businesses being sole proprietorships, basically, just 729 00:45:52.200 --> 00:45:54.930 with no employees, not employees, as Claire described 730 00:45:55.140 --> 00:46:02.580 in firms. And, and also her data showed that 20% of them, so over 731 00:46:02.580 --> 00:46:06.300 just over 5 million sole proprietorships went into that 732 00:46:06.330 --> 00:46:10.170 market, just because they had no other options. And that's why 733 00:46:10.170 --> 00:46:13.740 they were there. Well, that underscores the consumer aspect 734 00:46:13.830 --> 00:46:19.620 of these small business. And there, they probably wouldn't 735 00:46:19.620 --> 00:46:23.070 know the difference between an interest rate and an APR. And 736 00:46:23.070 --> 00:46:27.030 why those are two different things. And and I think it's 737 00:46:27.030 --> 00:46:29.520 really important that we understand that the level of 738 00:46:29.550 --> 00:46:35.160 sophistication in here does not match the policy umbrella that 739 00:46:35.910 --> 00:46:39.810 that it's more like they're there. For most of them, the 740 00:46:39.810 --> 00:46:42.450 vast majority of them there, they are consumers in every 741 00:46:42.450 --> 00:46:47.460 respect. And they approach the market as consumers with low 742 00:46:47.460 --> 00:46:50.490 sophistication, financial sophistication, and yet the law 743 00:46:50.520 --> 00:46:56.340 treats them as sophisticated, maybe multimillion dollar 744 00:46:56.340 --> 00:47:00.660 companies in revenue in terms and so that that and also the 745 00:47:00.870 --> 00:47:04.920 data also suggests that they're not very happy with their move 746 00:47:04.920 --> 00:47:07.110 to these online lenders, but their customer service they've 747 00:47:07.110 --> 00:47:09.420 had there and the lack of transparency is their biggest 748 00:47:09.570 --> 00:47:12.120 problem. They don't really know when they're signing up for 749 00:47:12.120 --> 00:47:19.170 these loans, that they are signing up for 200% APR or 500% 750 00:47:19.170 --> 00:47:25.380 APR or some other unholy number. And, but and getting them into a 751 00:47:25.380 --> 00:47:27.570 situation that because they just didn't understand and they're 752 00:47:27.570 --> 00:47:31.590 just being tripped in tricked into it. So these are consumers. 753 00:47:31.590 --> 00:47:33.930 And that's why we studied them as consumers, even though 754 00:47:33.930 --> 00:47:35.460 they're in the small business space. 755 00:47:35.670 --> 00:47:37.410 Claire Kramer Mills: So to piggyback on that a little bit. 756 00:47:38.130 --> 00:47:41.040 You know, I think that there are there are real trade offs. For 757 00:47:41.040 --> 00:47:44.070 for small business owners who are seeking capital, JPMorgan 758 00:47:44.070 --> 00:47:47.310 Chase Institute, a research suggests that the number of days 759 00:47:47.310 --> 00:47:51.450 of cash reserves for the typical small business is about 27. So 760 00:47:51.480 --> 00:47:54.330 you know, there are there are real fluctuations in in their 761 00:47:54.330 --> 00:47:58.080 revenue, situation and their obligations. And speed, speed of 762 00:47:58.080 --> 00:48:01.440 capital is really important for them. We see that play out in 763 00:48:01.440 --> 00:48:05.130 our small business credit survey findings. When we ask why did 764 00:48:05.130 --> 00:48:08.520 you seek financing from an online provider? It is because 765 00:48:08.520 --> 00:48:12.780 it was the swiftness of of capital in your bank account. 766 00:48:13.620 --> 00:48:16.740 There are trade offs, though, when when we ask about the 767 00:48:16.740 --> 00:48:20.700 experience and satisfaction. And again, here, I'm lumping all 768 00:48:20.700 --> 00:48:23.310 online lenders together and I realized there's diversity in 769 00:48:23.310 --> 00:48:26.970 the market. So I think that's an important point to flag. But 770 00:48:26.970 --> 00:48:30.900 their dissatisfaction stems from lack of transparency. And, of 771 00:48:30.900 --> 00:48:35.550 course, you know that the high costs of the interest research 772 00:48:35.550 --> 00:48:38.610 from the Board of Governors and the Federal Reserve Bank of 773 00:48:38.610 --> 00:48:42.330 Cleveland is illuminating. And I think it underscores the point 774 00:48:42.330 --> 00:48:47.010 that that Glenn was making, in terms of transparency 775 00:48:47.010 --> 00:48:51.000 considerations, knowing what you're signing on to. So they 776 00:48:51.000 --> 00:48:54.360 conducted a series of online focus groups, small businesses, 777 00:48:54.360 --> 00:48:57.750 we know are very pressed for time doing an online, you know, 778 00:48:58.350 --> 00:49:02.670 type of inquiry is is good and yields responses, which is what 779 00:49:02.670 --> 00:49:06.570 we're looking for in research. And what they found was they 780 00:49:06.570 --> 00:49:11.040 took a series of products that mirrored products that are 781 00:49:11.070 --> 00:49:14.670 provided currently by online providers of capital and 782 00:49:14.850 --> 00:49:19.290 presented the prospective borrowers with considerations 783 00:49:19.290 --> 00:49:23.400 about the the product features and and the costs. And they 784 00:49:23.400 --> 00:49:27.090 asked the potential borrowers to estimate the effective interest 785 00:49:27.090 --> 00:49:31.830 rate. And the answers that they got back varied from 5% to 50%. 786 00:49:31.860 --> 00:49:36.480 So it's pretty varied, same product, Wide, wide range of 787 00:49:36.480 --> 00:49:40.890 understanding and an estimation. So I think, you know, in this 788 00:49:40.890 --> 00:49:44.670 space, we should heed the words of the of the borrowers when 789 00:49:44.670 --> 00:49:48.870 they asked for recommendations what small business owners would 790 00:49:48.870 --> 00:49:51.570 say to the industry, they said, just make the loan descriptions 791 00:49:51.570 --> 00:49:55.260 simple and easy to understand. And I think that that's, that's 792 00:49:55.260 --> 00:49:56.070 where we are today. 793 00:49:57.780 --> 00:49:59.850 Grady Hedges: David, you haven't had a chance to get in here any 794 00:49:59.850 --> 00:50:00.480 desire? 795 00:50:06.450 --> 00:50:14.370 David Burden: The I think folks, like, let's talk about high APRs 796 00:50:14.370 --> 00:50:18.210 and everything else. But the bottom line is somebody's 797 00:50:18.210 --> 00:50:21.300 lending that small business and the small business needs money, 798 00:50:21.300 --> 00:50:26.250 or it's probably going to fail. And the banks aren't lending 799 00:50:26.250 --> 00:50:34.290 because the costs of making very small loans are relatively high 800 00:50:34.290 --> 00:50:38.940 as a percentage of the loan. And they go up and up and up and up, 801 00:50:38.940 --> 00:50:44.010 because the government requires more and more rules be complied 802 00:50:44.010 --> 00:50:49.410 with section 1071. Being an example, section 1071 is going 803 00:50:49.410 --> 00:50:51.960 to raise the cost of small business loans is going to 804 00:50:51.960 --> 00:50:56.400 reduce, to the extent it applies to Orleans is going to do some 805 00:50:56.400 --> 00:50:59.550 number of loans is going to increase the costs associated 806 00:50:59.550 --> 00:51:03.120 with small business loans, and raise the cost of small 807 00:51:03.120 --> 00:51:06.990 businesses that pay for loans. That's true of all these things, 808 00:51:06.990 --> 00:51:10.560 whether it's AML, compliant, fair lending compliance, 809 00:51:11.520 --> 00:51:15.630 beneficial ownership, the CDD rule that FinCEN just put out, 810 00:51:16.230 --> 00:51:20.040 the corporate transparency act at the house just passed all 811 00:51:20.040 --> 00:51:24.480 these things, raise the cost of small business lending, and will 812 00:51:24.540 --> 00:51:28.770 and have reduced the amount of small business lending and 813 00:51:28.770 --> 00:51:33.120 raised the price to small businesses, and therefore had an 814 00:51:33.120 --> 00:51:44.370 adverse impact on the economy. So I think we need to focus on 815 00:51:45.000 --> 00:51:49.500 reducing the regulatory burden that hurts small firms, and 816 00:51:49.500 --> 00:51:52.950 promote changes that are going to increase the access to 817 00:51:52.950 --> 00:51:55.860 capital, in the case of peer to peer lending, which I talked 818 00:51:55.860 --> 00:51:59.790 about, will also help consumers win, probably most of you know 819 00:51:59.790 --> 00:52:02.340 that if you put money in a bank, you don't give very much back. 820 00:52:02.760 --> 00:52:06.810 And, and the bottom line is, if you could use a peer to peer 821 00:52:06.810 --> 00:52:09.900 lending platform, you will get a higher rate of return than you 822 00:52:09.900 --> 00:52:13.800 would with banks as intermediary. But again, part of 823 00:52:13.800 --> 00:52:16.920 that is a function of the fact it's so expensive to operate a 824 00:52:16.920 --> 00:52:20.730 bank. On the next panel, I think you'll have some people who are 825 00:52:20.730 --> 00:52:24.000 aware that most people who don't operate in the business world 826 00:52:24.540 --> 00:52:28.980 have no clue what we're doing to these businesses. Right, there 827 00:52:28.980 --> 00:52:33.990 is an absolutely monumental administrative and regulatory 828 00:52:33.990 --> 00:52:37.350 burden that we're imposing on these banks. And that's why 829 00:52:37.680 --> 00:52:42.300 we're seeing precipitous declines, and a number of small 830 00:52:42.300 --> 00:52:46.800 broker dealers, and small banks. And that's not good for the 831 00:52:46.800 --> 00:52:51.150 country to have any, I don't remember the exact number. But 832 00:52:51.150 --> 00:52:55.530 something like 50, you probably know the number 55% of all 833 00:52:55.530 --> 00:53:00.690 deposits are in the top 10 banks. That's because of the 834 00:53:00.690 --> 00:53:04.890 regulatory burden. Jamie Diamond goes around bragging about how 835 00:53:04.890 --> 00:53:08.700 he has an advantage because he's big, right? We don't want to do 836 00:53:08.700 --> 00:53:12.840 that we don't want to create a world where the top 10 banks run 837 00:53:12.840 --> 00:53:16.620 everything. It's not good for small businesses is not good for 838 00:53:16.620 --> 00:53:20.880 competition. But that's what this regulatory burden is doing, 839 00:53:21.270 --> 00:53:21.660 and. 840 00:53:21.840 --> 00:53:24.690 Grady Hedges: David, I'm going to just ask, because we need to 841 00:53:24.690 --> 00:53:28.950 move on to our last section on this. But I want to give Luis 842 00:53:29.160 --> 00:53:31.230 the last, the last part in this. 843 00:53:31.320 --> 00:53:33.900 Elena Abernathy: So first of all, I don't think that we can 844 00:53:33.900 --> 00:53:38.220 blame Dodd Frank and section 1071. Most of other lending has 845 00:53:38.220 --> 00:53:43.200 bounced back. So we can't look at 1071 and say that they're the 846 00:53:43.200 --> 00:53:46.740 reason because that only made it regulated has yet not been 847 00:53:46.740 --> 00:53:49.110 implemented. But I think it's important, you know, when we 848 00:53:49.110 --> 00:53:52.080 talk about the costs of incremental cost to industry and 849 00:53:52.080 --> 00:53:54.990 how that's going to be passed on to small businesses, we cannot 850 00:53:54.990 --> 00:53:58.620 ignore the cost for small businesses not getting access to 851 00:53:58.620 --> 00:54:01.620 the capital they need that's responsible and affordable. 852 00:54:01.800 --> 00:54:06.900 They're bearing, you know, a lot of this burden. We have seen 853 00:54:06.900 --> 00:54:10.110 firsthand what happens when businesses don't get capital. 854 00:54:10.230 --> 00:54:12.840 They're the ones creating job making investments and 855 00:54:12.840 --> 00:54:15.870 communities, increasing wages, increasing spending and tax 856 00:54:15.870 --> 00:54:19.440 revenues without having the capital. They can't do that they 857 00:54:19.440 --> 00:54:22.440 can't make those investments. So while it's important to quantify 858 00:54:22.620 --> 00:54:26.430 the cost to industry, and be thoughtful and methodical, I 859 00:54:26.430 --> 00:54:29.280 think we also need to quantify the cost to small businesses for 860 00:54:29.280 --> 00:54:31.800 not getting access to capital that's responsible. 861 00:54:34.080 --> 00:54:37.230 Grady Hedges: Oh, thank you very much that that section lived up 862 00:54:37.230 --> 00:54:40.920 to my expectations. So really appreciated that we're going to 863 00:54:40.920 --> 00:54:44.130 finish up with a little bit of a conversation around excess and 864 00:54:44.130 --> 00:54:46.710 we're going to turn back to Glenn, who's going to tee this 865 00:54:46.710 --> 00:54:50.940 up for us. Speaking to the issue, are there credit worthy 866 00:54:50.940 --> 00:54:53.640 small businesses that have better or worse access to 867 00:54:53.640 --> 00:54:58.920 credit? Who are they and why might those those gaps exist? 868 00:54:59.760 --> 00:55:03.870 What other sectors of small businesses might be underserved, 869 00:55:03.870 --> 00:55:07.560 especially when you think about what has been the pattern of 870 00:55:07.890 --> 00:55:11.910 bank closures, for example, in our country, so I need you to 871 00:55:11.910 --> 00:55:14.730 kick us off with an overview in this area. 872 00:55:15.900 --> 00:55:21.690 Glenn Christensen: Thank you Grady. I, the research we do is 873 00:55:21.690 --> 00:55:24.360 on pre application testing. And let me tell you that the 874 00:55:24.360 --> 00:55:28.290 experience that we've seen in the lives of consumers and the 875 00:55:28.290 --> 00:55:32.190 NCRC has been our colleagues and collaborators on collecting 876 00:55:32.190 --> 00:55:36.780 these data and more from the NCRC and panel to, so I'll leave 877 00:55:36.810 --> 00:55:40.920 the introductions to them, and even the acronym to them in. 878 00:55:42.180 --> 00:55:48.240 But, but But what we've done is we we, for 10 years, we one of 879 00:55:48.240 --> 00:55:51.180 the most common ways we've been testing in this area is sending 880 00:55:51.270 --> 00:55:56.160 matched pairs. So we we hire mystery shoppers to go into 881 00:55:56.160 --> 00:56:00.570 banks. And so all of our it's not online, this is all in brick 882 00:56:00.570 --> 00:56:04.800 and mortar, and which is still the lion's share of the loans in 883 00:56:04.800 --> 00:56:08.880 this area, even with the with the CDFIs and the online 884 00:56:08.880 --> 00:56:11.070 lenders. And so it's an important place to understand 885 00:56:11.070 --> 00:56:13.320 the experience of consumers in the marketplace and their 886 00:56:13.320 --> 00:56:17.010 service experience. So we match them, we control as many in the 887 00:56:17.010 --> 00:56:21.390 field variables as we can, and we send them in we we we make 888 00:56:21.390 --> 00:56:25.230 sure that they they look the same to the extent you can, that 889 00:56:25.230 --> 00:56:28.950 they're attractive to the extent you can and control that they 890 00:56:28.950 --> 00:56:32.280 even wear the same clothes, not exactly the same clothes, that's 891 00:56:32.280 --> 00:56:37.230 gross, but but they were like a polo and like an a pair of 892 00:56:37.230 --> 00:56:40.080 khakis to make them as similar as possible. And then we give 893 00:56:40.080 --> 00:56:44.460 them profiles, and the profiles are put them right in a sweet 894 00:56:44.460 --> 00:56:46.770 spot where they should, the loans that they're looking for 895 00:56:46.770 --> 00:56:51.570 are the modal loans that they about 60 to $70,000 loans, which 896 00:56:51.570 --> 00:56:54.810 is the most commonly requested based on the data that we've 897 00:56:54.810 --> 00:56:58.320 learned from the Fed is that that's what people are looking 898 00:56:58.320 --> 00:57:04.800 for those the your sweet spot loans and, and and then when we 899 00:57:04.800 --> 00:57:09.450 first did it, we made them equally have incomes of 20 900 00:57:09.480 --> 00:57:15.930 250,002 revenue streams about 250,000. And then and and they 901 00:57:15.930 --> 00:57:21.180 should eat all equally easy get these loans, good credit scores, 902 00:57:21.180 --> 00:57:24.450 good credit history, good receivables, then we send them 903 00:57:24.450 --> 00:57:27.330 into the bank and we send them into the same branch within a 904 00:57:27.330 --> 00:57:31.050 week of each other. So they have different profiles slightly. We 905 00:57:31.050 --> 00:57:35.130 did this, they were identical profiles, originally. And then 906 00:57:35.130 --> 00:57:37.680 after a few years of doing this, we said let's make this a more 907 00:57:37.680 --> 00:57:41.130 conservative test. Let's make it harder. Let's put the thumb on 908 00:57:41.130 --> 00:57:45.870 the on the scale on behalf of the minorities in the protected 909 00:57:45.870 --> 00:57:50.010 class testers, and so they actually have better profiles 910 00:57:50.010 --> 00:57:54.240 and better. And we thought and I thought I literally thought 911 00:57:54.270 --> 00:57:57.030 we're gonna just gonna erase all of our findings, we're not going 912 00:57:57.030 --> 00:58:00.450 to we're just going to turn off this thing. And it didn't change 913 00:58:00.450 --> 00:58:03.870 anything. And so the question is, is it a level playing field 914 00:58:03.870 --> 00:58:06.870 and access to capital? And in our experience of the pre 915 00:58:06.870 --> 00:58:10.800 application testing, the answer is a categorical No, it's not 916 00:58:10.800 --> 00:58:14.340 level. And then 10 years of testing, we've we've again and 917 00:58:14.340 --> 00:58:20.250 again, again found statistically different experiences were on 918 00:58:20.250 --> 00:58:23.340 very objective measures that we asked them to measure, like, did 919 00:58:23.340 --> 00:58:25.800 they use your name? Did they find out your name? Did they 920 00:58:25.800 --> 00:58:29.130 give you a business card did they did they stand up to greet 921 00:58:29.130 --> 00:58:32.370 you very not subjective, sort of personal interpretations of it, 922 00:58:32.370 --> 00:58:34.560 just objective things, and then we've actually done it with 923 00:58:34.560 --> 00:58:37.710 video testing, too. And in the video testing, then we can code 924 00:58:37.710 --> 00:58:40.350 the videos to show exactly what did happen, not just their 925 00:58:40.350 --> 00:58:43.080 memory of it as they do as they fill out a survey at the end. 926 00:58:43.530 --> 00:58:47.610 And the bottom line is we find statistical significance in lots 927 00:58:47.610 --> 00:58:51.810 and lots of areas and an almost every occurrence. If it was a 928 00:58:51.810 --> 00:58:55.680 level playing field, you might find you'd see the end the black 929 00:58:55.740 --> 00:58:59.100 or the white, the white tester is our white male tester is our 930 00:58:59.100 --> 00:59:02.940 control. And their experience becomes the control and we see 931 00:59:03.000 --> 00:59:06.570 is everybody being treat because that's always the highest level 932 00:59:06.570 --> 00:59:10.380 of service that we're observing. And so is there differences and 933 00:59:10.380 --> 00:59:12.750 if there's a level playing field, sometimes you'd see the 934 00:59:12.750 --> 00:59:16.350 white tester being treated better or and sometimes worse, 935 00:59:16.440 --> 00:59:19.950 in almost every time we've done statistics, that's difficult 936 00:59:19.980 --> 00:59:25.830 seen statistically different effects. It's always almost 937 00:59:25.830 --> 00:59:29.370 always in except for one really interesting case of homophily 938 00:59:29.370 --> 00:59:33.210 and can can talk about that if we have time but the but in is 939 00:59:33.210 --> 00:59:37.380 that the minorities are treated more poorly than their white 940 00:59:38.940 --> 00:59:46.080 they've treated more poorly than their than their than their 941 00:59:46.230 --> 00:59:47.340 white counterparts. 942 00:59:47.490 --> 00:59:50.820 Even though on paper their profiles should they should 943 00:59:50.850 --> 00:59:54.030 actually be treated better. And the bottom line here from a 944 00:59:54.030 --> 00:59:57.630 business perspective, that the banks are lending good money go 945 00:59:57.630 --> 01:00:01.710 through the go walk right out the door. And it's a business 946 01:00:01.710 --> 01:00:06.240 opportunity. First and foremost, the data that Claire has created 947 01:00:06.300 --> 01:00:09.960 showed that 30% of we'll talk about black minority 948 01:00:09.960 --> 01:00:13.350 entrepreneurs have great credit. So that means one in three black 949 01:00:13.350 --> 01:00:17.340 minority entrepreneurs that you see come in with low credit 950 01:00:17.340 --> 01:00:22.200 risk. And, and we're seeing that they don't even get to the point 951 01:00:22.200 --> 01:00:25.020 where they find those things out. We also see troubling, 952 01:00:25.020 --> 01:00:29.370 statistically significant effects that that, that minority 953 01:00:29.400 --> 01:00:35.880 and women borrowers are asked for illegal. We've seen in a 954 01:00:35.880 --> 01:00:38.160 couple of different cities, where they ask for illegal 955 01:00:38.160 --> 01:00:43.650 information like are, are you? Are you married? In the course 956 01:00:43.650 --> 01:00:46.380 of getting a small business loan? That's not only 957 01:00:46.410 --> 01:00:50.490 irrelevant, it's also illegal. And then a follow on questions, 958 01:00:50.790 --> 01:00:55.080 follow on questions like will, in one case, where does she 959 01:00:55.080 --> 01:01:00.930 work, she w. And w two employee will will need her income tax 960 01:01:00.930 --> 01:01:06.060 returns as well. And in the cost of a small business loan 961 01:01:06.120 --> 01:01:10.650 lending, so I can go on and on here, it's hugely important. But 962 01:01:10.650 --> 01:01:13.590 the bottom line is that we see statistically significant 963 01:01:13.590 --> 01:01:16.740 effects in the level of encouragement they receive is 964 01:01:16.740 --> 01:01:21.570 lower than, than their white counterparts. And Claire's data 965 01:01:21.570 --> 01:01:25.710 shows a huge substantial group of people who are, who are 966 01:01:25.710 --> 01:01:28.620 discouraged in the process and don't seek loans because they're 967 01:01:28.620 --> 01:01:32.400 discouraged. Let me end with one anecdote from our study, that 968 01:01:32.430 --> 01:01:37.830 that puts sort of flesh and blood into this 20% 969 01:01:37.860 --> 01:01:41.430 discouragement rate that Claire reports in one of her one of her 970 01:01:41.430 --> 01:01:46.170 studies. And that is, there was a, there was a this is this was 971 01:01:46.830 --> 01:01:51.510 a woman and a man going into the same bank in the south when we 972 01:01:51.510 --> 01:01:55.620 were testing in the south. And they were both white. So we were 973 01:01:55.620 --> 01:01:58.050 controlling everything down. So the only thing different between 974 01:01:58.050 --> 01:02:01.800 them was gender. Well, the the man comes in, and the woman come 975 01:02:01.800 --> 01:02:04.710 in, and they actually seen the saw the same bank exam bank 976 01:02:04.740 --> 01:02:08.610 officer, so we control in this case, randomly, we got control 977 01:02:08.640 --> 01:02:13.020 of almost every variable except for gender. And, and with the 978 01:02:13.020 --> 01:02:17.430 women, the woman tester being a better, better prospect, 979 01:02:17.700 --> 01:02:21.090 although both of them are great prospects. And so they were 980 01:02:21.120 --> 01:02:25.590 given the same same level from the same loan officer, I've 981 01:02:25.710 --> 01:02:30.150 given the same level of information. But then then the 982 01:02:30.180 --> 01:02:36.060 for the white, white male, he, she she, the loan officer turned 983 01:02:36.060 --> 01:02:39.150 into selling mode, and said, Listen, you can get a better 984 01:02:39.150 --> 01:02:44.850 rate. If you open up an account here you can, you can get here's 985 01:02:44.850 --> 01:02:47.430 all these other merchant options that we can do payroll that we 986 01:02:47.430 --> 01:02:50.460 can do for you, if you'll sign up here. And the last thing that 987 01:02:50.670 --> 01:02:55.020 happened with this man and the close of the is that the loan 988 01:02:55.020 --> 01:02:57.990 officer said, Hey, we really want you here, can I set up a 989 01:02:57.990 --> 01:03:02.130 time when we can go through the application process, and I'll 990 01:03:02.130 --> 01:03:05.640 help you through everything. Contrast that with the woman and 991 01:03:05.640 --> 01:03:09.810 her experience in this bank. And she is told the same basic 992 01:03:09.810 --> 01:03:12.990 information about loans, but then never is given any of the 993 01:03:12.990 --> 01:03:16.080 additional information, even though she's a better prospect. 994 01:03:16.110 --> 01:03:20.280 And she has to ask if there's a if there's an interest benefit, 995 01:03:20.310 --> 01:03:23.850 interest rate benefit to opening an account. And then at the end 996 01:03:23.850 --> 01:03:27.300 of it on the way out the door. I think this is so telling. On the 997 01:03:27.300 --> 01:03:31.530 way out the door, she says the loan officer says to the woman 998 01:03:31.740 --> 01:03:35.820 says, I hope that your current bank does a really good job 999 01:03:35.820 --> 01:03:42.420 taking care of you. And that's the kind of to put 20% 1000 01:03:42.420 --> 01:03:46.110 discouragement rates are huge. But this is the experiential 1001 01:03:46.110 --> 01:03:48.930 effect of showing where discouragement comes from 1002 01:03:49.050 --> 01:03:53.640 because there is EBIT and same loan officer, and they just let 1003 01:03:53.640 --> 01:03:55.200 really good money walk out the door. 1004 01:03:57.000 --> 01:04:00.690 Grady Hedges: Thank you, Glenn for that, that testimony. We are 1005 01:04:00.690 --> 01:04:04.650 running up against the break time, and I'm respectful of 1006 01:04:04.650 --> 01:04:07.740 that. But I want to give the final word to Claire. But before 1007 01:04:07.740 --> 01:04:11.520 I do, I want to give a shout out to Julie stencilled and the work 1008 01:04:11.520 --> 01:04:14.700 that the Chamber has done in helping to bring the disparate 1009 01:04:14.700 --> 01:04:18.480 parties together to try and get some common ground she has taken 1010 01:04:18.810 --> 01:04:24.780 the row for Kate Preska, Kate Larson Prohaska had assumed for 1011 01:04:24.780 --> 01:04:28.200 many years in the center for competitiveness and capital 1012 01:04:28.200 --> 01:04:32.190 access. It's been a real partner in helping us to try and advance 1013 01:04:32.190 --> 01:04:35.790 this dialogue of the various interests here. So, Julie, thank 1014 01:04:35.790 --> 01:04:39.150 you and good luck in your new assignment. So Claire, why don't 1015 01:04:39.150 --> 01:04:42.510 you bring us home, perhaps with your observations and what Glenn 1016 01:04:42.510 --> 01:04:44.700 says based on the data and the research you've done? 1017 01:04:44.820 --> 01:04:48.060 Claire Kramer Mills: Sure still, so thank you for that. I think 1018 01:04:48.210 --> 01:04:52.740 Glenn you underscore with both the anecdote and then your your 1019 01:04:52.740 --> 01:04:57.060 expense experimental research does corroborate decades of 1020 01:04:57.060 --> 01:05:02.640 research on different experiences faced by minority 1021 01:05:02.640 --> 01:05:06.720 and women owned businesses. So our survey also corroborates 1022 01:05:06.720 --> 01:05:11.520 this, you know that if even if you control for credit risk, 1023 01:05:11.940 --> 01:05:15.660 there are differences in the likelihood of obtaining 1024 01:05:15.660 --> 01:05:18.390 financing and the full amount of financing that a business 1025 01:05:18.390 --> 01:05:23.190 requests. I think there's also some really interesting and 1026 01:05:23.190 --> 01:05:27.840 compelling information that we're seeing that online 1027 01:05:27.840 --> 01:05:32.550 providers are filling market gaps, that they are providing 1028 01:05:32.790 --> 01:05:36.780 necessary financing, to minority owned businesses and women owned 1029 01:05:36.780 --> 01:05:40.770 businesses, we do see in our data. And it's not definitive 1030 01:05:40.770 --> 01:05:45.510 data by any means. But it's an indication that, you know, for 1031 01:05:45.510 --> 01:05:48.810 example, there is a higher likelihood of minority borrowers 1032 01:05:48.810 --> 01:05:52.020 and women owned businesses to seek and smaller businesses sub 1033 01:05:52.020 --> 01:05:55.860 $1 million in annual revenues to go online for financing. So I 1034 01:05:55.860 --> 01:05:58.440 think it's an important increasingly important channel, 1035 01:05:58.950 --> 01:06:02.220 which, again, is not to say that, that brick and mortar 1036 01:06:02.220 --> 01:06:06.840 banks, and and their virtual presences are not important. But 1037 01:06:06.840 --> 01:06:10.110 I think the landscape has shifted. The other thing that I 1038 01:06:10.110 --> 01:06:13.980 would just say, as we, as we, you know, finalize, and we have 1039 01:06:14.130 --> 01:06:17.190 we conclude this panel, is that the demographics of business 1040 01:06:17.190 --> 01:06:21.000 ownership in America are changing. We are becoming more 1041 01:06:21.000 --> 01:06:25.020 diverse. If you look at the segment of small businesses that 1042 01:06:25.020 --> 01:06:28.410 grew most precipitously coming out of the financial crisis that 1043 01:06:28.410 --> 01:06:31.740 was black women owned businesses. So if you take what 1044 01:06:31.740 --> 01:06:34.860 we're highlighting here about different experiences, we're 1045 01:06:34.860 --> 01:06:38.400 talking about trends in new providers of capital, this 1046 01:06:38.400 --> 01:06:41.940 becomes all the more important as we are in a changing America 1047 01:06:41.940 --> 01:06:44.730 and a changing landscape of business ownership. 1048 01:06:45.390 --> 01:06:49.080 Grady Hedges: Thank you. We have a little bit more time. So I'm 1049 01:06:49.080 --> 01:06:51.870 also going to give a final word to all of our panelists. But 1050 01:06:52.020 --> 01:06:54.570 thank you for wrapping up that particular segment. You're not 1051 01:06:54.570 --> 01:06:56.730 limited to the gaps in the Capitol. There are other 1052 01:06:56.730 --> 01:06:59.400 comments you want to make that you didn't get in some earlier 1053 01:06:59.400 --> 01:07:02.130 segment, or that, please take a few minutes. And we're going to 1054 01:07:02.130 --> 01:07:02.940 start with Noah. 1055 01:07:04.410 --> 01:07:07.680 Noah Breslow: Great. Thank you, Grady. If I get to go back to 1056 01:07:07.680 --> 01:07:09.900 earlier segments, I may have a few more things to say no, I'm 1057 01:07:09.900 --> 01:07:13.290 just kidding. No, they'll just continue with what Professor 1058 01:07:13.320 --> 01:07:17.610 Christensen was talking about. So not only have we seen the 1059 01:07:17.610 --> 01:07:20.820 intimidation or discouragement factor, if you're a woman or 1060 01:07:20.820 --> 01:07:24.420 minority on business, try saying you're a restaurant, and going 1061 01:07:24.420 --> 01:07:26.880 into a bank and applying for a loan, you will literally be 1062 01:07:26.880 --> 01:07:30.300 talked out of applying. So an auto body shop a nail salon, 1063 01:07:30.300 --> 01:07:33.660 again, these are business types that are incredibly common in 1064 01:07:33.660 --> 01:07:36.270 the small business landscape. They want to borrow reasonable 1065 01:07:36.270 --> 01:07:39.210 amounts of capital, they are literally talked out of applying 1066 01:07:39.210 --> 01:07:42.780 for a loan. A Converse example is in the early days of on deck, 1067 01:07:42.780 --> 01:07:45.210 we partnered with several community banks. And we had an 1068 01:07:45.210 --> 01:07:49.830 experience where we declined to the cousin of one of the bank 1069 01:07:49.830 --> 01:07:52.860 presidents for a loan. And we got a very angry call from this 1070 01:07:52.860 --> 01:07:55.500 bank president saying How dare you I can vouch for this 1071 01:07:55.500 --> 01:07:57.900 person's character I grew up with them. They're my cousin. 1072 01:07:57.900 --> 01:08:00.840 And we said, listen, our standards are objective, this 1073 01:08:00.840 --> 01:08:03.570 person did not meet the criteria for an on deck loan, we have to 1074 01:08:03.570 --> 01:08:06.450 turn you down. And so I think that gets to what Claire is 1075 01:08:06.450 --> 01:08:10.830 describing, which is the online process can be more blind. We 1076 01:08:10.830 --> 01:08:14.250 literally don't collect gender or race information in our 1077 01:08:14.250 --> 01:08:17.130 application process. We serve our customers in the language of 1078 01:08:17.130 --> 01:08:19.290 their choice, whether it's English, Spanish, Mandarin, or 1079 01:08:19.290 --> 01:08:22.440 Korean. And so we can actually work with our customers to take 1080 01:08:22.440 --> 01:08:26.670 them through a process, that it has a data driven decision based 1081 01:08:26.670 --> 01:08:30.960 on objective criteria. And everyone is subject to those 1082 01:08:30.960 --> 01:08:34.230 same thresholds. And so I think I'm not surprised certainly our 1083 01:08:34.230 --> 01:08:37.800 own data suggests we know that a third of the online lending 1084 01:08:37.800 --> 01:08:40.740 industry as loans are going into lower and middle income areas. 1085 01:08:41.220 --> 01:08:43.470 You know, community banks are closing the number of bank 1086 01:08:43.470 --> 01:08:46.530 branches in this country peaked in 2011. And so we also don't 1087 01:08:46.530 --> 01:08:48.570 care where you are geographically, you could be in 1088 01:08:48.570 --> 01:08:51.480 the middle of nowhere. But if you have a thriving business and 1089 01:08:51.480 --> 01:08:53.940 you apply for an on deck loan, even if every bank in your town 1090 01:08:53.940 --> 01:08:57.360 is closed, you still have access to capital so again, the 1091 01:08:57.360 --> 01:09:01.110 landscape is changing. Business owners are always going to be 1092 01:09:01.110 --> 01:09:03.660 moving to to new technologies and new approaches, they're 1093 01:09:03.660 --> 01:09:07.050 always interested in saving time. And the demographics of 1094 01:09:07.050 --> 01:09:10.770 the industry are we serve are changing and and our 1095 01:09:10.770 --> 01:09:13.680 technologies and our approaches I think needs to evolve to serve 1096 01:09:13.680 --> 01:09:15.810 them better in the next decade. 1097 01:09:17.550 --> 01:09:19.230 Grady Hedges: Okay, Luis. 1098 01:09:20.700 --> 01:09:23.190 Elena Abernathy: So thank you again, um, you know, we have an 1099 01:09:23.190 --> 01:09:27.240 obligation to collect data on on small business lending in 1100 01:09:27.240 --> 01:09:30.150 America. And I think that if properly implemented, what 1101 01:09:30.150 --> 01:09:34.320 section 1071 would do is it would help the market to better 1102 01:09:34.320 --> 01:09:38.610 address both the lack of access to affordable capital, as well 1103 01:09:38.610 --> 01:09:42.960 as the rise in a responsible lending. And what it also would 1104 01:09:42.960 --> 01:09:46.470 give is clarity and to models that work well and models that 1105 01:09:46.470 --> 01:09:50.790 don't and help government provide incentives that would 1106 01:09:50.790 --> 01:09:54.780 encourage the development of successful models. This would 1107 01:09:54.780 --> 01:09:57.360 bring investors you know, community organizations, 1108 01:09:57.360 --> 01:10:02.340 policymakers and many others. To see for the first time, how well 1109 01:10:02.340 --> 01:10:06.870 or poorly are minority women owned and small businesses being 1110 01:10:06.870 --> 01:10:10.800 served and attract partnerships in into the space. You know, we 1111 01:10:10.980 --> 01:10:14.760 we can't be a nation that for perverts venerating small 1112 01:10:14.760 --> 01:10:19.590 businesses, when we are ignoring the inequities that are taking 1113 01:10:19.590 --> 01:10:23.520 place for them to access capital. And we are focused on 1114 01:10:23.520 --> 01:10:26.670 data and analytics and believe the value and the impact of 1115 01:10:26.670 --> 01:10:31.230 that. And at the same time, you know, saying there's nothing 1116 01:10:31.230 --> 01:10:34.470 here to look at, from my experience being in this 1117 01:10:34.470 --> 01:10:36.660 business and for 33 years lending to underserved 1118 01:10:36.660 --> 01:10:39.990 populations, I can tell you, there's a lot to see here. And I 1119 01:10:39.990 --> 01:10:44.910 can also say that sunlight is the best disinfectants. Thank 1120 01:10:44.910 --> 01:10:45.030 you. 1121 01:10:45.450 --> 01:10:47.670 Grady Hedges: Thank you. And David 30 seconds right brings 1122 01:10:47.670 --> 01:10:47.940 home. 1123 01:10:48.960 --> 01:10:52.260 David Burden: Entrepreneurship represents one of the best 1124 01:10:52.260 --> 01:10:57.930 opportunities for recent immigrants and others to improve 1125 01:10:57.930 --> 01:11:02.100 their lives. A huge hunk of the high paying professions in this 1126 01:11:02.100 --> 01:11:05.370 country are bards. And I'm because of occupational 1127 01:11:05.370 --> 01:11:08.280 licensing and the requirement, they have advanced degrees and 1128 01:11:08.280 --> 01:11:11.850 specific subjects, so on entrepreneurship is the way they 1129 01:11:11.850 --> 01:11:16.890 can get ahead. And yet, we keep piling on rules on these people, 1130 01:11:17.280 --> 01:11:21.150 and those who would serve them, particularly community banks and 1131 01:11:21.150 --> 01:11:24.480 small broker dealers, so that we make access to capital 1132 01:11:24.480 --> 01:11:30.750 difficult, and impede their ability to succeed. And we need 1133 01:11:30.780 --> 01:11:31.560 to do better. 1134 01:11:33.030 --> 01:11:34.890 Grady Hedges: Thank you all for getting us off to the right 1135 01:11:34.890 --> 01:11:38.040 start today. Really appreciate it. Andrew, do you want to give 1136 01:11:38.040 --> 01:11:40.500 us any segues here? Okay. 1137 01:11:49.860 --> 01:11:51.930 Andrew Duke: Well, thank you, Grady. And thanks to all of our 1138 01:11:51.930 --> 01:11:56.070 panelists really appreciate it. It was a great discussion. So as 1139 01:11:56.070 --> 01:12:01.260 I said earlier, we're going to resume at it five after so that 1140 01:12:01.260 --> 01:12:07.620 will be Lebanon five. So if you need anything for those who are 1141 01:12:07.620 --> 01:12:10.620 attending today, if you there are signs in the hallway to 1142 01:12:10.620 --> 01:12:13.200 direct you to the restroom or bureau staff are available to 1143 01:12:13.200 --> 01:12:18.210 help as well. And please be sure to return no later than five 1144 01:12:18.210 --> 01:12:25.020 after and we will begin again then. Thanks. Well, good 1145 01:12:25.020 --> 01:12:32.430 morning, again, and welcome to our second panel. Today on 1146 01:12:32.460 --> 01:12:40.260 section 1071. As I mentioned previously, Lena Abernathy is 1147 01:12:40.260 --> 01:12:45.930 going to be our moderator. So with that, take it away. 1148 01:12:45.960 --> 01:12:47.010 foreshores. Thank you. 1149 01:12:47.040 --> 01:12:49.080 Elena Abernathy: Great. Thank you so much, Andrew. Good 1150 01:12:49.080 --> 01:12:52.080 morning, everyone. My name is Elena ballenas. I managing 1151 01:12:52.080 --> 01:12:55.860 counsel in the office of regulations within the Bureau's 1152 01:12:55.860 --> 01:12:59.970 Division of Research markets and regulations. As the director 1153 01:12:59.970 --> 01:13:03.210 pointed out in her opening remarks, section 1071 of the 1154 01:13:03.210 --> 01:13:08.160 Dodd Frank Act amends the Equal Credit Opportunity Act to 1155 01:13:08.160 --> 01:13:12.060 require financial institutions to collect, report and make 1156 01:13:12.060 --> 01:13:15.870 public certain information concerning credit applications 1157 01:13:15.870 --> 01:13:21.240 made by women owned, minority owned and small businesses. The 1158 01:13:21.240 --> 01:13:26.070 statutory purposes of section 1071 There's two. The first one 1159 01:13:26.070 --> 01:13:30.360 is to facilitate enforcement of fair lending laws, and to enable 1160 01:13:30.360 --> 01:13:34.200 communities, governmental entities and creditors to 1161 01:13:34.200 --> 01:13:37.620 identify business and community development needs and 1162 01:13:37.620 --> 01:13:41.010 opportunities of women owned minority owned and small 1163 01:13:41.010 --> 01:13:46.170 businesses. panel two of today's symposium provides a forum for 1164 01:13:46.170 --> 01:13:51.240 the Bureau and the public to hear various perspectives on the 1165 01:13:51.240 --> 01:13:55.740 implementation of section 1071. The discussion will include 1166 01:13:55.740 --> 01:14:00.330 panelists ideas on how best to mitigate potential costs and 1167 01:14:00.330 --> 01:14:04.560 burdens for reporters. The panelists will also explore 1168 01:14:04.560 --> 01:14:09.720 practical solutions. The panels will cover six topics during 1169 01:14:09.720 --> 01:14:13.170 this discussion. The first one is ways to minimize costs and 1170 01:14:13.170 --> 01:14:16.830 burdens related to implementation of section 1071. 1171 01:14:17.640 --> 01:14:22.260 The second is the definition of a small business, the definition 1172 01:14:22.260 --> 01:14:25.740 of a financial institution for purposes of entities to be 1173 01:14:25.740 --> 01:14:28.230 covered by the collection and reporting requirements of 1174 01:14:28.230 --> 01:14:33.360 section 10 71/4 the data elements to be collected and 1175 01:14:33.360 --> 01:14:37.380 reported by financial institutions. Fifth, the 1176 01:14:37.380 --> 01:14:40.830 Bureau's authority with respect to several important issues, 1177 01:14:40.830 --> 01:14:44.490 including for example, the definition of an application. 1178 01:14:44.790 --> 01:14:48.540 And lastly, but certainly not least, the important issue of 1179 01:14:48.540 --> 01:14:52.170 the privacy of the information collected and reported pursuant 1180 01:14:52.170 --> 01:14:59.190 to section 1071. So there's a lot to cover today. So I've 1181 01:14:59.190 --> 01:15:02.880 asked the panelists So please keep their comments brief. Of 1182 01:15:02.880 --> 01:15:06.150 course, as has been mentioned, I believe in the prior panel, 1183 01:15:06.390 --> 01:15:08.880 there are written statements which are much longer and more 1184 01:15:08.880 --> 01:15:12.540 detailed in our fantastic will be available on the Bureau's 1185 01:15:12.540 --> 01:15:16.950 website. Also a reminder to our panelists, when you speak, 1186 01:15:16.950 --> 01:15:20.310 please make sure your microphone is on, as indicated by the red 1187 01:15:20.310 --> 01:15:25.230 light you can see so that folks on our webcast can hear what 1188 01:15:25.230 --> 01:15:28.260 we're saying. And then if you can just remember to turn them 1189 01:15:28.260 --> 01:15:32.460 off when you're done speaking. An important disclaimer before 1190 01:15:32.460 --> 01:15:36.330 we get started, I will be posing questions to the panelists that 1191 01:15:36.330 --> 01:15:39.900 the bureau provided to them in advance of today's event. As a 1192 01:15:39.900 --> 01:15:42.870 friendly reminder, the views of our panelists today are their 1193 01:15:42.870 --> 01:15:46.590 views. They are greatly appreciated and welcome. You 1194 01:15:46.590 --> 01:15:49.290 have the questions and the panelists statements do not 1195 01:15:49.290 --> 01:15:54.240 necessarily represent the views of the Bureau. Okay, so let's 1196 01:15:54.240 --> 01:15:58.020 get started. The first topic ways to minimize costs and 1197 01:15:58.020 --> 01:16:01.740 burdens related to implementation of section 1071. 1198 01:16:02.550 --> 01:16:06.390 The question the general topic is as follows, describe what the 1199 01:16:06.390 --> 01:16:09.930 Bureau can do from a process standpoint, to minimize 1200 01:16:09.930 --> 01:16:14.790 potential costs and burdens for 1071 reporters, while ensuring 1201 01:16:14.790 --> 01:16:19.800 that the purposes of section 1071 are met. In addition, what 1202 01:16:19.800 --> 01:16:22.890 specific innovations or technologies would be well 1203 01:16:22.890 --> 01:16:26.880 suited for Section 1071 implementation? So to kick us 1204 01:16:26.880 --> 01:16:30.630 off, Maureen Bush here too, to my right to will kick us off on 1205 01:16:30.630 --> 01:16:34.740 this important topic. Maureen is the Community Reinvestment Act 1206 01:16:34.950 --> 01:16:38.460 and Compliance Officer at the Bank of Tampa and Tampa, 1207 01:16:38.460 --> 01:16:43.080 Florida. In addition to serving on the Bureau's Community Bank 1208 01:16:43.230 --> 01:16:46.890 Advisory Council, she is the chairperson of the Suncoast 1209 01:16:46.890 --> 01:16:51.510 bankers compliance Association. Maureen has over 25 years 1210 01:16:51.510 --> 01:16:54.750 experience as a compliance professional, is a Florida 1211 01:16:54.750 --> 01:16:57.750 licensed certified public accountant and holds the 1212 01:16:57.750 --> 01:17:01.530 American Bankers Association's certified regulatory compliance 1213 01:17:01.530 --> 01:17:04.830 manager designation. So with that, Maureen, okay, good to 1214 01:17:04.830 --> 01:17:05.040 you. 1215 01:17:05.670 --> 01:17:07.980 Maureen Bush: Well, thank you. Good morning. And thank you for 1216 01:17:07.980 --> 01:17:10.350 the invite to be a part of this panel. And I do want to 1217 01:17:10.350 --> 01:17:13.800 reiterate that it has been said, but what I'm saying today are my 1218 01:17:13.800 --> 01:17:16.980 own statements not reflective of that of the Bank of Tampa or the 1219 01:17:16.980 --> 01:17:21.120 bureau or the Bureau's Community Bank Advisory Council. And with 1220 01:17:21.120 --> 01:17:26.490 that, I will get started with the burden and ideas to how to 1221 01:17:26.520 --> 01:17:31.110 minimize that burden, originally, and I know that my 1222 01:17:31.110 --> 01:17:34.050 statement is available right now, but originally when I was 1223 01:17:34.050 --> 01:17:38.130 looking to discuss the burden, and maybe some efficiencies that 1224 01:17:38.130 --> 01:17:40.470 can be gleaned from it, I had originally planned on 1225 01:17:40.470 --> 01:17:43.290 highlighting the redundancy of information that especially 1226 01:17:43.290 --> 01:17:45.510 banks face, there's so many similar but different 1227 01:17:45.510 --> 01:17:47.880 requirements with regulations that were already required to 1228 01:17:47.880 --> 01:17:51.510 comply with. First and foremost, the Community Reinvestment Act, 1229 01:17:51.600 --> 01:17:55.380 we collect much of the same data under the Community Reinvestment 1230 01:17:55.380 --> 01:17:58.110 Act are subject to a whole separate examination, the 1231 01:17:58.290 --> 01:18:01.080 results of those examinations are public. So it seemed that 1232 01:18:01.080 --> 01:18:04.860 there might be some efficiencies to gain from aligning some of 1233 01:18:04.860 --> 01:18:08.520 the requirements under Section 1071. With what has already been 1234 01:18:08.520 --> 01:18:13.980 done on the the CRA or regulation BB. Then there's 1235 01:18:14.130 --> 01:18:16.620 other things that they have the similar but different 1236 01:18:17.370 --> 01:18:21.330 requirements, which that's where we get very from a practical 1237 01:18:21.330 --> 01:18:24.270 application standpoint, we have a lot of challenges when we have 1238 01:18:24.300 --> 01:18:28.380 a definition from the CRA or hummed other similar things with 1239 01:18:28.380 --> 01:18:32.190 Honda and the Bank Secrecy Act AML regulations have something 1240 01:18:32.400 --> 01:18:35.730 regarding beneficial ownership 1071 talks about principle 1241 01:18:35.730 --> 01:18:39.090 owners of a business, there's there can be a lot of confusion 1242 01:18:39.240 --> 01:18:42.570 with those that are tasked with gathering data, if we have 1243 01:18:42.570 --> 01:18:45.210 similar but different regulations and regulatory 1244 01:18:45.210 --> 01:18:48.240 requirements. So gaining some efficiencies to me would be a 1245 01:18:48.240 --> 01:18:51.150 recommendation. But where I wanted to spend some time, 1246 01:18:51.150 --> 01:18:55.320 though, as I was I was initially focusing on those redundancies 1247 01:18:55.470 --> 01:19:02.400 when I kept reviewing the law and the requirements of it. I 1248 01:19:02.400 --> 01:19:05.670 have what I'm calling an what I see as an inherent flaw with 1249 01:19:05.670 --> 01:19:08.970 some of the information that's been requested. And it really 1250 01:19:08.970 --> 01:19:12.240 revolves around the Democrat demographic information that's 1251 01:19:12.240 --> 01:19:15.930 been requested the sex, race and ethnicity that cited in Section 1252 01:19:15.930 --> 01:19:21.090 704, B, E to G of the act. And I will say that we went from a 1253 01:19:21.090 --> 01:19:24.060 nice policy discussion before and we're going right down into 1254 01:19:24.060 --> 01:19:28.860 the regulation right now. But what my concern is, is there is 1255 01:19:28.860 --> 01:19:31.890 demographic information that's been requested on principle 1256 01:19:31.890 --> 01:19:36.630 owners principle owners have not been defined yet. But my 1257 01:19:36.630 --> 01:19:39.360 question with this is, at the end of the day, if we're 1258 01:19:39.360 --> 01:19:42.960 collecting data on principle owners only will it have any 1259 01:19:42.960 --> 01:19:47.130 value? And I will say I'm not suggesting and I'll go through 1260 01:19:47.130 --> 01:19:49.350 my examples that we collect data on everything because I think 1261 01:19:49.350 --> 01:19:52.950 then we get into a huge burden. And we end up with more people 1262 01:19:52.950 --> 01:19:56.940 deciding, oh, I'm not going to provide that data, then list out 1263 01:19:56.970 --> 01:20:00.270 the demographic information of every single owner, but I want 1264 01:20:00.270 --> 01:20:01.740 to take you through some examples. And there's some 1265 01:20:01.740 --> 01:20:05.970 examples in my statement on how I see this. And my examples are 1266 01:20:05.970 --> 01:20:10.410 very simple. I'm focusing mostly, businesses are complex. 1267 01:20:10.650 --> 01:20:15.990 They're they're not nuanced. So my examples here are, I'm 1268 01:20:15.990 --> 01:20:20.460 focusing on sex only and high level, but I think it's going to 1269 01:20:20.460 --> 01:20:24.000 drive home the point. So what I'm looking for is is the full 1270 01:20:24.000 --> 01:20:27.570 context of that business is information that business going 1271 01:20:27.570 --> 01:20:31.320 to be gleaned from the data collected. And I have some 1272 01:20:31.320 --> 01:20:35.640 examples, I have an example, with just ABC Inc. And we have 1273 01:20:35.670 --> 01:20:39.600 three owners, three principle owners. It hasn't been defined 1274 01:20:39.600 --> 01:20:42.090 in the regulation, but I'm going to go with an assumption that 1275 01:20:42.090 --> 01:20:46.590 we'll come up with 25% ownership as the litmus test whether or 1276 01:20:46.590 --> 01:20:49.500 not the data is going to be collected on it, that data might 1277 01:20:49.500 --> 01:20:51.600 be collected on these three owners, and let's say two of 1278 01:20:51.600 --> 01:20:55.440 them are female, and one is male, if there's no context on 1279 01:20:55.470 --> 01:20:59.160 their ownership percentage, and all that's reported, is two 1280 01:20:59.160 --> 01:21:02.430 females and one male, that might not be reflective, you might 1281 01:21:02.430 --> 01:21:04.950 think of that, oh, it's two females and a male, it must be 1282 01:21:04.950 --> 01:21:08.700 predominantly women owned. But what if those percentages are 1283 01:21:08.790 --> 01:21:13.500 the two females own 25% each, and the male owns 50%, you're 1284 01:21:13.500 --> 01:21:18.180 not going to see that. So with it could be the three people, 1285 01:21:18.180 --> 01:21:21.780 those three principal owners, they might eat on 25% each, and 1286 01:21:21.780 --> 01:21:24.690 then you have a number of other owners that make up that balance 1287 01:21:24.690 --> 01:21:28.740 of the 25%, you're not going to see that in any of the data. And 1288 01:21:28.740 --> 01:21:32.790 that could sway whether or not it is a woman owned or minority 1289 01:21:32.790 --> 01:21:34.110 owned small business. 1290 01:21:36.180 --> 01:21:38.670 So without that knowledge of each person's ownership, the 1291 01:21:38.670 --> 01:21:41.520 submission of the demographic information only could lead to 1292 01:21:41.520 --> 01:21:44.730 an inference on the part of the data user that the business is 1293 01:21:44.730 --> 01:21:48.270 predominantly and last example women owned, it doesn't appear 1294 01:21:48.270 --> 01:21:50.970 that the requested information is going to add value to the 1295 01:21:50.970 --> 01:21:53.970 identification of small businesses, business and 1296 01:21:53.970 --> 01:21:58.230 community development li community development needs. And 1297 01:21:58.230 --> 01:22:02.040 the same can be said even if there's only one principal 1298 01:22:02.040 --> 01:22:06.330 owners information furnished, it begs the question did that one 1299 01:22:06.330 --> 01:22:10.320 person owned 100% of the company? Or are they one of many 1300 01:22:10.320 --> 01:22:13.860 owners, and they're the only one who is the principal owner. So 1301 01:22:13.860 --> 01:22:17.310 there's not enough information to make a determination on 1302 01:22:17.400 --> 01:22:22.110 whether or not that financial institution is meeting the needs 1303 01:22:22.140 --> 01:22:25.950 or instead out the intention of the Dodd Frank Act Section 710 1304 01:22:26.100 --> 01:22:30.360 71. Another question that I have is if we have this definition of 1305 01:22:30.420 --> 01:22:34.080 principal owners, and let's say, as I just inferred, maybe it's 1306 01:22:34.080 --> 01:22:38.910 25%. What happens if we have an entity that has multiple owners? 1307 01:22:38.910 --> 01:22:42.540 And none of them are over that threshold? Does the information 1308 01:22:42.540 --> 01:22:46.140 not get reported then? And then that's a blind spot, I would say 1309 01:22:46.260 --> 01:22:48.960 it's a small business to assuming I know, we're going to 1310 01:22:48.960 --> 01:22:51.210 talk about the definition of small business. But let's assume 1311 01:22:51.210 --> 01:22:55.620 for this sake, that it is there information might not be 1312 01:22:55.830 --> 01:22:59.190 contributed to the overall information that's going to be 1313 01:22:59.190 --> 01:23:05.580 analyzed. And I see it as a blind spot. So I was also 1314 01:23:05.580 --> 01:23:08.880 thinking about it. And my first examples were based on the way 1315 01:23:08.880 --> 01:23:11.190 that I was reading the regulation is that it's an 1316 01:23:11.190 --> 01:23:16.620 identification of a minority owned woman owned or small 1317 01:23:16.620 --> 01:23:20.460 business, the law doesn't say, and so I'm thinking, well, the 1318 01:23:20.490 --> 01:23:22.890 the title of the law had to do a small business data collection. 1319 01:23:22.890 --> 01:23:25.230 So I would think that first it would be it's in the Small 1320 01:23:25.230 --> 01:23:28.080 Business bucket. If it's not, then you would look to see is it 1321 01:23:28.080 --> 01:23:31.290 minority owned or woman owned? But then I started thinking, 1322 01:23:31.560 --> 01:23:35.370 excuse me, the Bureau has latitude with this regulation, 1323 01:23:35.370 --> 01:23:39.660 what if they write it to say that the identification could be 1324 01:23:39.660 --> 01:23:44.550 women owned, minority owned, and or a small business. And then 1325 01:23:44.550 --> 01:23:47.940 you might know, up front? Oh, it was flagged as a small is a 1326 01:23:47.940 --> 01:23:50.700 woman owned business, or minority owned business or all 1327 01:23:50.700 --> 01:23:53.940 three. But then I had issues with this as well, when I was 1328 01:23:53.940 --> 01:23:56.670 trying to come up with that practical application. And 1329 01:23:56.670 --> 01:24:00.690 again, just another example to drive this home, is we could 1330 01:24:00.690 --> 01:24:03.900 receive an application from an entity, and they do indicate 1331 01:24:03.900 --> 01:24:08.430 it's a woman owned, minority owned small business, and they 1332 01:24:08.430 --> 01:24:11.280 submit the information on the principal owner, well, what if 1333 01:24:11.280 --> 01:24:15.510 there's only one principal owner, who might own 30% of that 1334 01:24:15.510 --> 01:24:19.800 entity? And then they have seven other owners who each own 10%? 1335 01:24:20.040 --> 01:24:23.100 Well, we would only be reporting the information on that one 1336 01:24:23.100 --> 01:24:28.380 principal owner, what if that person is not a female and not 1337 01:24:28.410 --> 01:24:32.520 of a minority race, then the information looks faulty? 1338 01:24:32.550 --> 01:24:36.360 Because they're saying yes, um, we're not we're not on that. We 1339 01:24:36.360 --> 01:24:40.020 are a small business minority women owned, but the data is not 1340 01:24:40.020 --> 01:24:44.370 going to reflect it. So I just have a concern with the way that 1341 01:24:44.370 --> 01:24:48.060 the data is being requested. As I started off, saying, though, 1342 01:24:48.060 --> 01:24:53.730 I'm not suggesting that we ask for the data for 100% of every 1343 01:24:53.730 --> 01:24:56.040 single small business loan because I think that becomes an 1344 01:24:56.040 --> 01:25:00.360 extreme burden on not only the institution collecting the data 1345 01:25:00.360 --> 01:25:03.210 and trying to validate the data and all of that. But the 1346 01:25:03.240 --> 01:25:05.700 applicant themselves they might not be inclined to, they might 1347 01:25:05.700 --> 01:25:09.030 not have all of those owners present to be able to provide 1348 01:25:09.030 --> 01:25:13.170 their demographic information. It is based on what the person 1349 01:25:13.170 --> 01:25:16.500 identifies with. So I don't know that another business owner, 1350 01:25:16.500 --> 01:25:18.330 even though they own the business together, I don't know 1351 01:25:18.330 --> 01:25:23.100 if they can infer what race and ethnicity that person identifies 1352 01:25:23.100 --> 01:25:25.830 with. So having someone do it on their behalf, I don't know is 1353 01:25:25.830 --> 01:25:29.940 the best solution either. So my end of the day recommendation 1354 01:25:29.940 --> 01:25:34.830 really is to look at that data point in particular. And is it 1355 01:25:34.830 --> 01:25:38.130 valuable because I think trying to get it to that valuable point 1356 01:25:38.130 --> 01:25:41.520 will make the data collection so onerous, it will drive the 1357 01:25:41.520 --> 01:25:45.570 applicants likely to say I wish not to provide that information. 1358 01:25:46.380 --> 01:25:48.480 Elena Abernathy: Okay, thank you, Maureen. So that's that's a 1359 01:25:48.480 --> 01:25:51.810 great example of of it's great for the Bureau to hear about 1360 01:25:51.810 --> 01:25:57.420 some of the challenges financial institutions may face when 1361 01:25:57.450 --> 01:26:02.700 applying the various statutorily required data points in real 1362 01:26:02.700 --> 01:26:07.740 time and in their business. So I know that Richard Neiman would 1363 01:26:07.740 --> 01:26:12.030 like to weigh on this as well. Richard is Head of Public Policy 1364 01:26:12.120 --> 01:26:15.300 for Lending Club, one of the nation's largest online credit 1365 01:26:15.300 --> 01:26:19.950 marketplaces. Prior to that, he was vice chairman of the global 1366 01:26:19.950 --> 01:26:22.350 financial services regulatory practice at 1367 01:26:22.350 --> 01:26:26.340 PricewaterhouseCoopers. He was also previously Superintendent 1368 01:26:26.340 --> 01:26:28.920 of banks for the state of New York, and was appointed by 1369 01:26:28.920 --> 01:26:31.500 Congress to serve on the congressional oversight panel 1370 01:26:31.500 --> 01:26:34.440 for TARP. Richard currently serves on the executive 1371 01:26:34.440 --> 01:26:37.950 committee of the responsible business lending coalition, of 1372 01:26:37.950 --> 01:26:40.440 which Lending Club is a founding member, Richard. 1373 01:26:40.530 --> 01:26:43.830 Richard Neiman: Great, thank you for that. At Lending Club, we 1374 01:26:43.830 --> 01:26:47.400 use technology and online delivery to lower the cost of 1375 01:26:47.400 --> 01:26:51.630 credit for consumers and small businesses. We believe that the 1376 01:26:51.630 --> 01:26:55.800 collection of data under 1071 will encourage the market to 1377 01:26:55.800 --> 01:27:00.120 address both the lack of access to affordable small business 1378 01:27:00.120 --> 01:27:04.860 credit, and the unfortunate rise in responsible lending. And in 1379 01:27:04.860 --> 01:27:09.510 doing so 1071 could be a model for a market based pro 1380 01:27:09.510 --> 01:27:12.990 innovation approach to regulation. It's critical that 1381 01:27:12.990 --> 01:27:18.480 the CFPB make it easy to report this data, just upload a file or 1382 01:27:18.480 --> 01:27:22.140 an automated reporting at Lending Club where we're not 1383 01:27:22.140 --> 01:27:26.460 afraid of reporting data. In fact, the success of our model, 1384 01:27:26.550 --> 01:27:31.560 and what we do every day is analyze and collect data. We can 1385 01:27:31.560 --> 01:27:35.550 firewall it to control who has access and who does not, we can 1386 01:27:35.550 --> 01:27:40.860 protect customer privacy. As the panel earlier mentioned, there's 1387 01:27:40.860 --> 01:27:44.760 currently no comprehensive information out there about how 1388 01:27:44.760 --> 01:27:47.760 much small business lending there is, how it's happening, 1389 01:27:47.760 --> 01:27:51.300 who would goes to when and what terms. The latest government 1390 01:27:51.300 --> 01:27:57.330 data I've seen and it's from 2003 indicated that only 5% of 1391 01:27:57.330 --> 01:28:01.950 bank non SBA, small business lending dollars goes to minority 1392 01:28:01.950 --> 01:28:07.290 owned firms, and 4% to women owned firms. The good news is 1393 01:28:07.410 --> 01:28:12.360 that there are technology tools now that can drastically improve 1394 01:28:12.360 --> 01:28:16.080 those numbers. At Lending Club, we've seen representation of 1395 01:28:16.080 --> 01:28:19.830 minority and women owned businesses lending at five, four 1396 01:28:19.830 --> 01:28:24.090 to five times these traditional bank lending numbers. And we 1397 01:28:24.090 --> 01:28:27.840 expect to see our representation even increased further with our 1398 01:28:27.840 --> 01:28:30.900 growing partnership with opportunity fund that Louise 1399 01:28:30.900 --> 01:28:35.280 mentioned this morning. The publication of data under 1071 1400 01:28:35.610 --> 01:28:39.810 will serve as a market based light touch way for government 1401 01:28:39.810 --> 01:28:43.980 to promote innovation, and expand access to capital for 1402 01:28:43.980 --> 01:28:47.340 small businesses, particularly minority and women owned 1403 01:28:47.340 --> 01:28:51.750 businesses. The reporting data will show what works and what 1404 01:28:51.750 --> 01:28:55.530 does not. And without any government subsidy, or heavy 1405 01:28:55.530 --> 01:28:59.280 handed requirements. Transparency will lead market 1406 01:28:59.280 --> 01:29:03.420 forces to grow the innovations that work with increase the flow 1407 01:29:03.420 --> 01:29:08.640 of capital to those firms. And some market participants that 1408 01:29:08.640 --> 01:29:12.270 need to do better will seek to replicate the models of those 1409 01:29:12.270 --> 01:29:16.680 who revealed that they did well by building buying or 1410 01:29:16.680 --> 01:29:19.350 partnering. I'll stop there. 1411 01:29:19.770 --> 01:29:22.500 Elena Abernathy: Okay. Thank you, Richard. We also now will 1412 01:29:22.500 --> 01:29:26.160 hear from Brad Blauer. Brad is Vice President and Principal 1413 01:29:26.160 --> 01:29:30.150 compliance leader of consumer practices at American Express. 1414 01:29:30.390 --> 01:29:33.360 Brad has spent his career working on consumer protection 1415 01:29:33.360 --> 01:29:37.320 and civil rights issues. Prior to helping lead the compliance 1416 01:29:37.320 --> 01:29:40.710 team at American Express. He served in senior roles at the 1417 01:29:40.710 --> 01:29:44.130 Federal Trade Commission, a civil rights law firm and a 1418 01:29:44.130 --> 01:29:47.940 nonprofit working on expanding access to sustainable credit. 1419 01:29:48.180 --> 01:29:48.600 Read. 1420 01:29:49.530 --> 01:29:53.250 Brad Blauer: Thanks Elena. First of all, what I'd like to commit 1421 01:29:53.250 --> 01:29:56.700 is that companies like Amex who want to be responsible corporate 1422 01:29:56.700 --> 01:30:00.570 citizens want this rule to be put out, it will be held Apple 1423 01:30:00.780 --> 01:30:03.300 and getting additional information to the market to 1424 01:30:03.300 --> 01:30:06.870 advocacy groups like NCRC, and to the government and investors 1425 01:30:07.260 --> 01:30:10.230 to shine more light on the market. I know the Bureau has 1426 01:30:10.230 --> 01:30:13.440 done previous studies on credit deserts in the consumer space. 1427 01:30:13.440 --> 01:30:15.930 And this will help on the business side to further 1428 01:30:15.930 --> 01:30:19.650 business, the industry to find where their credit deserts where 1429 01:30:19.650 --> 01:30:23.340 there are markets that we can spend more time on. And some of 1430 01:30:23.340 --> 01:30:26.640 the things that would help minimize the costs and burdens, 1431 01:30:26.910 --> 01:30:30.690 for instance, would be making sure that the rule is consistent 1432 01:30:30.690 --> 01:30:32.880 with other statutes that are already out there, like the 1433 01:30:32.880 --> 01:30:35.340 Community Reinvestment Act and Equal Credit Opportunity Act, 1434 01:30:35.580 --> 01:30:37.860 which already defined small businesses a million dollars in 1435 01:30:37.860 --> 01:30:42.120 revenues or less. So providing and harmonizing definitions in 1436 01:30:42.120 --> 01:30:44.460 the rule that are consistent with the data we're already 1437 01:30:44.460 --> 01:30:47.820 collecting in other spaces, I think will be very helpful. I 1438 01:30:47.820 --> 01:30:50.130 would also think one of the things that can be done to 1439 01:30:50.130 --> 01:30:53.070 minimize the burden is to keep the purposes that have to be 1440 01:30:53.070 --> 01:30:56.610 listed under data collection to a minimum that don't invade 1441 01:30:56.610 --> 01:30:59.520 proprietary information to businesses, but provide some 1442 01:30:59.520 --> 01:31:02.820 meaningful information to those third parties are going to be 1443 01:31:02.820 --> 01:31:05.970 looking past to see what the purpose of the loan is, but to 1444 01:31:05.970 --> 01:31:08.280 keep those to a handful. So there can be like a drop down 1445 01:31:08.280 --> 01:31:10.470 menu that you can click as you're collecting that 1446 01:31:10.470 --> 01:31:14.250 information. The other thing would that would minimize the 1447 01:31:14.250 --> 01:31:16.920 burden would be that businesses should be lenders should be 1448 01:31:16.920 --> 01:31:19.380 allowed to rely on the data that's provided by the 1449 01:31:19.380 --> 01:31:23.040 applicants and not have to validate it as similar to Honda, 1450 01:31:23.370 --> 01:31:25.560 so that there's not an additional burden placed there 1451 01:31:25.560 --> 01:31:27.960 on businesses. But the main point I want to make on this 1452 01:31:27.960 --> 01:31:31.320 topic is that the business community should be hot behind 1453 01:31:31.320 --> 01:31:33.630 this rule, the business community will benefit from this 1454 01:31:33.630 --> 01:31:36.240 rule. And as Richard said, we don't need to be scared by some 1455 01:31:36.240 --> 01:31:39.210 sunshine. I think it will help market participants better 1456 01:31:39.210 --> 01:31:41.280 understand the market better serve those markets. 1457 01:31:43.680 --> 01:31:46.770 Elena Abernathy: Thanks, Brad. Now, turning to Bill Phelan. 1458 01:31:46.770 --> 01:31:50.790 Bill is co founder, senior vice president and general manager of 1459 01:31:50.790 --> 01:31:54.570 painted and Equifax company, paint, it helps commercial 1460 01:31:54.570 --> 01:31:57.840 lenders make decisions through expert credit assessments and 1461 01:31:57.840 --> 01:32:01.740 market insights. Pay nets database includes more than 25 1462 01:32:01.740 --> 01:32:05.640 million and growing small and private business contracts 1463 01:32:05.760 --> 01:32:09.600 representing more than 1.6 trillion in obligations. Bill 1464 01:32:09.600 --> 01:32:12.300 has been involved in small business lending and credit for 1465 01:32:12.300 --> 01:32:13.770 over 30 years, Bill. 1466 01:32:14.010 --> 01:32:16.740 Bill Phelan: Thank you, Elena. Thank you for having me today 1467 01:32:16.770 --> 01:32:20.400 for this opportunity. I'm not going to belabor the point that 1468 01:32:20.400 --> 01:32:23.100 has been made already that credit has not worked well for 1469 01:32:23.100 --> 01:32:27.240 small businesses. I will note that credit does work well for 1470 01:32:27.240 --> 01:32:31.470 other markets, like mortgages or corporations. So there are 1471 01:32:31.500 --> 01:32:35.550 possibilities for modeling the small business credit market and 1472 01:32:35.550 --> 01:32:39.510 some other markets that do function well. I think that the 1473 01:32:39.510 --> 01:32:43.620 causes of this are the lack of data on on payment records, the 1474 01:32:43.620 --> 01:32:47.190 lack of financial information on small businesses, the lack of 1475 01:32:47.190 --> 01:32:50.910 workflow systems to enable the efficient processing of these 1476 01:32:50.910 --> 01:32:54.750 loans. I think these loans are non standardized, and that makes 1477 01:32:54.750 --> 01:32:57.450 it very challenging just by their sheer number and the sheer 1478 01:32:57.450 --> 01:33:00.780 volume of the number of these loans, and especially to match 1479 01:33:00.780 --> 01:33:04.410 them up against large pools of capital as a source of low cost 1480 01:33:04.410 --> 01:33:10.380 capital. I think a 1071 database that's done right could solve a 1481 01:33:10.380 --> 01:33:14.670 lot of these problems, but I think is achievable with careful 1482 01:33:14.670 --> 01:33:17.700 planning. I'd like to just really comment quickly on the 1483 01:33:17.700 --> 01:33:21.360 current costs and burdens. The work that we've done a pain that 1484 01:33:21.390 --> 01:33:25.350 identifies the high cost of processing the credit 1485 01:33:25.350 --> 01:33:29.160 application, and it really is partly the cause of the credit 1486 01:33:29.160 --> 01:33:34.920 gap, we see that the manual underwriting process can take up 1487 01:33:34.920 --> 01:33:40.410 to 100 hours in some cases, cost $5,000 per application, take 30 1488 01:33:40.410 --> 01:33:45.420 days to to process in some cases. And we do in our 1489 01:33:45.420 --> 01:33:49.320 analysis, see that 1071 will increase the cost of those 1490 01:33:49.320 --> 01:33:55.920 credit applications. We estimate by about 10% Roughly due to new 1491 01:33:55.920 --> 01:33:58.980 credit application process that will have to be put in place 1492 01:33:59.190 --> 01:34:03.060 staff training, the separation of underwriting and data 1493 01:34:03.060 --> 01:34:06.150 collection. So what are some ideas and innovations to 1494 01:34:06.150 --> 01:34:09.600 minimize the costs and burdens? I'll give you three. First of 1495 01:34:09.600 --> 01:34:14.880 all, lenders can standardize the credit application process. We 1496 01:34:14.880 --> 01:34:17.880 heard about online lending this morning on panel one and how 1497 01:34:17.880 --> 01:34:21.210 they've been able to scale that business by standardizing the 1498 01:34:21.210 --> 01:34:25.920 credit application process. We see that adding simple fields to 1499 01:34:25.920 --> 01:34:29.340 that credit application process about five to seven data fields. 1500 01:34:29.700 --> 01:34:33.180 And then including technology to enable autofill of the 1501 01:34:33.180 --> 01:34:37.350 application makes that process easier and quicker. Secondly, 1502 01:34:37.590 --> 01:34:42.540 create a data dictionary of required reporting. So specify 1503 01:34:42.540 --> 01:34:46.560 what the required reporting is back to Maureen's point, we see 1504 01:34:46.560 --> 01:34:51.120 12 major data fields is required for reporting and we see 50 1505 01:34:51.150 --> 01:34:56.130 Approximately minor data fields that will supplement and so this 1506 01:34:56.130 --> 01:35:00.240 will enable aggregation of data later to enable effect Give 1507 01:35:00.240 --> 01:35:03.900 analysis of this data. And then thirdly, standardize the 1508 01:35:03.900 --> 01:35:07.920 reporting of extract software. In other words, software can be 1509 01:35:07.920 --> 01:35:12.750 used to conduct this x this extraction of data. It can be 1510 01:35:12.780 --> 01:35:16.410 run monthly through automated processes, it can link up with 1511 01:35:16.410 --> 01:35:19.230 accounting systems to extract the data or from credit 1512 01:35:19.230 --> 01:35:23.400 application systems. And it can safely encrypt and transmit 1513 01:35:23.400 --> 01:35:25.950 data. And so those three recommendations I think, are 1514 01:35:25.950 --> 01:35:29.490 innovations which can go far towards minimizing the costs and 1515 01:35:29.490 --> 01:35:29.970 burdens. 1516 01:35:31.439 --> 01:35:34.109 Elena Abernathy: Thank you, Bill. Okay, now turning into our 1517 01:35:34.109 --> 01:35:37.559 second topic and doing our best to stay on track, I think we're 1518 01:35:37.559 --> 01:35:41.069 off to a great start. Thank you so much. The second topic is the 1519 01:35:41.069 --> 01:35:44.759 definition of small business for purposes of section 1071. 1520 01:35:45.089 --> 01:35:49.259 Section 1071 states that small business has the same meaning as 1521 01:35:49.259 --> 01:35:52.889 the term small business concern in section three of the Small 1522 01:35:52.889 --> 01:35:57.329 Business Act. However, whenever this definition was mentioned, 1523 01:35:58.019 --> 01:36:00.809 by commenters in response to the Bureau's request for 1524 01:36:00.809 --> 01:36:04.169 information, there was close to universal agreement that a 1525 01:36:04.169 --> 01:36:08.009 simpler, more practical approach to defining a small business 1526 01:36:08.219 --> 01:36:12.119 would be beneficial for purposes of this rule. permission to do 1527 01:36:12.119 --> 01:36:14.999 so must come from the Small Business Administration in the 1528 01:36:14.999 --> 01:36:18.149 process spelled out by their regulation. So a couple of 1529 01:36:18.149 --> 01:36:22.019 questions for the panelists to consider. Is SBA definition 1530 01:36:22.049 --> 01:36:27.179 unworkable? And if so why? What would be better approaches for 1531 01:36:27.179 --> 01:36:29.909 the Bureau to consider presenting to the Small Business 1532 01:36:29.909 --> 01:36:34.199 Administration? And lastly, what should SBAS interests be, and 1533 01:36:34.199 --> 01:36:37.739 helping to find a more practical definition for the purposes of 1534 01:36:37.739 --> 01:36:42.299 this rule? So again, a lot to cover and anything you can say 1535 01:36:42.299 --> 01:36:46.379 on that would be great. So Diego Zuluaga will kick us off on this 1536 01:36:46.379 --> 01:36:50.549 topic. Diego is a policy analyst at the Cato Institute center for 1537 01:36:50.549 --> 01:36:53.849 monetary and financial alternatives, where he covers 1538 01:36:53.849 --> 01:36:57.359 financial technology and consumer credit. His latest 1539 01:36:57.359 --> 01:37:01.229 paper is the Community Reinvestment Act in the age of 1540 01:37:01.229 --> 01:37:05.429 FinTech and bank competition. Previously, Diego was head of 1541 01:37:05.429 --> 01:37:08.759 financial services and tech policy at the Institute of 1542 01:37:08.759 --> 01:37:13.709 Economic Affairs in London. Diego was also a former Lecturer 1543 01:37:13.739 --> 01:37:17.009 in Economics at the University of Buckingham Diego. 1544 01:37:18.240 --> 01:37:20.520 Diego Zuluaga: Thank you, Elena for the kind introduction. And 1545 01:37:20.520 --> 01:37:23.190 thank you to the Bureau for the invitation and their leadership 1546 01:37:23.220 --> 01:37:27.420 on this issue. I must admit that I that I am a little bit 1547 01:37:27.420 --> 01:37:30.270 concerned about the implementation of section 1021. 1548 01:37:30.480 --> 01:37:33.540 I worry that it's going to increase compliance costs, but 1549 01:37:33.540 --> 01:37:36.570 also that it has privacy implications. And potentially 1550 01:37:36.570 --> 01:37:39.870 that some of the language in the statute is not only confusing, 1551 01:37:40.440 --> 01:37:44.220 but we'll run up against encounter some of the objectives 1552 01:37:44.250 --> 01:37:49.080 of this measure. I see section 1071, as a financial inclusion 1553 01:37:49.080 --> 01:37:51.600 measure, trying to get more information about small business 1554 01:37:51.600 --> 01:37:54.300 lending so that everybody, even those that have been 1555 01:37:54.300 --> 01:37:56.910 historically financially excluded, has access to small 1556 01:37:56.910 --> 01:38:01.050 business loans from a range of providers. And I see therefore, 1557 01:38:01.080 --> 01:38:04.800 its main goal as targeting the financially excluded focusing on 1558 01:38:04.800 --> 01:38:07.770 those areas that are in need of additional financial inclusion. 1559 01:38:08.640 --> 01:38:14.160 But then also avoiding driving providers out of a market in 1560 01:38:14.160 --> 01:38:17.070 this wouldn't be the first time that regulation, particularly 1561 01:38:17.070 --> 01:38:20.220 for smaller institutions had caused them to think that there 1562 01:38:20.220 --> 01:38:23.160 are certain areas that because perhaps the form a relatively 1563 01:38:23.160 --> 01:38:25.890 small part of their balance sheets, or because they make 1564 01:38:25.920 --> 01:38:28.950 sorts of loans, that who size don't justify the regulatory 1565 01:38:28.950 --> 01:38:31.470 costs, that it's no longer worthwhile for them to be 1566 01:38:31.770 --> 01:38:34.320 involved in those. And I think that would be a bad outcome. 1567 01:38:34.500 --> 01:38:37.710 Because as we have heard in the previous panel, there are a lot 1568 01:38:37.710 --> 01:38:40.200 of issues with small business lending in the post crisis 1569 01:38:40.200 --> 01:38:43.380 period. And I think when you drill down and look at the call 1570 01:38:43.380 --> 01:38:46.440 report data from depository institutions, one of the things 1571 01:38:46.440 --> 01:38:49.800 that becomes striking is that it's loans under a million 1572 01:38:49.800 --> 01:38:53.220 dollars that really have struggled to grow post 2010. So 1573 01:38:53.220 --> 01:38:56.640 the cumulative growth rate between 2010 and 2018, for under 1574 01:38:56.640 --> 01:39:00.660 a million dollars more business loans, is only about 3%. For 1575 01:39:00.660 --> 01:39:05.070 loans above that threshold, it's about 80%. So I think that 1576 01:39:05.070 --> 01:39:07.980 figure tells us tells us something that comprises by the 1577 01:39:07.980 --> 01:39:11.880 way, 92% of small business loan applications, according to the 1578 01:39:12.000 --> 01:39:15.930 credit survey that the Federal Reserve Banks publish, in 1579 01:39:15.930 --> 01:39:18.600 addition to that we have information that the bureau 1580 01:39:18.600 --> 01:39:22.200 collected, suggesting that in terms of borrower demographics, 1581 01:39:22.230 --> 01:39:26.820 you're covering about 98%, of minority in women owned 1582 01:39:26.820 --> 01:39:31.290 businesses, when you have a threshold of 1 million in annual 1583 01:39:31.290 --> 01:39:35.160 gross receipts by the business. Right. So in terms of focusing 1584 01:39:35.160 --> 01:39:38.700 on your business needs are where the decline in lending has taken 1585 01:39:38.700 --> 01:39:41.430 place. And when you look at the distribution of loans across 1586 01:39:41.430 --> 01:39:45.000 income areas, what you find is that it is loans under a million 1587 01:39:45.000 --> 01:39:48.690 dollars to businesses under a million in annual revenues that 1588 01:39:48.690 --> 01:39:51.330 have really struggled in the post crisis period. So since 1589 01:39:51.330 --> 01:39:54.600 we're implementing something at the CFPB level, that has to do 1590 01:39:54.600 --> 01:39:57.660 with small business lending, not consumer lending, we are using 1591 01:39:57.660 --> 01:40:01.020 as an argument for this data collection. That's more business 1592 01:40:01.020 --> 01:40:04.200 borrowers often behave like consumers and are subject to the 1593 01:40:04.200 --> 01:40:07.800 same information, at least symmetries in the same problems 1594 01:40:07.800 --> 01:40:11.400 as consumers, we have to define the business as one in which 1595 01:40:11.400 --> 01:40:15.270 those circumstances actually apply. And I think a threshold 1596 01:40:15.300 --> 01:40:19.890 of a million in each case is one way to go about it. Let's start 1597 01:40:19.890 --> 01:40:22.710 with that. Let's see what information we collect on those 1598 01:40:22.740 --> 01:40:27.150 what findings we have in terms of access. And, and let's start 1599 01:40:27.150 --> 01:40:31.830 with the statutorily mandated data variables. And then we can 1600 01:40:31.830 --> 01:40:34.890 move from there. I mean, you were asking Elena, what the 1601 01:40:34.980 --> 01:40:38.040 interest is to the SBA in approving a different 1602 01:40:38.040 --> 01:40:41.310 definition. First of all, clarity, right, we have 49 pages 1603 01:40:41.430 --> 01:40:44.700 of namespace definitions for industries for small businesses, 1604 01:40:44.760 --> 01:40:47.850 it helps nobody in implementation, or even in data 1605 01:40:47.850 --> 01:40:51.780 collection and aggregation, to have separate measures for the 1606 01:40:51.810 --> 01:40:54.960 1000s of different business types that we have in the United 1607 01:40:54.960 --> 01:40:57.870 States today. It also doesn't make the data more transparent. 1608 01:40:58.020 --> 01:41:02.550 But then if you look at the SBA advocates own publications, they 1609 01:41:02.580 --> 01:41:06.900 they focus on businesses under a million in revenues, in loans, 1610 01:41:06.930 --> 01:41:09.930 usually, even under 250,000, you're still covering about 1611 01:41:09.930 --> 01:41:12.720 three quarters of them with 250,000. So even a lower 1612 01:41:12.720 --> 01:41:16.410 threshold would be, I think, in many ways, quite comprehensive. 1613 01:41:16.920 --> 01:41:19.740 But even they use those thresholds. So it's not unheard 1614 01:41:19.740 --> 01:41:23.250 of to them. It's a figure that is included in many other 1615 01:41:23.250 --> 01:41:27.030 regulations, for Rico, for the Community Reinvestment Act in 1616 01:41:27.030 --> 01:41:30.510 terms of large bank reporting under the CRA. So I think that's 1617 01:41:30.510 --> 01:41:32.250 a great starting point. And then you know, if there are 1618 01:41:32.310 --> 01:41:35.880 additional data needs, we can have a different also homogenous 1619 01:41:35.880 --> 01:41:38.970 definition at a different threshold. I'll stop there happy 1620 01:41:38.970 --> 01:41:39.480 to discuss. 1621 01:41:39.689 --> 01:41:43.469 Elena Abernathy: Thank you. Thank you so much, Diego. So 1622 01:41:44.159 --> 01:41:48.179 John Taylor will speak now. John Taylor is president and founder 1623 01:41:48.179 --> 01:41:51.359 of the National Community Reinvestment Coalition. He has 1624 01:41:51.359 --> 01:41:54.299 been honored on numerous occasions for his decades long 1625 01:41:54.629 --> 01:41:58.169 advocacy, for greater capital access and fair housing 1626 01:41:58.169 --> 01:42:01.679 opportunity in low income communities. in great measure, 1627 01:42:01.679 --> 01:42:04.499 he attributes this to his start in life as a resident of public 1628 01:42:04.499 --> 01:42:08.429 housing in Boston, John was appointed to the first Advisory 1629 01:42:08.429 --> 01:42:13.829 Board of the CDFI CDFI Fund, and also has served on the Consumer 1630 01:42:13.829 --> 01:42:18.059 Advisory Council of the Federal Reserve Bank Board in DC. John, 1631 01:42:18.690 --> 01:42:23.250 John Taylor: Thank you, Elena. And thank you, Diego, for giving 1632 01:42:23.250 --> 01:42:26.730 me the opportunity to make a few comments that might not totally 1633 01:42:26.730 --> 01:42:32.160 agree with you. But I do want to say, I want to shocking, yes, I 1634 01:42:32.160 --> 01:42:36.330 want to, I want to give a disclaimer, maybe it's a 1635 01:42:36.330 --> 01:42:40.260 claimer. But that the remarks I'm about to make are the 1636 01:42:40.260 --> 01:42:46.980 opinion of John Taylor, but also of NCRC. And I know, folks are 1637 01:42:47.040 --> 01:42:49.410 laughing because every time we go to one of these hearings, 1638 01:42:49.410 --> 01:42:51.960 there's always the disclaimer, and I understand why that's the 1639 01:42:51.960 --> 01:42:55.560 case. But I always find it funny. What I also also find 1640 01:42:55.560 --> 01:43:00.720 funny is a while maybe it's not funny, but it's this notion of 1641 01:43:00.780 --> 01:43:04.530 if you do more regulation, you're going to increase costs. 1642 01:43:04.980 --> 01:43:08.220 And that's going to lower business, the amount of people 1643 01:43:08.250 --> 01:43:12.570 loans that are going to recur. And, you know, it doesn't seem 1644 01:43:12.570 --> 01:43:14.490 to matter what the subject matter is, if there's any 1645 01:43:14.490 --> 01:43:17.250 regulation involved, someone's going to get up and say, you 1646 01:43:17.250 --> 01:43:20.040 know, maybe it's, it's a libertarian Bible. I don't, I 1647 01:43:20.040 --> 01:43:22.890 don't know what it is, maybe there's a code you have to take 1648 01:43:22.890 --> 01:43:27.810 where you, you make these kinds of comments. But, you know, we 1649 01:43:27.810 --> 01:43:30.870 have seatbelt laws, because somebody created regulation that 1650 01:43:30.870 --> 01:43:33.750 said, You got to protect people. And it probably saves about 1651 01:43:33.780 --> 01:43:38.220 100,000 Americans a year now, perhaps more. There are reasons 1652 01:43:38.220 --> 01:43:43.020 we have regulations. And in this case, talking about 1071, there 1653 01:43:43.020 --> 01:43:46.410 is a disparity of treatment of women and people of color when 1654 01:43:46.410 --> 01:43:51.600 it comes to getting access to credit and capital. What's lost 1655 01:43:51.600 --> 01:43:54.150 in the conversation, they're just saying, Oh, if you increase 1656 01:43:54.150 --> 01:43:57.090 costs, as some loans aren't going to be made, there's a lot 1657 01:43:57.090 --> 01:44:00.330 of loans that are not being made because of disparate treatment. 1658 01:44:00.750 --> 01:44:05.250 And what we really need to focus on is, let's, let's figure out 1659 01:44:05.250 --> 01:44:09.360 how we create this opportunity. And you heard Dr. Christiansen 1660 01:44:09.600 --> 01:44:13.200 earlier in the in a panel talk about the disparate treatment, 1661 01:44:13.200 --> 01:44:16.890 and others have referred to it but let's, let's figure out how 1662 01:44:16.890 --> 01:44:20.490 to reduce the amount of people who ought to be given the 1663 01:44:20.490 --> 01:44:25.020 opportunity to access credit and capital and ought to be able to 1664 01:44:25.020 --> 01:44:29.400 grow their businesses or start their businesses. And then we 1665 01:44:29.400 --> 01:44:33.060 can figure out where we can perhaps tweak work the 1666 01:44:33.060 --> 01:44:36.660 regulations in a way that it minimizes the impact on on 1667 01:44:36.660 --> 01:44:40.230 lenders. But I've been hearing this argument forever in a day 1668 01:44:40.230 --> 01:44:45.000 oh my god, regulation, it's gonna it's gonna really ruin the 1669 01:44:45.000 --> 01:44:48.540 business and so on. And meanwhile, this is no people 1670 01:44:48.540 --> 01:44:51.120 wherever but the big banks in this country is the most 1671 01:44:51.120 --> 01:44:56.160 profitable years and their history in recent years. For the 1672 01:44:56.160 --> 01:44:59.520 life of me, I can't figure out I mean, I guess the fintechs have 1673 01:44:59.520 --> 01:45:02.130 a lot more smarter people than banks, because they figured out 1674 01:45:02.130 --> 01:45:04.410 how to make a lot of money doing these loans. And I realized 1675 01:45:04.710 --> 01:45:08.760 banks, it would be unsavory for them to be making 40% loans. But 1676 01:45:08.790 --> 01:45:12.420 you know, there's a way of working this within the banking 1677 01:45:12.420 --> 01:45:15.900 system. And we love banks, because banks are CRA regulated. 1678 01:45:16.710 --> 01:45:20.610 We'd love fintechs to I don't I don't mean to disparage the 1679 01:45:20.640 --> 01:45:25.560 fintechs in the in the room, but having an affirmative obligation 1680 01:45:25.560 --> 01:45:28.770 to serve underserved populations is a good thing in this country. 1681 01:45:29.190 --> 01:45:34.200 And the idea that, Oh, its costs are going to drive people out of 1682 01:45:34.200 --> 01:45:36.840 this. It actually doesn't seem to be doing that the FinTech 1683 01:45:36.930 --> 01:45:42.480 industry has grown pretty well. Well, I'll leave it at that. 1684 01:45:43.890 --> 01:45:46.020 Elena Abernathy: Okay, thanks, John. Brad, you wanted to say a 1685 01:45:46.020 --> 01:45:48.000 few words about small business definition. 1686 01:45:49.140 --> 01:45:50.610 Brad Blauer: Yeah. And first, I'd like to thank John for 1687 01:45:50.610 --> 01:45:52.980 loving the banks. We like enjoy working with insourcing. 1688 01:45:53.970 --> 01:45:55.320 John Taylor: Aren't you a credit card company? 1689 01:45:55.320 --> 01:45:59.970 Brad Blauer: Yes. Going back to Elena's initial question of 1690 01:45:59.970 --> 01:46:04.050 whether the SBA definitions are unworkable. I think I think they 1691 01:46:04.050 --> 01:46:07.830 are for these purposes. Just to give you an example, that the 1692 01:46:07.830 --> 01:46:11.850 SBA would have called the North American Industry Classification 1693 01:46:11.850 --> 01:46:16.200 System codes. booklet is 49 pages long, the 2019 version, 1694 01:46:16.710 --> 01:46:20.010 and it defines each industry differently. So you could be a 1695 01:46:20.010 --> 01:46:23.190 beekeeper. And with a million dollars or less, you can be a 1696 01:46:23.190 --> 01:46:27.270 food processor to be $45 million in revenue or less, and so 1697 01:46:27.300 --> 01:46:30.870 wildly varies. And so I think in terms of the definition, there 1698 01:46:30.870 --> 01:46:34.500 does seem to be a coalescing around the view of let's find a 1699 01:46:34.500 --> 01:46:37.650 bright line rule of 1 million or less that where you can compare 1700 01:46:37.650 --> 01:46:41.880 lending across industries. And going back to Marines comment 1701 01:46:41.910 --> 01:46:44.820 about defining principle partners, and how do we define 1702 01:46:44.820 --> 01:46:48.420 minority and women owned businesses? I think we can do 1703 01:46:48.420 --> 01:46:51.420 this fairly simply. And that is, you know, most business, most 1704 01:46:51.420 --> 01:46:55.500 small businesses have a handful or less of owners, let's count 1705 01:46:55.500 --> 01:46:59.280 everybody in terms of how you define whether you're a woman or 1706 01:46:59.280 --> 01:47:02.280 minority owned. But for principle partners, let's keep 1707 01:47:02.280 --> 01:47:05.850 down the cost by only reporting the demographic information of 1708 01:47:05.850 --> 01:47:09.330 your partners who owe 25% or more, which is consistent with 1709 01:47:09.330 --> 01:47:13.560 FinCEN rules, it will keep the costs down it will maybe not 1710 01:47:13.560 --> 01:47:16.260 disincentivize many small businesses from participating in 1711 01:47:16.260 --> 01:47:20.220 providing that information. And let's also in terms of the 1712 01:47:20.220 --> 01:47:23.910 definition, I think we should limit it to loans to businesses 1713 01:47:23.910 --> 01:47:26.790 that are owned by natural persons. You know, when we start 1714 01:47:26.790 --> 01:47:29.670 to get into businesses that are owned by trust large commercial 1715 01:47:29.670 --> 01:47:33.960 loan companies, publicly traded corporations, I don't think 1716 01:47:33.960 --> 01:47:36.300 that's the purpose of what Congress was getting at with the 1717 01:47:36.330 --> 01:47:40.890 1071. I think it wanted to monitor small business lending. 1718 01:47:41.130 --> 01:47:43.980 And that means small businesses of a million or less, who 1719 01:47:43.980 --> 01:47:46.890 currently are being underserved in some markets. And so let's 1720 01:47:46.920 --> 01:47:48.390 again, shed some light on this. 1721 01:47:49.680 --> 01:47:52.170 Elena Abernathy: Thanks, Brad. Okay, shifting gears a little 1722 01:47:52.170 --> 01:47:56.070 bit to the third topic, but another definitional challenge 1723 01:47:56.070 --> 01:47:59.100 that is found within section 1071. And that's the definition 1724 01:47:59.100 --> 01:48:02.280 of financial institution for purposes of entities to be 1725 01:48:02.280 --> 01:48:05.070 covered by the collection and reporting requirements of 1726 01:48:05.070 --> 01:48:09.270 section 1071. Section 1071 provides a broad definition of 1727 01:48:09.270 --> 01:48:12.600 financial institution and is triggered by an application for 1728 01:48:12.600 --> 01:48:18.780 credit. But section 1071 also authorizes the bureau to adopt 1729 01:48:18.780 --> 01:48:23.610 exceptions to any requirement in 1071. And to exempt any 1730 01:48:23.610 --> 01:48:27.390 financial institution or class of financial institutions from 1731 01:48:27.390 --> 01:48:32.040 the requirements of section 1071 as the bureau deems necessary or 1732 01:48:32.040 --> 01:48:36.360 appropriate to carry out the purposes of 1071. What should 1733 01:48:36.360 --> 01:48:39.840 the bureau consider in making this determination? So for 1734 01:48:39.840 --> 01:48:44.580 example, what exempting would exempting certain financial 1735 01:48:44.580 --> 01:48:49.440 institutions, such as smaller lenders further or diminish the 1736 01:48:49.440 --> 01:48:53.730 purposes of 1071 also would exempting certain types of 1737 01:48:53.730 --> 01:48:58.800 transactions further or diminish the purposes of section 1071. So 1738 01:48:58.800 --> 01:49:00.990 for that, I'll turn it over to Bill to kick us off. 1739 01:49:01.020 --> 01:49:04.170 Bill Phelan: Thanks, Elena. There's Yeah, it is a broad 1740 01:49:04.170 --> 01:49:09.030 definition. And I've read it several times myself. And 1741 01:49:09.030 --> 01:49:13.110 clarity is needed on financial institution and on loan. I'm 1742 01:49:13.110 --> 01:49:17.130 going to just briefly the Act says, The Section says any 1743 01:49:17.130 --> 01:49:21.540 partnership company, Corporation Association, trust estate 1744 01:49:21.540 --> 01:49:25.650 cooperative or other entity that engages in any financial 1745 01:49:25.650 --> 01:49:28.860 activity, and then it further says it defined small business 1746 01:49:28.860 --> 01:49:32.790 loan is a loan made to a small business. So we need to decide 1747 01:49:32.790 --> 01:49:36.000 what a business is. And we need to decide what alone is right. 1748 01:49:36.270 --> 01:49:40.710 That's the challenge, right? So clearly, from my reading, a 1749 01:49:40.710 --> 01:49:44.010 covered entity is any business any business that's making, its 1750 01:49:44.010 --> 01:49:47.790 undertaking financial activity, so the rubber meets the road on 1751 01:49:47.790 --> 01:49:51.930 financial activity, that's the rub here is we dive into that 1752 01:49:51.930 --> 01:49:56.280 and we look at financial activity. It really comes down 1753 01:49:56.280 --> 01:50:00.510 to the type of facility that we have to consider From our 1754 01:50:00.510 --> 01:50:05.400 perspective, the facilities for credit are many types. There's 1755 01:50:05.400 --> 01:50:09.090 loans, there's lines of credit, there's leases, there's 1756 01:50:09.090 --> 01:50:13.200 mortgages, there's rental, there's trade credit. And when 1757 01:50:13.200 --> 01:50:19.200 you look at a loan, it's really clear what a loan is. I mean, I 1758 01:50:19.200 --> 01:50:22.380 think we're all are familiar with it. It's a legal agreement 1759 01:50:22.410 --> 01:50:25.860 to provide a sum of money that is expected to be paid back with 1760 01:50:25.860 --> 01:50:30.360 interest. And so certain types of facilities apply, really 1761 01:50:30.360 --> 01:50:34.620 qualify for that definition. Alone, certainly, you know, you 1762 01:50:34.650 --> 01:50:38.490 you take, you get a sum of money, you, there's a loan 1763 01:50:38.490 --> 01:50:41.610 agreement, and there's expectation that you're going to 1764 01:50:41.610 --> 01:50:44.610 be paid back and you're going to be paid back with interest. And 1765 01:50:44.610 --> 01:50:47.700 certainly a line of credit falls into that category, certainly a 1766 01:50:47.700 --> 01:50:51.690 commercial lease does a mortgage, they all meet that 1767 01:50:51.690 --> 01:50:54.900 requirement. And that set of requirements, I think it gets 1768 01:50:54.900 --> 01:50:57.420 more complicated. When you look at a rental agreement, for 1769 01:50:57.420 --> 01:51:01.410 example, a rental agreement does, in my mind, at least, is 1770 01:51:01.410 --> 01:51:05.250 an exchange of a payment to use an asset. And there's no 1771 01:51:05.280 --> 01:51:08.970 interest implicit in the rental agreement. A trade credit, 1772 01:51:09.240 --> 01:51:12.390 really tough issue. I mean, trade credits a big part of the 1773 01:51:12.390 --> 01:51:16.740 small business credit landscape. But trade is really an exchange 1774 01:51:16.740 --> 01:51:20.370 of goods for a commitment to pay back in 30 days with no 1775 01:51:20.370 --> 01:51:25.470 interest. And so in my mind, neither trade nor trade, credit 1776 01:51:25.470 --> 01:51:28.770 nor rental really qualify for a loan agreement. And I think to 1777 01:51:28.770 --> 01:51:33.390 Brad's point, is it, was that really the intent. So for these 1778 01:51:33.390 --> 01:51:39.330 reasons, you know, I see that the the the facilities that meet 1779 01:51:39.330 --> 01:51:42.930 kind of the traditional definition of a loan, that I 1780 01:51:42.930 --> 01:51:47.670 outlined are clearly covered, those that don't are not, I 1781 01:51:47.670 --> 01:51:50.370 mean, could you imagine if we went to our grocery store and 1782 01:51:50.370 --> 01:51:54.810 bought milk, and the guy at the local grocery store said, Hey, 1783 01:51:54.810 --> 01:51:57.780 pay me next week? Does that become a loan? I don't think it 1784 01:51:57.780 --> 01:52:00.750 does. It's a really a trade credit obligation, if you think 1785 01:52:00.750 --> 01:52:07.830 about it. So in, in our kind of understanding of this, it really 1786 01:52:07.830 --> 01:52:11.490 is more of the traditional lending facilities that qualify, 1787 01:52:11.730 --> 01:52:15.090 I want to briefly just say one more thing that the point this 1788 01:52:15.090 --> 01:52:20.010 morning was made that about 1.4, or $5 trillion of credit falls 1789 01:52:20.010 --> 01:52:24.960 into this category of 1071, we actually see it has a broader 1790 01:52:24.990 --> 01:52:28.770 amount in the three and a half trillion range. So it's a much 1791 01:52:28.770 --> 01:52:34.020 broader, I think, set of of loans that we have to consider 1792 01:52:34.020 --> 01:52:36.930 in this in this category. So you know those my comments? 1793 01:52:37.080 --> 01:52:38.850 Elena Abernathy: Great. Thank you so much, Bill, that's a 1794 01:52:38.850 --> 01:52:41.730 great way to kick off this discussion. And clearly a lot of 1795 01:52:42.030 --> 01:52:46.470 challenging issues for us to think about. I know that, John, 1796 01:52:46.470 --> 01:52:49.590 you wanted to speak on this as well. So any thoughts from you 1797 01:52:49.620 --> 01:52:53.130 on either exemptions of financial institutions or the 1798 01:52:53.130 --> 01:52:56.880 types of transactions that perhaps this rule should, from 1799 01:52:56.880 --> 01:52:57.960 your perspective cover? 1800 01:52:58.620 --> 01:53:01.170 John Taylor: I did want to speak on this, but expected to have a 1801 01:53:01.230 --> 01:53:05.940 lot more objections to what Bill was saying. And unfortunately, I 1802 01:53:05.940 --> 01:53:10.950 find myself in deep agreement, I think the statute is, is very 1803 01:53:10.950 --> 01:53:13.560 clear about this. And who's covered the language. I mean, 1804 01:53:13.590 --> 01:53:18.780 the Congress did not say banks, they did not say depository 1805 01:53:18.780 --> 01:53:22.140 institutions, they created a very broad definition for for 1806 01:53:22.410 --> 01:53:28.260 this very purpose, that as the financial, institutional 1807 01:53:28.260 --> 01:53:31.380 industry evolves, more and more is being done through the 1808 01:53:31.380 --> 01:53:33.960 internet, through telephones through all sorts of other 1809 01:53:33.960 --> 01:53:37.260 mechanisms that don't involve bank branches, much to my 1810 01:53:37.260 --> 01:53:42.450 chagrin. But, you know, clearly, we have to have a system in 1811 01:53:42.450 --> 01:53:45.840 which all the players in the system are held accountable. And 1812 01:53:45.870 --> 01:53:49.830 I think that's clearly what 1071 intended to do. And I would go, 1813 01:53:50.190 --> 01:53:54.420 I would encourage the bureau to very much look at the definition 1814 01:53:54.420 --> 01:53:59.550 as as as passed by Congress in the White House, and and go with 1815 01:53:59.550 --> 01:54:02.130 that. Sure. 1816 01:54:03.120 --> 01:54:06.300 Richard Neiman: I think one area that is worth looking at is 1817 01:54:06.420 --> 01:54:09.960 there are certain products that are often not characterized as 1818 01:54:09.960 --> 01:54:12.810 loans, I think you heard referenced on the earlier panel 1819 01:54:12.810 --> 01:54:16.770 around merchant cash advances. And the position is often taken 1820 01:54:16.770 --> 01:54:21.300 by these firms that they are not loans. But they are a certainly 1821 01:54:21.300 --> 01:54:25.530 a product that has been the targeting of small businesses. 1822 01:54:25.530 --> 01:54:30.120 And certainly, when you look at it holistically is viewed as a 1823 01:54:30.120 --> 01:54:33.000 loan. And I think it would be important because some of the 1824 01:54:33.180 --> 01:54:36.960 terms and and the risks that you heard small businesses are faced 1825 01:54:36.960 --> 01:54:40.410 on the earlier panel, that they be included under the 1826 01:54:40.440 --> 01:54:41.130 definition. 1827 01:54:42.240 --> 01:54:46.590 Diego Zuluaga: Elena, can I comment? I I have to say that, 1828 01:54:46.620 --> 01:54:48.720 you know, the Bureau does have exemptive Authority and the 1829 01:54:48.720 --> 01:54:51.990 statute and I think it is for good reason. John was asking 1830 01:54:51.990 --> 01:54:55.980 earlier why I worry so much about compliance costs. Well, 1831 01:54:55.980 --> 01:54:59.130 mainly because compliance cost is typically regressive. And 1832 01:54:59.130 --> 01:55:02.730 it's actually the same Although dollar loans and the less 1833 01:55:02.730 --> 01:55:05.940 profitable borrowers and the more marginalized borrowers that 1834 01:55:05.940 --> 01:55:10.920 are laid off first when you have costs piling on to your income 1835 01:55:10.980 --> 01:55:14.130 statement, and so I think a lot of the populations that we're 1836 01:55:14.130 --> 01:55:19.020 focusing on with section 1071 would be badly served by a 1837 01:55:19.020 --> 01:55:22.650 measure that actually caused a lot of providers to simply leave 1838 01:55:22.650 --> 01:55:26.130 the market. And I think focusing on where we have the most leader 1839 01:55:26.130 --> 01:55:29.100 right now, which is depository institutions, banks thrifts and 1840 01:55:29.100 --> 01:55:31.890 credit unions, what you see is that the distribution of small 1841 01:55:31.890 --> 01:55:34.650 business loans is very concentrated in the largest 1842 01:55:34.650 --> 01:55:38.910 institutions. So we can actually save about 85% of banks and 1843 01:55:38.910 --> 01:55:42.390 thrifts and or 90% of credit unions, that compliance cost 1844 01:55:42.390 --> 01:55:46.110 with small business loan data collection requirements, while 1845 01:55:46.140 --> 01:55:49.770 only sparing about 10 to 15% of the small business loans 1846 01:55:49.770 --> 01:55:53.070 currently outstanding, or you know, the volume of loans that 1847 01:55:53.070 --> 01:55:55.890 is made, depending on which data source to use, whether the CRA, 1848 01:55:56.070 --> 01:55:58.590 or the call reports. At any rate, what you're getting, there 1849 01:55:58.590 --> 01:56:01.320 is a bit of an 8020 principle, sometimes even better than the 1850 01:56:01.350 --> 01:56:05.280 8020 principle, by exercising that exemptive authority. And I 1851 01:56:05.280 --> 01:56:08.670 think if we are concerned about people having specific long 1852 01:56:08.670 --> 01:56:13.050 standing relationships with their bank or credit union, for 1853 01:56:13.110 --> 01:56:16.140 their line of credit, their term loans, things that might not 1854 01:56:16.140 --> 01:56:18.900 even have an application, you don't want to get into a 1855 01:56:18.900 --> 01:56:21.690 situation where they're shunned by that provider. Why would you 1856 01:56:21.900 --> 01:56:25.920 and those are not the instances that section 1021 was targeting 1857 01:56:25.920 --> 01:56:28.530 in terms of Fair Lending enforcement? And I don't think 1858 01:56:28.560 --> 01:56:33.630 the data provision that would not happen as a result of that 1859 01:56:34.080 --> 01:56:38.550 would in that make the database any worse? And so I think, 1860 01:56:38.550 --> 01:56:41.250 frankly, you know, that's we get great bang for buck for 1861 01:56:41.250 --> 01:56:43.620 exempting on that on that level. 1862 01:56:46.710 --> 01:56:51.780 John Taylor: Let me just respond. So Diego, I hear your 1863 01:56:51.780 --> 01:56:56.190 point. Again, I think that the amount of folks who are really 1864 01:56:56.190 --> 01:56:59.490 trying to get into the small business market that is small 1865 01:56:59.490 --> 01:57:01.410 businesses that are trying to get access to credit and 1866 01:57:01.410 --> 01:57:06.180 capital, is so much greater than those that would be moved out as 1867 01:57:06.180 --> 01:57:09.540 a result of additional costs. But the other thing is, you 1868 01:57:09.540 --> 01:57:13.320 mentioned the disproportionate percentage of the large lenders 1869 01:57:13.320 --> 01:57:17.160 who do the small business loans. In your remarks, you also 1870 01:57:17.160 --> 01:57:20.670 suggest that anyone who gets an outstanding CRA rating should be 1871 01:57:20.670 --> 01:57:25.650 exempted from so what you've done is on both sides of the 1872 01:57:25.650 --> 01:57:28.770 equation, you've cut out and made exempt everybody who would 1873 01:57:28.770 --> 01:57:33.300 be who would be applicable to this 1071 Because most of those 1874 01:57:33.300 --> 01:57:35.490 large lenders Diego, I don't know if you know this or not, 1875 01:57:35.490 --> 01:57:38.490 but some get outstanding ratings. And 1876 01:57:39.210 --> 01:57:42.480 Diego Zuluaga: That's not the case, no. 10% of large lenders 1877 01:57:42.480 --> 01:57:42.690 get. 1878 01:57:43.410 --> 01:57:46.890 John Taylor: The top seven control almost 75% of the assets 1879 01:57:46.890 --> 01:57:49.560 in the country. That's the problem. It's, it's become 1880 01:57:49.560 --> 01:57:50.280 concentrated. 1881 01:57:50.310 --> 01:57:53.340 Diego Zuluaga: No, I was I was in fact, looking at the ratings 1882 01:57:53.340 --> 01:57:57.180 data from 2015 to 2017. The other day, and as I say, it's a 1883 01:57:57.180 --> 01:58:00.060 lot of smaller institutions, about 10% of institutions 1884 01:58:00.060 --> 01:58:03.870 overall, most institutions get a satisfactory rating. Yes. But I 1885 01:58:03.870 --> 01:58:06.210 suggest in my, in my submission, that there are plenty of ways 1886 01:58:06.210 --> 01:58:07.740 you could look at this, you could look at small business 1887 01:58:07.740 --> 01:58:10.380 lending as a specific category, you could look at the lending 1888 01:58:10.380 --> 01:58:12.480 test within the CRA, and. 1889 01:58:12.480 --> 01:58:15.150 John Taylor: You're exempt for it from the data reporting. How 1890 01:58:15.150 --> 01:58:18.180 do you actually look at that? Because it's just everybody, but 1891 01:58:18.180 --> 01:58:20.970 it's cumulative data where you can't tell who's getting it and 1892 01:58:21.210 --> 01:58:22.470 and at what amounts? 1893 01:58:22.710 --> 01:58:24.750 Diego Zuluaga: No, no, you have you have quite a bit of granular 1894 01:58:24.750 --> 01:58:27.450 data, because it's by assessment area, and then you're going to 1895 01:58:27.450 --> 01:58:29.880 each individual census tract, and you actually know the 1896 01:58:29.880 --> 01:58:32.070 distribution of loans by Census Tract within the bank's 1897 01:58:32.070 --> 01:58:32.790 assessment area. 1898 01:58:32.820 --> 01:58:35.670 Elena Abernathy: So I'm going to have Maureen, start, Diego and 1899 01:58:35.700 --> 01:58:39.120 John, very lively debate as we wanted and expected. So thank 1900 01:58:39.120 --> 01:58:40.290 you, Maureen, you wanted to jump in. 1901 01:58:40.290 --> 01:58:41.820 Maureen Bush: Thank you and hopefully I'll contribute to it 1902 01:58:41.820 --> 01:58:46.020 because I will say that, and I agree that I think the banks we 1903 01:58:46.020 --> 01:58:49.350 do collect and we are examined on this data for the most part 1904 01:58:49.350 --> 01:58:53.940 already. And so if the intent of 1071 was just to get more 1905 01:58:53.940 --> 01:58:57.210 information from the traditional lenders, we have that we have 1906 01:58:57.210 --> 01:59:00.600 the CRA so I actually look at it a little bit differently, when 1907 01:59:00.780 --> 01:59:03.630 we're looking at the definition of when the bureau is looking at 1908 01:59:03.630 --> 01:59:07.800 the definition of what a financial institution is that it 1909 01:59:07.800 --> 01:59:11.040 should be representative of where are where is the funding 1910 01:59:11.040 --> 01:59:15.870 coming from from a small business? Is it from an MCA? Or 1911 01:59:15.870 --> 01:59:19.110 is it from another alternative provider? It shouldn't just be 1912 01:59:19.320 --> 01:59:22.650 the traditional providers because we already have that 1913 01:59:22.650 --> 01:59:25.500 information. And and there's been an argument in terms of the 1914 01:59:25.500 --> 01:59:28.920 large bank versus a small bank. Yes, the large banks, we do 1915 01:59:28.920 --> 01:59:32.580 provide that data annually, but a small bank or an intermediate 1916 01:59:32.580 --> 01:59:35.430 small bank is still responsible for that data, they are still 1917 01:59:35.430 --> 01:59:38.280 examined for that data. So I think it's something that if we 1918 01:59:38.280 --> 01:59:42.210 focus too much on the traditional Avenue, we're no 1919 01:59:42.210 --> 01:59:44.250 better off than where we were before because we're really 1920 01:59:44.250 --> 01:59:47.580 looking at what's not being captured today. 1921 01:59:48.990 --> 01:59:51.990 Elena Abernathy: Okay, thank you all. So moving on to the fourth 1922 01:59:51.990 --> 01:59:55.800 topic, trying to stay on time here though. I as I we spoke 1923 01:59:55.800 --> 01:59:58.740 earlier before the beginning of the event. I think we could 1924 01:59:58.740 --> 02:00:01.170 probably spend a couple hours on it. Each of these topics, so 1925 02:00:01.590 --> 02:00:05.580 apologize for having to move on. But let's let's do that. The 1926 02:00:05.580 --> 02:00:08.340 fourth topic is the data elements to be collected and 1927 02:00:08.340 --> 02:00:11.910 reported by financial institutions. Section 1071 1928 02:00:11.910 --> 02:00:15.000 specify certain data elements that lenders must collect and 1929 02:00:15.000 --> 02:00:18.870 report and grants the bureau discretion to require additional 1930 02:00:18.870 --> 02:00:22.260 data that the bureau determines would aid in fulfilling the 1931 02:00:22.260 --> 02:00:26.250 purposes of section 1071. What should the bureau consider in 1932 02:00:26.250 --> 02:00:29.820 making this determination? So for example, what should the 1933 02:00:29.820 --> 02:00:34.110 bureau consider in assessing the incremental benefits and costs 1934 02:00:34.260 --> 02:00:37.800 of adding a given data point, and determining whether it would 1935 02:00:37.830 --> 02:00:41.700 aid in fulfilling the purposes of section 1071. So for that, 1936 02:00:41.700 --> 02:00:43.980 John, I'll kick it over to you to kick us off here. 1937 02:00:44.489 --> 02:00:47.611 John Taylor: Thank you, Elena. And I want to thank Elena and 1938 02:00:47.677 --> 02:00:51.398 Grady and director, Karen Becker, as I said, I butchered 1939 02:00:51.464 --> 02:00:55.517 her name, and I apologize for that. But I want to go a little 1940 02:00:55.583 --> 02:00:59.038 bit 10,000 foot and it's probably not going to be as 1941 02:00:59.104 --> 02:01:03.024 interesting to the folks in this room because it seems like 1942 02:01:03.090 --> 02:01:06.877 everybody in this room has a dog in this hunt in a lot of 1943 02:01:06.943 --> 02:01:11.129 different ways. But I do want to speak to also to the folks who 1944 02:01:11.195 --> 02:01:15.048 are looking at this online and trying to understand what's 1945 02:01:15.115 --> 02:01:19.167 going on here. And I want to begin with a sounding sounding a 1946 02:01:19.233 --> 02:01:23.419 warning that I want all folks to hear. The income inequality in 1947 02:01:23.485 --> 02:01:27.538 this country is the highest of any industrialized nation. And 1948 02:01:27.604 --> 02:01:31.324 it's higher than it's been in this country and almost 50 1949 02:01:31.391 --> 02:01:35.576 years. It's festering a calamity that I believe that's building 1950 02:01:35.643 --> 02:01:39.562 towards an explosion of American citizens, who no longer be 1951 02:01:39.629 --> 02:01:43.548 willing to work all day, and still have the ability to have 1952 02:01:43.615 --> 02:01:47.601 decent, a decent quality of life. For my house speaker, Paul 1953 02:01:47.667 --> 02:01:51.454 Ryan, and I'm only going to read, I'm only going to quote 1954 02:01:51.520 --> 02:01:55.706 Republicans here, so be prepared for that. Former Speaker Ryan, 1955 02:01:55.772 --> 02:01:59.625 are you more important than the equality of results is the 1956 02:01:59.692 --> 02:02:03.611 equality of opportunity. This measures the degrees to which 1957 02:02:03.678 --> 02:02:07.664 individuals have a chance to succeed, despite their original 1958 02:02:07.730 --> 02:02:11.716 circumstances. And that's what 1071 is all about. Obviously, 1959 02:02:11.783 --> 02:02:15.503 acquiring a job is the number one mechanism to begin the 1960 02:02:15.570 --> 02:02:19.755 process of building wealth. But it is homeownership that serves 1961 02:02:19.821 --> 02:02:23.741 as the number one mechanism that gives people the rise, the 1962 02:02:23.807 --> 02:02:27.661 ability to rise from being working poor, and to experience 1963 02:02:27.727 --> 02:02:31.912 equity growth for the first time wealth growth. America is in a 1964 02:02:31.979 --> 02:02:35.898 50 year low and homeownership rate. And that's particularly 1965 02:02:35.965 --> 02:02:40.084 true for people of color. The problem is that real wages today 1966 02:02:40.150 --> 02:02:44.269 adjusted for inflation are the same as they were 20 years ago. 1967 02:02:44.335 --> 02:02:48.587 And yet housing and other goods have have increased 20 years ago 1968 02:02:48.654 --> 02:02:52.839 to now by 50%. You do the math, we must address this problem we 1969 02:02:52.905 --> 02:02:56.294 faced with our face dire consequences how many more 1970 02:02:56.360 --> 02:03:00.545 economists need to tell us that another depression is imminent? 1971 02:03:00.612 --> 02:03:04.465 And what and what will this will mean for the overwhelming 1972 02:03:04.531 --> 02:03:08.650 majority of Americans already struggling to maintain a livable 1973 02:03:08.717 --> 02:03:12.902 quality of life. The financial services sector is the key actor 1974 02:03:12.968 --> 02:03:17.087 in this scenario. Making small business loans to traditionally 1975 02:03:17.154 --> 02:03:21.273 underserved people, minorities and women in particular, is one 1976 02:03:21.339 --> 02:03:25.192 key to reversing this trend. Minimum wage jobs offer scant 1977 02:03:25.259 --> 02:03:29.444 savings for workers as household and other costs quickly absorb 1978 02:03:29.511 --> 02:03:33.563 that available income. And such real wages really put them in 1979 02:03:33.629 --> 02:03:37.483 the position to be able to buy a home. So, you know, small 1980 02:03:37.549 --> 02:03:41.668 businesses have what's what's going to be an is the driver for 1981 02:03:41.734 --> 02:03:45.123 creating decent jobs, in underserved communities in 1982 02:03:45.189 --> 02:03:49.308 businesses owned by women, when they passed the Dodd Frank Act 1983 02:03:49.374 --> 02:03:53.560 in 2010, section 1071, as we all know, amended the Equal Credit 1984 02:03:53.626 --> 02:03:57.081 Opportunity Act to require financial institutions to 1985 02:03:57.147 --> 02:04:01.332 compile, maintain and submit to the, to the bureau certain data 1986 02:04:01.399 --> 02:04:05.584 on credit applications for women and minority owned businesses. 1987 02:04:05.651 --> 02:04:09.105 And I applaud the CFPB, the Bureau for holding these 1988 02:04:09.172 --> 02:04:13.357 hearings and conducting surveys and publishing materials on the 1989 02:04:13.423 --> 02:04:17.476 implications of all this. One of the basic conclusions of the 1990 02:04:17.542 --> 02:04:21.396 Bureau was that there's a gap that exists in the available 1991 02:04:21.462 --> 02:04:24.584 data that limits our understanding of the small 1992 02:04:24.651 --> 02:04:28.637 business financing market, and CRC and others agree and I've 1993 02:04:28.703 --> 02:04:32.556 reached the same conclusion, including the Federal Reserve 1994 02:04:32.623 --> 02:04:36.675 and others. That small business lending data availably simply 1995 02:04:36.742 --> 02:04:40.661 wasn't enough was inconclusive, conclusive and that further 1996 02:04:40.728 --> 02:04:44.647 detailed data was needed to measure the level of commitment 1997 02:04:44.714 --> 02:04:48.501 by financial institutions. Further the available data and 1998 02:04:48.567 --> 02:04:52.487 call reports and CRA submissions are limited to banks. This 1999 02:04:52.553 --> 02:04:56.606 excludes data by alternative lenders and other non depository 2000 02:04:56.672 --> 02:05:00.791 institutions that play a major role in small business lending. 2001 02:05:00.857 --> 02:05:04.777 The moment minorities and women Supreme Court Justice Louis 2002 02:05:04.843 --> 02:05:08.763 Brandeis, okay, I don't think he was a Republican said that 2003 02:05:08.829 --> 02:05:13.015 publicity is a remedy for social and industrial ills. Sunlight, 2004 02:05:13.081 --> 02:05:17.267 he said is the best disinfectant effect and Senator Phil Gramm. 2005 02:05:17.333 --> 02:05:21.585 Okay, you have the past chairman of the Senate Banking Committee 2006 02:05:21.651 --> 02:05:25.837 argued in favor of sunshine, and I quote, if a law promotes the 2007 02:05:25.903 --> 02:05:29.158 giving of money for public benefit, there must be 2008 02:05:29.225 --> 02:05:33.277 accountability. He went on to say that regulations should not 2009 02:05:33.344 --> 02:05:36.732 keep people in the dark. The reporting of financial 2010 02:05:36.798 --> 02:05:40.651 institutions have detailed small business data is the very 2011 02:05:40.718 --> 02:05:44.970 sunshine and opportunities that these gentlemen were addressing. 2012 02:05:46.529 --> 02:05:49.679 Undoubtedly, an argument can be pro offered that such reporting 2013 02:05:49.679 --> 02:05:54.749 recreates creates a regulatory burden for lenders. Section 1071 2014 02:05:54.749 --> 02:06:00.899 of the Dodd act amended the ERC E. E CoA, and under the section 2015 02:06:00.929 --> 02:06:05.519 itemized list, it listed seven areas in which the the 2016 02:06:05.549 --> 02:06:09.419 institutions would would have to report under this section. And 2017 02:06:09.419 --> 02:06:13.649 the truth is that if you look at that list, there's very little 2018 02:06:13.649 --> 02:06:16.379 information that they don't already collect. Perhaps the 2019 02:06:16.379 --> 02:06:19.319 only thing on the list that they don't necessarily ask is the 2020 02:06:19.319 --> 02:06:22.199 race and sex, but things like that the number on the 2021 02:06:22.199 --> 02:06:25.229 application, the date when it occurred, the type and purpose 2022 02:06:25.229 --> 02:06:30.059 of the loan, the amount of credit, applied, the type of 2023 02:06:30.059 --> 02:06:33.599 action, whether they approved it or didn't approve it, the census 2024 02:06:33.599 --> 02:06:36.659 tract, maybe they don't usually list the census tract. But the 2025 02:06:36.659 --> 02:06:41.339 truth is, this isn't a heavy burden when it comes. I don't 2026 02:06:41.339 --> 02:06:43.739 understand why everybody's freaking out about what the cost 2027 02:06:43.739 --> 02:06:50.579 will be. But but that the the additional data in deciding 2028 02:06:50.579 --> 02:06:54.089 whether it's worth having must be balanced against the public 2029 02:06:54.089 --> 02:06:57.779 interest, and the intent of Congress to offer sunshine 2030 02:06:57.779 --> 02:07:00.749 through data collection on how women and minorities are faring 2031 02:07:00.749 --> 02:07:04.139 in their efforts to procure, procure small business loans. So 2032 02:07:04.139 --> 02:07:07.559 let me close by saying the income inequality in this 2033 02:07:07.559 --> 02:07:11.189 country, and the worsening economic conditions of the 2034 02:07:11.189 --> 02:07:14.609 bottom half of our population dictates the need for all 2035 02:07:14.609 --> 02:07:18.629 financial institutions opening, offering small business loans to 2036 02:07:18.629 --> 02:07:22.019 come clean, about how they are treating small businesses owned 2037 02:07:22.019 --> 02:07:27.149 by minorities and women. Equality of opportunity is the 2038 02:07:27.149 --> 02:07:31.529 cornerstone of our democracy 1071 in the data collection, 2039 02:07:31.709 --> 02:07:35.909 furthers the vet goal and the goal of Fair Lending another 2040 02:07:36.179 --> 02:07:38.519 cornerstone of our democracy. Thank you very much. 2041 02:07:39.480 --> 02:07:42.654 Elena Abernathy: Okay, thank you, John. So be mindful of 2042 02:07:42.736 --> 02:07:47.945 time, we've got three panelists who would like to respond to the 2043 02:07:48.027 --> 02:07:52.260 to the data elements topic. So Diego, some thoughts? 2044 02:07:52.439 --> 02:07:56.369 Diego Zuluaga: Sure. Just briefly, I think the setting up 2045 02:07:56.369 --> 02:07:59.399 the systems for this data collection and keeping for I 2046 02:07:59.399 --> 02:08:02.609 think, is three to five years, I forget what the exact time limit 2047 02:08:02.609 --> 02:08:06.809 is for three years, keeping that data making it available in a 2048 02:08:06.809 --> 02:08:09.569 format that is compatible with what the bureau will eventually 2049 02:08:09.569 --> 02:08:11.489 want. I think all of those things can be potentially 2050 02:08:11.489 --> 02:08:14.549 headaches, and costly. And one thing that I will mention, 2051 02:08:14.549 --> 02:08:17.609 again, is that, you know, lenders do say that for a lot of 2052 02:08:17.609 --> 02:08:20.549 traditional small business lending, the application is not 2053 02:08:20.549 --> 02:08:23.909 easy to discern in terms of a specific date, and the specific 2054 02:08:23.909 --> 02:08:26.249 moment in which a formal application happens, which I 2055 02:08:26.249 --> 02:08:29.039 think is an issue that needs to be taken into consideration. But 2056 02:08:29.039 --> 02:08:32.519 look, we have the statutorily mandated data points, there 2057 02:08:32.519 --> 02:08:37.079 already very specific and granular. The census tract of 2058 02:08:37.079 --> 02:08:39.749 the business in particular, that struck me a lot, because the 2059 02:08:39.749 --> 02:08:42.929 average population of a sense of strength in the US is about 4000 2060 02:08:42.929 --> 02:08:46.439 people. So even if in with the best will in the world, you 2061 02:08:46.439 --> 02:08:50.069 don't make this data available so that it won't be used by 2062 02:08:50.069 --> 02:08:53.789 malicious actors. Even if a hacker managed to get into 2063 02:08:53.999 --> 02:08:56.819 financial institutions database, or God forbid, the CFPB 2064 02:08:56.819 --> 02:08:59.939 database, they could discern a lot of personal information out 2065 02:08:59.939 --> 02:09:02.609 of that, and they could use that for all kinds of fraudulent 2066 02:09:02.609 --> 02:09:04.829 actions. And I think that privacy risk is one that has to 2067 02:09:04.829 --> 02:09:08.309 be taken into account, in addition to the compliance cost. 2068 02:09:08.459 --> 02:09:11.759 So I would start again, you know, with the statutorily 2069 02:09:11.759 --> 02:09:14.849 mandated data points, and then see where we go from there. 2070 02:09:15.149 --> 02:09:15.629 Thanks. 2071 02:09:15.989 --> 02:09:17.460 Elena Abernathy: Okay. Thanks, Diego. Bill? 2072 02:09:17.489 --> 02:09:22.559 Bill Phelan: Yeah. Thank you. I respect my fellow panelists 2073 02:09:22.559 --> 02:09:25.979 points of view. And I agree that sunshine is a great 2074 02:09:25.979 --> 02:09:31.499 disinfectant, but I know data is devilishly hard to work with 2075 02:09:31.529 --> 02:09:35.009 having done it for 20 years. And this is a really complicated 2076 02:09:35.129 --> 02:09:38.729 process when you when you dive into it, data presents 2077 02:09:38.729 --> 02:09:42.509 challenges. It presents challenges from very 2078 02:09:42.509 --> 02:09:46.079 definitions. And I'll give you an example. So it has to be 2079 02:09:46.079 --> 02:09:51.839 carefully defined. And if we don't arrive at good data, and 2080 02:09:51.869 --> 02:09:55.169 then the aggregated information will not give us the answers we 2081 02:09:55.169 --> 02:09:59.999 want and it will not tell us what we think. We can learn from 2082 02:09:59.999 --> 02:10:02.999 This information. So it's a, it's a really big challenge in 2083 02:10:02.999 --> 02:10:06.299 my mind, let me give you some examples. Let's take application 2084 02:10:06.299 --> 02:10:10.829 status as one. Application Status. It sounds simple. But 2085 02:10:10.829 --> 02:10:13.589 when you think about it, it can be an approved application and a 2086 02:10:13.589 --> 02:10:16.559 rejected application a canceled application withdrawn 2087 02:10:16.559 --> 02:10:20.489 application, should we consider it withdrawn application to be 2088 02:10:20.639 --> 02:10:25.559 one that's analyzed as part of a disparate impact study? Probably 2089 02:10:25.559 --> 02:10:30.179 not. Let's look at the data structure consisting of major 2090 02:10:30.179 --> 02:10:32.669 fields, I mentioned that, you know, there are a few fields 2091 02:10:32.669 --> 02:10:36.269 mentioned in the section. And these appear simple. But when 2092 02:10:36.269 --> 02:10:39.779 you dive in, you start to see there's minor fields there as 2093 02:10:39.779 --> 02:10:43.619 well. Company identifier, let's look at that one. For example, 2094 02:10:43.649 --> 02:10:47.219 the company name seems simple. But the reality is, there's a 2095 02:10:47.219 --> 02:10:50.639 one address and two addresses and a zip code and area code and 2096 02:10:50.669 --> 02:10:53.969 a whole bunch of other identifiers for the business. So 2097 02:10:53.969 --> 02:10:58.259 it's, again, very complicated. And then I think likely to get 2098 02:10:58.679 --> 02:11:01.859 good intelligence out of this data set, we're going to want to 2099 02:11:01.859 --> 02:11:05.009 enrich it in some way, shape, or form, we're going to we're going 2100 02:11:05.009 --> 02:11:08.519 to want to understand, you know, for example, things like the 2101 02:11:08.519 --> 02:11:11.549 industry of the business, or maybe the term of the loan, 2102 02:11:11.549 --> 02:11:14.459 things like that could help us understand access to capital. 2103 02:11:15.029 --> 02:11:17.939 The final point I'd like to make is about management of the data, 2104 02:11:17.939 --> 02:11:22.409 it's, again, a incredible challenge to manage this data. 2105 02:11:22.739 --> 02:11:26.519 Just look at the business name, for example, you could have a 2106 02:11:26.519 --> 02:11:28.949 DBA Name, you could have a parent company name, you could 2107 02:11:28.949 --> 02:11:31.559 have an owner name or a guarantor name, how do you put 2108 02:11:31.559 --> 02:11:34.289 that together? It's very challenging to do that and do it 2109 02:11:34.289 --> 02:11:39.629 right. And that matching will result in good data. And that's 2110 02:11:39.629 --> 02:11:42.179 what we want at the end of the day here. And then finally, 2111 02:11:42.179 --> 02:11:45.599 there will be the need for periodic periodic updates. This 2112 02:11:45.599 --> 02:11:49.919 won't be just like one and done. Imagine in 2008, we're standing 2113 02:11:49.919 --> 02:11:54.659 here in the midst of the worst recession of all time, and we 2114 02:11:54.689 --> 02:11:58.319 you get a call from Congress that says, hey, Elena, tell us 2115 02:11:58.589 --> 02:12:01.019 what's going on in small business credit, because we want 2116 02:12:01.019 --> 02:12:04.229 to set policy, you're going to need real time data available on 2117 02:12:04.229 --> 02:12:08.009 the spot to make those decisions. So I really, I 2118 02:12:08.009 --> 02:12:10.949 respect everybody's points of view. But having done this, I 2119 02:12:10.949 --> 02:12:13.139 think it's gonna be a real challenge to get the data 2120 02:12:13.139 --> 02:12:13.559 together. 2121 02:12:13.980 --> 02:12:15.510 Elena Abernathy: Okay. Thanks, Bill. Richard, did you want to 2122 02:12:15.510 --> 02:12:15.840 weigh in? 2123 02:12:15.869 --> 02:12:18.779 Richard Neiman: Yeah, thank you, I want to reinforce why 2124 02:12:18.779 --> 02:12:23.369 including APR as a data element is so important. Reporting data 2125 02:12:23.369 --> 02:12:26.489 will only be helpful and encouraging innovation and 2126 02:12:26.489 --> 02:12:29.519 spotlighting what works if it actually shows the price of the 2127 02:12:29.519 --> 02:12:32.399 credit being charged. Remember, small business lending has 2128 02:12:32.399 --> 02:12:35.069 really changed over the last several years. There now 2129 02:12:35.069 --> 02:12:38.579 billions of dollars being loaned to small businesses that APR is 2130 02:12:38.579 --> 02:12:44.909 of 50% or even over a 300%. You cannot just think about access 2131 02:12:44.909 --> 02:12:48.479 to capital alone without addressing the rise of a 2132 02:12:48.479 --> 02:12:52.319 responsible lending. Access at 20% is very different than 2133 02:12:52.319 --> 02:12:57.239 access a 200%. Without APR as the data will not be clear 2134 02:12:57.239 --> 02:13:00.959 whether high approval rates for minority owned small businesses 2135 02:13:00.959 --> 02:13:04.259 are the result of actual innovation, and effective 2136 02:13:04.529 --> 02:13:08.579 business models are simply the result of charging high rates. 2137 02:13:09.659 --> 02:13:12.329 In other words, it could conflate innovation and 2138 02:13:12.329 --> 02:13:16.259 irresponsible lending. Charging high rates to accept high 2139 02:13:16.259 --> 02:13:20.009 losses, which may damage small businesses with recurring cycles 2140 02:13:20.009 --> 02:13:24.209 of debt is not innovation. Innovation is using technology 2141 02:13:24.209 --> 02:13:28.049 to lower operating costs, making smaller loans more cost 2142 02:13:28.049 --> 02:13:31.919 effective. Innovation is building smarter credit models 2143 02:13:32.249 --> 02:13:36.449 that enable affordable prices to underserved small businesses. 2144 02:13:36.629 --> 02:13:41.909 That's innovation. Without including APR 1071 could also 2145 02:13:41.909 --> 02:13:45.779 have an unintended consequence of incentivizing irresponsible 2146 02:13:45.779 --> 02:13:50.759 lending. By focusing on credit access only and not quality. We 2147 02:13:50.759 --> 02:13:53.309 wouldn't want lenders to see that they need to increase 2148 02:13:53.309 --> 02:13:56.939 lending to minority owned firms, and then do that by offering 2149 02:13:56.969 --> 02:14:00.149 high priced products. Products should be responsible, 2150 02:14:00.209 --> 02:14:05.339 affordable and sustainable. If APR is included in 1071, it 2151 02:14:05.339 --> 02:14:09.329 could foster healthy competition in the market, encouraging lower 2152 02:14:09.329 --> 02:14:12.329 price credit for small businesses who depend on the 2153 02:14:12.329 --> 02:14:16.049 economic growth, job stability in healthy communities. 2154 02:14:16.680 --> 02:14:19.950 John Taylor: Can I just respond to the issue that was raised by 2155 02:14:19.970 --> 02:14:22.748 Elena Abernathy: Hey John, let me let me just keep us on track. 2156 02:14:22.809 --> 02:14:26.735 If we have time, then then we'll come back on that privacy issue. 2157 02:14:26.795 --> 02:14:30.480 Okay. That'd be great. So, thank you, Richard. For this fifth 2158 02:14:30.540 --> 02:14:34.406 topic, we had identified several topics. So I think I would like 2159 02:14:34.467 --> 02:14:37.608 to just see, look at the panelists and see what what 2160 02:14:37.668 --> 02:14:40.809 topics you would like to discuss. So, again, we have 2161 02:14:40.870 --> 02:14:44.071 authority with respect to several important issues in 2162 02:14:44.132 --> 02:14:47.816 Section 1071. Some challenging issues, including for example, 2163 02:14:47.877 --> 02:14:50.897 the definition of an application, and whether loan 2164 02:14:50.958 --> 02:14:54.582 underwriter should have access to an applicant's demographic 2165 02:14:54.642 --> 02:14:58.327 information, their race, sex and ethnicity are both topics of 2166 02:14:58.387 --> 02:15:01.529 interest to panelist Brad I think you were going to. 2167 02:15:01.529 --> 02:15:04.238 Brad Blauer: Yeah I'll kick it off briefly. My the only points 2168 02:15:04.293 --> 02:15:07.555 I would make and kicking this off are that throughout 1071, 2169 02:15:07.610 --> 02:15:10.264 there's references to application applicants for 2170 02:15:10.319 --> 02:15:13.360 credit or applications for credit. And so my suggestion 2171 02:15:13.415 --> 02:15:16.622 would be that the bureau only look at applications for new 2172 02:15:16.677 --> 02:15:20.271 credit, that, for instance, with credit lines, that if the if the 2173 02:15:20.326 --> 02:15:23.201 borrower's financial circumstances change, we're not 2174 02:15:23.257 --> 02:15:26.685 looking at changes in the line of credit based upon that we're 2175 02:15:26.740 --> 02:15:29.725 not looking at extensions of terms. it'll minimize the 2176 02:15:29.781 --> 02:15:33.264 burdens of this. If we stick to applications for new credit, in 2177 02:15:33.319 --> 02:15:36.083 terms of access to the underwriters to demographic 2178 02:15:36.139 --> 02:15:39.456 information, the statute is a little inconsistent in that it 2179 02:15:39.511 --> 02:15:42.607 says financial institutions shall determine if feasible, 2180 02:15:42.663 --> 02:15:45.814 they can build some kind of protection to preclude access 2181 02:15:45.869 --> 02:15:49.297 to, to demographic information to the underwriting part of the 2182 02:15:49.353 --> 02:15:52.615 company. That's not done in Honda, the 10 Somebody went off 2183 02:15:52.670 --> 02:15:55.379 also offers financial institutions, the chance of 2184 02:15:55.434 --> 02:15:58.309 providing notice to the applicant that they will not 2185 02:15:58.365 --> 02:16:01.627 limit access, but that that information will not be used in 2186 02:16:01.682 --> 02:16:04.944 any way for underwriting fair lending laws already preclude 2187 02:16:04.999 --> 02:16:08.372 that and prohibit that. So my suggestion would be there, give 2188 02:16:08.427 --> 02:16:11.578 the financial institutions the chip, the choice, which is 2189 02:16:11.634 --> 02:16:15.061 contemplated by section 21, that if they can build a firewall, 2190 02:16:15.117 --> 02:16:18.710 you know, limit access, they can do that. And that can be the way 2191 02:16:18.766 --> 02:16:21.917 they demonstrate to regulators that they're not using the 2192 02:16:21.972 --> 02:16:25.234 information. But if it's if it's turned out not to be a way 2193 02:16:25.290 --> 02:16:28.552 that's easy for the financial institution, provide, I think 2194 02:16:28.607 --> 02:16:31.980 the Bureau can provide a model notice that can be provided to 2195 02:16:32.035 --> 02:16:35.352 the applicant that look, we're not going to preclude access. 2196 02:16:35.407 --> 02:16:38.338 But we are precluded or prohibited by by fair lending 2197 02:16:38.393 --> 02:16:41.047 laws from using that information. And we want to 2198 02:16:41.102 --> 02:16:44.475 assure you that we're not gonna be doing that. And the Bureau 2199 02:16:44.530 --> 02:16:47.129 can be helpful in providing model notice there. 2200 02:16:47.129 --> 02:16:48.600 Elena Abernathy: Okay. Thanks, Brian. Maureen. 2201 02:16:49.650 --> 02:16:52.456 Maureen Bush: I was just going to say when it comes to things 2202 02:16:52.516 --> 02:16:55.740 like the definition of application, I looked at Honda, 2203 02:16:55.800 --> 02:16:58.785 which has some similar challenges trying to define 2204 02:16:58.845 --> 02:17:02.188 that. And I think overall, the industry has been able to 2205 02:17:02.248 --> 02:17:06.129 document what they determined as an application, this is a little 2206 02:17:06.189 --> 02:17:09.533 bit different, because under Honda, there's an aspect of 2207 02:17:09.592 --> 02:17:13.414 rugby that defines what must be a written application. It is for 2208 02:17:13.473 --> 02:17:17.056 dwelling secured. In credit, this isn't that so there's some 2209 02:17:17.116 --> 02:17:20.519 wiggle room, there are some places for us to kind of sort 2210 02:17:20.579 --> 02:17:24.161 through. But all in all, if it's something similar to him to 2211 02:17:24.221 --> 02:17:27.684 where you define what your application is, what I was just 2212 02:17:27.744 --> 02:17:31.087 brought up that one of the concerns that I have, though, 2213 02:17:31.147 --> 02:17:34.431 again, is a similar but different than and I appreciate 2214 02:17:34.491 --> 02:17:37.954 the thought of new credit. But then we have Honda that the 2215 02:17:38.014 --> 02:17:41.477 application might include a refinancing. But then CRA is a 2216 02:17:41.536 --> 02:17:44.940 little bit different when it comes to renewals and things 2217 02:17:45.000 --> 02:17:48.761 like that. So if we have a third category of what constitute an 2218 02:17:48.821 --> 02:17:52.642 application, I foresee that is a challenge and try and for those 2219 02:17:52.702 --> 02:17:56.046 of us that really do try to comply with the laws and get 2220 02:17:56.105 --> 02:17:59.748 everything straight. If you have to stop and think, Okay, I'm 2221 02:17:59.807 --> 02:18:03.509 doing this for CRA, but I have to do this for 1071. And oh, by 2222 02:18:03.569 --> 02:18:07.450 the way, I'm responsible for him to to, I just think that can end 2223 02:18:07.510 --> 02:18:09.600 up with a lot of unintended errors. 2224 02:18:09.600 --> 02:18:11.129 Elena Abernathy: Thanks, Maureen. Bill, I think you had a 2225 02:18:11.167 --> 02:18:11.970 few thoughts on this. 2226 02:18:11.970 --> 02:18:14.785 Bill Phelan: Just real briefly, I think there's gonna be a 2227 02:18:14.848 --> 02:18:18.665 natural inclination to study this data and understand what it 2228 02:18:18.728 --> 02:18:22.482 tells us about the impact of access to credit, there's gonna 2229 02:18:22.545 --> 02:18:26.487 be a natural desire to compare one community's access to credit 2230 02:18:26.549 --> 02:18:30.241 versus another communities access to credit. So the goal of 2231 02:18:30.304 --> 02:18:33.870 ultimately, will be to get compiled information. And that 2232 02:18:33.933 --> 02:18:37.687 information will be aggregated around metrics, like industry 2233 02:18:37.750 --> 02:18:41.505 geographies, business size, again, benchmarked against other 2234 02:18:41.567 --> 02:18:45.322 other parts of the country, there's going to be a real issue 2235 02:18:45.384 --> 02:18:49.201 with data sufficiency in some rural markets, where there just 2236 02:18:49.264 --> 02:18:52.830 isn't enough data. And so how are you going to be able to 2237 02:18:52.893 --> 02:18:56.835 analyze that, and so there will have to be statistical measures 2238 02:18:56.898 --> 02:19:00.214 used to figure that out. So I think that the Bureau's 2239 02:19:00.277 --> 02:19:03.906 authority will, will will likely move in that direction is 2240 02:19:03.969 --> 02:19:07.535 everybody wants to understand what's actually going on in 2241 02:19:07.598 --> 02:19:11.040 these credit markets, and how do we fix the credit gap. 2242 02:19:12.180 --> 02:19:14.604 Elena Abernathy: Okay, thanks, Bill. So moving on to the last 2243 02:19:14.659 --> 02:19:17.744 topic for this panel, an important one, which is privacy 2244 02:19:17.799 --> 02:19:20.609 of the information that's collected and reported by 2245 02:19:20.665 --> 02:19:23.750 section 1071. This section provides that the information 2246 02:19:23.805 --> 02:19:26.505 compiled by financial institutions should be made 2247 02:19:26.560 --> 02:19:29.921 available to the public, but further provides that the Bureau 2248 02:19:29.976 --> 02:19:33.447 may at its district discretion, delete or modify data collected 2249 02:19:33.502 --> 02:19:36.698 under this section, if the bureau determines that doing so 2250 02:19:36.753 --> 02:19:39.673 would advance a privacy interest. So there's a lot of 2251 02:19:39.728 --> 02:19:43.200 folks that want to weigh on this, Richard, I'll turn it to you. 2252 02:19:44.970 --> 02:19:46.620 Richard Neiman: So we're fortunate we get to end on a 2253 02:19:46.620 --> 02:19:51.120 topic privacy that I suspect I may be wrong, but I think is one 2254 02:19:51.120 --> 02:19:55.710 of the less controversial aspects of 1071. Both government 2255 02:19:55.710 --> 02:19:58.710 as well as banks and non banks are experienced in these issues 2256 02:19:58.710 --> 02:20:01.770 and banks, and certainly Eight non banks have policies privacy 2257 02:20:01.770 --> 02:20:05.520 policies and procedures in place to assure the protection of 2258 02:20:05.520 --> 02:20:08.910 personally identifiable information. There's also the 2259 02:20:08.910 --> 02:20:12.570 precedent in collecting and reporting upon the data, which 2260 02:20:12.570 --> 02:20:17.040 has managed these privacy concerns, as in hunda, under 2261 02:20:17.040 --> 02:20:20.070 1071 borrowers have a right to privacy of personally 2262 02:20:20.070 --> 02:20:24.120 identifiable information. borrower rights to privacy can 2263 02:20:24.120 --> 02:20:27.780 be protected by requiring aggregation of borrower data, 2264 02:20:28.110 --> 02:20:30.720 where in the limited circumstances release of the 2265 02:20:30.720 --> 02:20:33.930 information at a narrower level of aggregation would not 2266 02:20:33.930 --> 02:20:37.650 sufficiently protect borrower privacy rights. We also 2267 02:20:37.650 --> 02:20:42.180 encourage the CFPB to not publicly disclose any loan level 2268 02:20:42.180 --> 02:20:46.260 data, which could compromise the confidentiality of proprietary 2269 02:20:46.260 --> 02:20:49.680 lending information and could be used for anti competitive 2270 02:20:49.680 --> 02:20:54.210 purposes. Overall, we believe the privacy concerns should not 2271 02:20:54.210 --> 02:20:58.770 pose a challenge for implementation of 1071 1071 2272 02:20:58.770 --> 02:21:02.550 provides a transformative opportunity for the Bureau to 2273 02:21:02.550 --> 02:21:06.540 take a market based approach to encouraging innovation, and 2274 02:21:06.540 --> 02:21:10.080 expanded access to responsible credit to underserved small 2275 02:21:10.080 --> 02:21:13.740 businesses by providing visibility into the performance 2276 02:21:13.920 --> 02:21:18.150 of both banks and non banks. This level of transparency and 2277 02:21:18.150 --> 02:21:22.770 sunshine will evidence what works well, and how others 2278 02:21:22.770 --> 02:21:26.850 perform. Most importantly, it will create incentive for market 2279 02:21:26.850 --> 02:21:30.270 participants to do better, and will encourage growth of 2280 02:21:30.270 --> 02:21:33.960 successful models. Our small business community and our 2281 02:21:33.960 --> 02:21:37.170 economy will be the stronger as a result. Thanks. 2282 02:21:38.130 --> 02:21:41.610 Elena Abernathy: Thanks, Richard. Maureen, did you want to? 2283 02:21:41.610 --> 02:21:43.530 Maureen Bush: You can skip me if you're low on time. 2284 02:21:43.530 --> 02:21:45.968 Elena Abernathy: Okay, so well, if there's time, we'll come back 2285 02:21:46.020 --> 02:21:49.081 to it. And, John, if there's time, we'll we'll come back to 2286 02:21:49.133 --> 02:21:52.298 you. That's ambitious. But what we'll see where we're at. So, 2287 02:21:52.350 --> 02:21:54.270 Diego, did you want to weigh in here? 2288 02:21:54.570 --> 02:21:57.282 Diego Zuluaga: Sure. I mean, I would reiterate the point I made 2289 02:21:57.339 --> 02:22:00.843 about privacy and security of the data collected. But in terms 2290 02:22:00.900 --> 02:22:04.517 of data aggregation, one of the concerns I have is that we don't 2291 02:22:04.574 --> 02:22:07.795 necessarily get the same quality of information from data 2292 02:22:07.852 --> 02:22:11.469 aggregation, as we do from loan level data. And yet, that is the 2293 02:22:11.526 --> 02:22:14.917 usually the only feasible format in which a lot of this data 2294 02:22:14.973 --> 02:22:18.195 because of the sheer number of applications and the sheer 2295 02:22:18.252 --> 02:22:21.812 variety of loans, that it can be released to public access in a 2296 02:22:21.869 --> 02:22:25.147 greater way. And I think one of the problems we have there 2297 02:22:25.204 --> 02:22:28.708 sometimes is that there will be statistical regressions run on 2298 02:22:28.765 --> 02:22:32.269 the aggregate data that's made available in in sweeping claims 2299 02:22:32.325 --> 02:22:35.604 made on the basis of some disparate results that emerge in 2300 02:22:35.660 --> 02:22:38.825 particular areas or with regard to particular lenders or 2301 02:22:38.882 --> 02:22:42.386 something like that, which when tested against the actual loan 2302 02:22:42.443 --> 02:22:45.947 level data disappear. There's a reputational impact from that. 2303 02:22:46.003 --> 02:22:48.999 But it's also bad for policymaking because you end up 2304 02:22:49.055 --> 02:22:52.334 with spurious statistical results that make big headlines, 2305 02:22:52.390 --> 02:22:55.555 but don't reflect the reality and therefore don't have a 2306 02:22:55.612 --> 02:22:59.229 public interest purpose in that, and that's something I think we 2307 02:22:59.286 --> 02:23:02.507 need to be wary against, particularly with small business 2308 02:23:02.564 --> 02:23:06.068 loans, because these are not as like for like as the 90% of 30 2309 02:23:06.125 --> 02:23:09.629 year fixed rate mortgages that we have in Hyundai and I worked 2310 02:23:09.685 --> 02:23:12.907 with him a lot. And I can tell you that even Honda can be 2311 02:23:12.964 --> 02:23:16.411 subject to misinterpretation of the data some of the time. So 2312 02:23:16.468 --> 02:23:20.029 that's a concern that I have in terms of public release of this 2313 02:23:20.085 --> 02:23:23.533 data. And I'm a data guy, so I can only imagine what the more 2314 02:23:23.590 --> 02:23:26.190 data skeptic people could could think. Thanks. 2315 02:23:26.960 --> 02:23:28.320 Elena Abernathy: Brad? 2316 02:23:28.320 --> 02:23:30.475 Brad Blauer: Yeah, I just wanted to say, you know, American 2317 02:23:30.521 --> 02:23:33.239 Express has a long history of commitment to small business 2318 02:23:33.285 --> 02:23:36.050 lending Small Business Saturday, what I would expect on the 2319 02:23:36.096 --> 02:23:38.439 privacy front is that when you're considering what 2320 02:23:38.486 --> 02:23:41.062 additional data points, if any, to add to what Congress 2321 02:23:41.109 --> 02:23:43.592 included, it's that you consider, you don't certainly 2322 02:23:43.639 --> 02:23:46.450 don't want people to be able to reverse engineer information 2323 02:23:46.497 --> 02:23:49.355 about the proprietary purposes of the business that's getting 2324 02:23:49.401 --> 02:23:52.212 the loan. So to keep that in mind, that we shouldn't let the 2325 02:23:52.259 --> 02:23:54.883 perfect be the enemy of the good. I think it's important 2326 02:23:54.930 --> 02:23:57.741 that the bureau get out a rule that can be tested over time. 2327 02:23:57.787 --> 02:24:00.598 And then we can determine later if we need to add additional 2328 02:24:00.645 --> 02:24:01.770 data points to that set. 2329 02:24:02.610 --> 02:24:05.190 John Taylor: And I think we can add that, on the privacy 2330 02:24:05.190 --> 02:24:10.860 concerns. We do have an example of this is all your arguments 2331 02:24:10.860 --> 02:24:14.040 about the violation of people's privacy. He's, I think you 2332 02:24:14.040 --> 02:24:16.980 mentioned someone can hack into the data and so on, we have the 2333 02:24:16.980 --> 02:24:20.670 example of the 100 data being around and millions of products 2334 02:24:20.670 --> 02:24:25.020 being reported on through that. And I don't know if a single 2335 02:24:25.020 --> 02:24:28.680 hacking or single time but anyone's complained that the 2336 02:24:28.680 --> 02:24:33.690 data somehow compromised their home mortgage or or people find 2337 02:24:33.690 --> 02:24:36.810 out about their home. I understand where he is, and this 2338 02:24:36.810 --> 02:24:39.630 thing concerns but we live in the world of reality getting 2339 02:24:39.630 --> 02:24:42.450 this data. And yes, people are going to look at it. They're 2340 02:24:42.450 --> 02:24:44.820 going to make conclusions about it. And you might be right that 2341 02:24:44.820 --> 02:24:47.190 some of them are unfair conclusions, but some of them 2342 02:24:47.190 --> 02:24:49.980 will be fair conclusions that people are being treated in a 2343 02:24:49.980 --> 02:24:54.690 disparate way. And the closer we get to being a more perfect 2344 02:24:54.810 --> 02:24:58.380 nation through these regulations things, the better off we are. 2345 02:24:58.530 --> 02:25:01.230 So let's not cut off The opportunity to head in that 2346 02:25:01.230 --> 02:25:01.770 direction. 2347 02:25:03.480 --> 02:25:04.650 Elena Abernathy: Maureen, final thoughts? 2348 02:25:06.180 --> 02:25:08.730 Maureen Bush: Yeah, when we, at the end of the day, I think 2349 02:25:08.730 --> 02:25:11.280 there's a lot of value in the data that's been requested under 2350 02:25:11.280 --> 02:25:15.360 Section 1071. Just want to make sure that it's data that can be 2351 02:25:15.420 --> 02:25:19.530 measured, and that it really has some value. The data itself is 2352 02:25:19.530 --> 02:25:24.120 valuable. But if the output is not valuable, we question it. So 2353 02:25:24.120 --> 02:25:27.720 I encourage the bureau to consider that and I know that 2354 02:25:27.720 --> 02:25:30.060 there is a lot of latitude that the Bureau does have the 2355 02:25:30.060 --> 02:25:33.750 rulemaking. But my thoughts when I was putting this together and 2356 02:25:33.750 --> 02:25:36.270 contemplating being on the council, I mean, I'm sorry, on 2357 02:25:36.270 --> 02:25:40.800 the panel, is I went back to a conference that I attended in 2358 02:25:40.800 --> 02:25:44.400 2012, where Chris Dodd was one of the keynote speakers. And it 2359 02:25:44.400 --> 02:25:47.190 was a really interesting speech was at the Association of 2360 02:25:47.190 --> 02:25:51.330 Certified Fraud examiner's, and he went through a timeline. 2361 02:25:51.420 --> 02:25:54.540 Again, it was some years past the financial crisis and talked 2362 02:25:54.540 --> 02:25:57.150 about what the state of the economy was at the time when 2363 02:25:57.150 --> 02:25:59.940 they passed the law, why they did what they did, and that it 2364 02:25:59.940 --> 02:26:04.320 was their best efforts, what seemed very upon it, and but he 2365 02:26:04.320 --> 02:26:07.470 did say something that was stuck with me all these years is he 2366 02:26:07.470 --> 02:26:09.750 said, we did the best that we could, I don't have a transcript 2367 02:26:09.750 --> 02:26:13.200 of the speech. But certain things resonated with me. And we 2368 02:26:13.200 --> 02:26:16.770 did the best that we could at the time. But it's not 2369 02:26:16.770 --> 02:26:20.010 sacrosanct. It's not in stone. And so if something doesn't make 2370 02:26:20.010 --> 02:26:23.310 sense, it could be changed. And so I just leave that thought 2371 02:26:23.310 --> 02:26:25.530 that I know a lot of it and maybe it sounds too Pollyanna, 2372 02:26:25.530 --> 02:26:27.780 but I know a lot of times it's in the law, we can't change it. 2373 02:26:28.050 --> 02:26:31.140 There are opportunities because there is value from the law, we 2374 02:26:31.140 --> 02:26:33.510 just want to set up something that everybody can comply with 2375 02:26:33.510 --> 02:26:35.670 and that the output can be measurable. 2376 02:26:37.470 --> 02:26:40.260 Elena Abernathy: Okay, so I want to thank everyone, for a great 2377 02:26:40.260 --> 02:26:44.490 discussion today, a lot of very important issues, that hopefully 2378 02:26:44.490 --> 02:26:48.000 we will continue, we plan to continue speaking with you and 2379 02:26:48.030 --> 02:26:50.790 you know, continuing the conversation. I'll turn it back 2380 02:26:50.790 --> 02:26:51.930 over to Andrew. 2381 02:26:59.250 --> 02:27:02.169 Andrew Duke: Thank you, and thank you, Elena. Thank you, 2382 02:27:02.237 --> 02:27:06.243 Brady. Thank you to all our panelists. If we could have one 2383 02:27:06.311 --> 02:27:09.909 more round of applause for everyone, that was a great 2384 02:27:09.977 --> 02:27:14.322 program. Many thanks to everyone who joined us here today at the 2385 02:27:14.390 --> 02:27:18.124 Bureau. And thanks to all of those who joined us on the 2386 02:27:18.192 --> 02:27:22.470 Livestream. We really really do appreciate it. As a reminder, a 2387 02:27:22.537 --> 02:27:26.747 recording of today's symposium will be available on the Bureau 2388 02:27:26.815 --> 02:27:30.753 website soon. And with that, that concludes today's event. 2389 02:27:30.821 --> 02:27:31.500 Thank you.