Published May 09, 2017 22:11
CFPB CAN HELP IDENTIFY AND ADDRESS DISPARITIES IN SMALL BUSINESS LENDING
Los Angeles, CA May 9, 2017—Tomorrow, community leaders will attend and speak at a field hearing held by the Consumer Financial Protection Bureau (CFPB) in Los Angeles focused on small business lending. The hearing is expected to address the 1071 data collection component of the the Dodd-Frank Act whereby lenders will be required to collect and report demographic data about their small business loan applicants. An existing, similar requirement for mortgage loans has helped lenders, regulators, policymakers and advocates identify and address lending disparities in the mortgage market.
“The CFPB identified enforcement of the Equal Credit Opportunity Act, especially for small business owners of color and women, as one of their priorities for 2017,” explains Kevin Stein, deputy director at the California Reinvestment Coalition. “Given recent research on small business lending disparities, we’re glad to see small business owners have an ally in the CFPB and we look forward to tomorrow’s hearing.”
"The only data we have right now on the demographics of small business owners is from the Small Business Administration- but that only covers about four percent of small business loans being made today," explains Michael Banner, president and CEO of Los Angeles Local Development Corporation."That's why the CFPB implementing the small business data collection is so important- it will bring greater transparency- and accountability into the small business lending space."
"To succeed as small business lenders in Los Angeles, banks need to make a conscious decision to be a strong community partner," comments Elba Shildcrout, director of the Community Wealth Department at East LA Community Corporation. "From our perspective, it means banks need to hire culturally and linguistically competent loan officers, locate their bank branches in neighborhoods of color, and need to get to know the local small businesses located in the bank's footprint."
“As a mission based lender, Opportunity Fund has seen hundreds of California businesses struggling under high cost debt from alternative lenders. Our research uncovered small businesses saddled with loans carrying an average APR of 94% and average payment nearly twice a business’s available cash flow. These loans are unsustainable and unaffordable. We strongly support the CFPB’s efforts to collect national data on small business finance to shed light on negative practices and better inform efforts to offer responsible financing options,” comments Iosefa Alofaituli, Regional Director, Opportunity Fund.
“In the past several years, our loan officers have noticed a pattern of small business owners coming to us with small business loans that are charging interest rates above 50%,” explains Robert Villarreal, Executive Vice President at CDC Small Business Finance. “While we’ve been able to refinance many of these loans into safer, more sustainable SBA loans with lower interest rates, we are deeply concerned about the spread of these predatory loans.”
“Federal regulations like 1071 are the type of that progressive initiatives that help level the playing field for small businesses, particularly those owned by women and people of color,” says Amanda Ballanytne, National Director of Main Street Alliance. “When Main Street Alliance business owners talk about the type of community and country they want to run their business in, a key criteria is access to capital at fair rates. CFPB is a critical part of ensuring we’re creating an environment that supports small businesses.”
The field hearing will take place on Wednesday, May 10, 2017 at 11 a.m. PDT in Los Angeles, CA. The hearing will feature remarks from CFPB Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public.
The event will be held at the location below and is being webcast on the CFPB website.
Japanese American History Museum
100 N Central Avenue
Los Angeles, CA 90012
Recent Data on Small Business Lending in California
1) 2015 LA County Data: Only 55% of “small business loans” went to smaller small businesses (those with $1 million or less in annual revenues) in 2015, according to Community Reinvestment Act data compiled by CRC. The top 5 small business lenders in LA County in 2015 are listed below. Note: While credit cards may be the small business loan product of choice for lenders, advocates note that credit cards may not be as suitable for a borrower who is looking for a term loan.
1. 30% of market: American Express (credit card lender)
2. 13% of market: Wells Fargo*
3. 11.5% of market: Bank of America*
4. 11% of market: Citibank*
5. 10.8% of market: Chase Bank USA, NA (Chase’s credit card division)
*Given current data constraints, it is unclear what percent of these loans are made via credit cards.
2) Lending Disparities in Los Angeles and San Diego: An analysis released in January 2017, found that while businesses in predominantly minority census tracts in LA and San Diego represented an average of 31.8% of business in the region, they only received 21.5% of the CRA reported loans for under $100,000. If the small businesses had received loans in proportion to their share of businesses overall, they would have received 111,500 more loans, totaling over $1.63 billion between 2012 and 2014. The full report is available here: Patterns of Disparity: Small Business Lending in the Chicago and Los Angeles-San Diego Regions