[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]


                 SMALL BUSINESSES, BIG IMPACT: ENSURING
                  SMALL AND MINORITY-OWNED BUSINESSES
                     SHARE IN THE ECONOMIC RECOVERY

=======================================================================

                            VIRTUAL HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON CONSUMER PROTECTION
                       AND FINANCIAL INSTITUTIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 17, 2022

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 117-71
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                              __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
47-130 PDF                 WASHINGTON : 2022                     
          
-----------------------------------------------------------------------------------   

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York           BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            ANN WAGNER, Missouri
ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
JIM A. HIMES, Connecticut            ROGER WILLIAMS, Texas
BILL FOSTER, Illinois                FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio                   TOM EMMER, Minnesota
JUAN VARGAS, California              LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York             JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts      BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina           LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan              WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania         VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York   PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

                   Charla Ouertatani, Staff Director
     Subcommittee on Consumer Protection and Financial Institutions

                   ED PERLMUTTER, Colorado, Chairman

GREGORY W. MEEKS, New York           BLAINE LUETKEMEYER, Missouri, 
DAVID SCOTT, Georgia                     Ranking Member
NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
BRAD SHERMAN, California             BILL POSEY, Florida
AL GREEN, Texas                      ANDY BARR, Kentucky
BILL FOSTER, Illinois                ROGER WILLIAMS, Texas
JUAN VARGAS, California              BARRY LOUDERMILK, Georgia
AL LAWSON, Florida                   TED BUDD, North Carolina
MICHAEL SAN NICOLAS, Guam            DAVID KUSTOFF, Tennessee, Vice 
SEAN CASTEN, Illinois                    Ranking Member
AYANNA PRESSLEY, Massachusetts,      JOHN ROSE, Tennessee
    Vice Chair                       WILLIAM TIMMONS, South Carolina
RITCHIE TORRES, New York
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    February 17, 2022............................................     1
Appendix:
    February 17, 2022............................................    37

                               WITNESSES
                      Thursday, February 17, 2022

Bilonick, Marla, President and CEO, National Association for 
  Latino Community Asset Builders (NALCAB).......................     4
DeVane, Stephanie, Vice President, Entrepreneurship & Business 
  Development, National Urban League (NUL).......................     6
Littlejohn, Amber, Executive Director, Minority Cannabis Business 
  Association (MCBA).............................................     8
Robb, Alicia, Founder and CEO, Next Wave Impact..................    10
Stangler, Dane, Director, Strategic Initiatives, Bipartisan 
  Policy Center (BPC)............................................    12

                                APPENDIX

Prepared statements:
    Bilonick, Marla..............................................    38
    DeVane, Stephanie............................................    44
    Littlejohn, Amber............................................    50
    Robb, Alicia.................................................    64
    Stangler, Dane...............................................    66

              Additional Material Submitted for the Record

Perlmutter, Hon. Ed:
    Written statement of the American Financial Services 
      Association................................................    71
    Joint written statement of the Center for Responsible 
      Lending, the National Coalition for Asian Pacific American 
      Community Development (National CAPACD), and the National 
      Association for Latino Community Asset Builders (NALCAB)...    73
    Written statement of Gusto...................................    82
    Written statement of the National Association of Federally-
      Insured Credit Unions (NAFCU)..............................    87
Luetkemeyer, Hon. Blaine:
    Opening statement............................................    90
McHenry, Hon. Patrick:
    Written statement of the Innovative Lending Platform 
      Association................................................    95

 
                     SMALL BUSINESSES, BIG IMPACT:
                          ENSURING SMALL AND
                       MINORITY-OWNED BUSINESSES
                     SHARE IN THE ECONOMIC RECOVERY

                              ----------                              


                      Thursday, February 17, 2022

             U.S. House of Representatives,
                Subcommittee on Consumer Protection
                        and Financial Institutions,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 3:08 p.m., via 
Webex, Hon. Ed Perlmutter [chairman of the subcommittee] 
presiding.
    Members present: Representatives Perlmutter, Scott, Foster, 
Vargas, Lawson, Casten, Pressley; Luetkemeyer, Posey, Williams 
of Texas, Loudermilk, Budd, Kustoff, and Rose.
    Ex officio present: Representative Waters.
    Chairman Perlmutter. The Subcommittee on Consumer 
Protection and Financial Institutions will come to order. 
Without objection, the Chair is authorized to declare a recess 
of the subcommittee at any time. Also, without objection, 
members of the full Financial Services Committee who are not 
members of this subcommittee are authorized to participate in 
today's hearing.
    Today's hearing is entitled, ``Small Businesses, Big 
Impact: Ensuring Small and Minority-Owned Businesses Share in 
the Economic Recovery.''
    Legislation noticed with today's hearing includes: H.R. 
2540, the Small Business Lending Fairness Act, by 
Representative Velazquez; H.R. 6054, the Small Business Lending 
Disclosure Act, by Representative Velazquez; a discussion draft 
entitled, ``the Small Business Fair Debt Collection Protection 
Act,'' by Representative Lawson; a discussion draft entitled, 
``the Promoting Fair Lending to Small Businesses Act''; and a 
discussion draft entitled, ``the Small Business Lender 
Registry.''
    I now recognize myself 4 minutes to give an opening 
statement.
    As the pandemic and economic recovery continue to evolve, 
so do the challenges facing small, minority- and women-owned 
businesses.
    First, let's remember how far we have come. In April of 
2020, there was a panic in the stock market, businesses were 
laying off millions of employees, and Congress, Treasury, and 
the Small Business Administration (SBA) were working tirelessly 
to get money out the door to stabilize the economy and save 
jobs.
    In the initial wave of support through the CARES Act, 
businesses who had the best relationships with financial 
institutions were the first to receive assistance like the 
Paycheck Protection Program (PPP), while in many cases, the 
smallest businesses, including many minority- and women-owned 
businesses, were the last to receive support, and some were 
left out entirely.
    In subsequent aid, Congress targeted harder-to-reach 
communities through policies like set-asides for Minority 
Depository Institutions (MDIs) and Community Development 
Financial Institutions (CDFIs). The American Rescue Plan 
replenished funding for targeted economic injury disaster loan 
advancement payments, and reauthorized the State Small Business 
Credit Initiative (SSBCI), which is still in its early stages 
and will enable State Governments to support lending and 
investments to small businesses as the recovery continues.
    While the CARES Act kept many businesses alive, the 
American Rescue Plan is helping businesses and communities 
recover and grow. The unemployment rate fell from a high of 
14.7 percent in April 2020, to 4 percent in January 2022. Gross 
domestic product (GDP) grew 6.9 percent last quarter, and new 
business formation hit a new record of 5.4 million in 2021. At 
the same time, businesses face ongoing challenges due to supply 
chain disruptions, workforce shortages, inflation, and new 
COVID mutations.
    One group of small businesses that continues to be left 
behind in Federal support is State legal cannabis businesses. 
States and Territories continue to legalize medical and adult-
use cannabis. Mississippi just passed legislation establishing 
a medical cannabis program this month.
    Yet, we will not have even resolved the conflict between 
Federal and State banking laws. Not only must these businesses 
contend with the ongoing pandemic and other economic 
uncertainties without being eligible for any Federal small 
business aid, but they must do so while being shut out of the 
banking system.
    The public safety threat of forcing this industry to do 
business in all cash is turning into a public safety nightmare. 
The recent rash of robberies and attacks in California, Oregon, 
and Washington are evidence of the dire need to enact 
legislation regarding this public safety issue.
    Access to capital and other financial services is critical 
for all small businesses to share in the continued economic 
recovery. Whether it is getting a loan to start a new business, 
accessing credit to cover expenses while supply chains catch 
up, or just having basic business bank accounts, access to 
fair, transparent, and affordable financial services is 
important to ensuring an equitable and far-reaching recovery.
    Today's hearing will examine the availability of credit and 
financial services as well as potential gaps in legal 
protections for small business owners. Additionally, the 
hearing will review market transparency, including demographic 
data reporting and financial challenges that small businesses 
face as the pandemic persists.
    With that, I would normally yield to the ranking member of 
the subcommittee, Mr. Luetkemeyer, for his opening statement, 
but he is not on yet.
    So, Madam Chairwoman, I would like for you to speak if you 
are prepared to give your 1-minute opening statement.
    The Chair now yields 1 minute to the Chair of the full 
Financial Services Committee, the gentlewoman from California, 
Chairwoman Waters.
    Chairwoman Waters. Thank you very much, Chairman 
Perlmutter, for holding this important hearing on small 
businesses and the challenges they face when applying for 
loans. I think you know, and everybody knows by now that our 
committee has it as a high priority to see to it that we 
correct some of the wrongs and the discriminatory practices 
that have been employed by the banks.
    But in addition to that, we saw, when we responded to the 
pandemic, how the big banks who were handling the PPP program 
took care of their concierge clients and left our small 
businesses and our minority businesses basically hanging. And 
we had to come up with $60 billion more--I worked with Ms. 
Velazquez to do that--so that we could put money into our MDIs, 
our CDFIs, our credit unions, and our community banks. And they 
got that money out to our small businesses very quickly.
    In addition to that, we have $12 billion that we have put 
together. I worked with Mr. Warner to do that, and of that $12 
billion, $1.25 billion has been given out already, and the rest 
will go through the Treasury Department.
    So, Mr. Perlmutter and most of our members on this 
committee are poised at working to do everything that they can 
to support our small businesses.
    I thank you so very much, Mr. Perlmutter, for this hearing, 
and I yield back.
    Chairman Perlmutter. Thank you, Madam Chairwoman.
    We still don't have Mr. Luetkemeyer. So, I would ask Mr. 
Williams, Mr. Posey, or any of the Republicans if they would 
like to do an opening statement.
    We will allow Mr. Luetkemeyer, when he gets onto the 
platform, to do his 5 minutes when he arrives. I am not exactly 
sure what the technical difficulty is. Unless we have a 
volunteer, why don't we go forward. Let me introduce our 
witnesses, and maybe he will be on by then.
    I am pleased to welcome each of our witnesses, and I want 
to introduce our panel.
    Marla Bilonick is the president and CEO of the National 
Association for Latino Community Asset Builders, the hub of a 
national network of more than 130 mission-driven organizations. 
Prior to her current role, she served as the executive director 
of the Latino Economic Development Center, leading regional 
efforts on the economic and social advancement of low- to 
moderate-income Latinos in the Washington, D.C., and Baltimore 
areas.
    Stephanie DeVane is the vice president for entrepreneurship 
and business development at the National Urban League. Ms. 
DeVane oversees management, oversight, and advocacy on behalf 
of 12 entrepreneurship centers, which provide capacity-building 
and programming subgrants and technical assistance.
    Amber Littlejohn is the executive director of the Minority 
Cannabis Business Association (MCBA). Ms. Littlejohn is an 
attorney and an advocate with more than 15 years of experience 
in embattled industries. Prior to her current role, she 
developed and implemented MCBA's Federal Advocacy Program as 
the organization's senior adviser.
    Dr. Alicia Robb is the founder and CEO of Next Wave Impact. 
Dr. Robb manages an investment portfolio that funds women- and 
minority-owned businesses. She is also the research director 
and a research fellow at the University of Colorado Boulder.
    Dane Stangler is the director of strategic initiatives at 
the Bipartisan Policy Center. Prior to his current position, 
Mr. Stangler was president and chief policy officer at Startup 
Genome, the Visiting Vorzimer Professor at the Long Island 
University, and vice president of research & policy at the 
Kauffman Foundation.
    Witnesses are reminded that your oral testimony will be 
limited to 5 minutes. You should be able to see a timer on your 
screen that will indicate how much time you have left. I would 
ask that you be mindful of the timer, and quickly wrap up your 
testimony when your time has expired, so that we can be 
respectful of both the witnesses' and the subcommittee members' 
time.
    When Mr. Luetkemeyer arrives, we will not interrupt a 
particular person's testimony, but we will insert his opening 
statement between the panelists' testimony.
    And without objection, your written statements will be made 
a part of the record.
    Ms. Bilonick, you are now recognized for 5 minutes for your 
testimony. You will see the timer on the screen. We ordinarily 
would have a chime when your 5 minutes is up. We don't have 
that, so I will have to kind of enforce the time today with my 
hammer, and we will let you know when your 5 minutes is up.
    So, Ms. Bilonick, you are now recognized for 5 minutes for 
an oral presentation of your testimony.

   STATEMENT OF MARLA BILONICK, PRESIDENT AND CEO, NATIONAL 
    ASSOCIATION FOR LATINO COMMUNITY ASSET BUILDERS (NALCAB)

    Ms. Bilonick. Thank you very much.
    Good afternoon, Chairman Perlmutter, Ranking Member 
Luetkemeyer, and members of the subcommittee. It is my honor to 
be addressing you today for this discussion on ensuring that 
small and minority-owned businesses have an equal share in our 
nation's economic recovery.
    I am speaking as a former practitioner and current 
president and CEO of the National Association for Latino 
Community Asset Builders (NALCAB), whereby I represent our 
member network of over 150 nonprofits nationwide that support 
small Latino-owned and other underserved businesses that 
continue to weather the adverse economic effects of the COVID-
19 pandemic.
    NALCAB's mission is to dramatically scale the flow of 
public and private-sector capital through community-based 
organizations to advance economic mobility of Latinos in the 
United States. As a grant maker and CDFI lender, NALCAB 
strengthens and coordinates the capacity of our network to 
deploy capital. This year, we will launch our National Alliance 
of Hispanic CDFI Executives, NAHCE, convening the largest group 
of Latino-led and Latino-serving CDFIs in the United States.
    Since 2008, NALCAB has provided our network members with 
over $25 million in grants, and, with NALCAB's support, member 
organizations have secured more than $450 million for 
affordable housing, small business, and financial capability 
programs.
    We know that the strength of the U.S. economy relies on the 
fast-growing Latino community's hard work, entrepreneurial 
spirit, spending power, and leadership. While the Latino 
community is heralded for starting small businesses at rates 
higher than other ethnic groups, the adverse economic effects 
of the pandemic have disproportionately impacted Latino 
business owners.
    Due to time constraints, I will ask that you refer to my 
written remarks for data on these impacts that are cited 
therein.
    We commend the Federal Government for its swift and 
responsive funding and programming to offset the economic 
impact of the COVID-19 pandemic. As we begin another year of 
living with the pandemic, we wanted to provide some 
constructive feedback on select recovery programs.
    PPP has been one of the most important sources of recovery 
support for businesses and their employees as they have 
struggled to stay afloat during the pandemic. However, the 
exclusion of CDFIs in the first round of PPP lending delayed 
relief to countless small and minority-owned businesses that 
looked to CDFIs as their lenders of first resort and that were 
turned away by commercial banks.
    In the current phase of PPP forgiveness, our network 
reports that the majority, over 90 percent of our CDFI-member 
PPP loans made have been forgiven for their clients. For 
clients who were denied forgiveness, they cited a lack of 
proper documentation, language barriers, a misunderstanding of 
compliance with program rules, and technology barriers as some 
of the reasons for PPP loans not being forgiven.
    These observations provide useful guidance as we move into 
this next stage of the small business recovery and are the 
basis of our recommendations.
    The SBA's restaurant revitalization fund, which was cut 
from $60 billion to less than half of that, $28 billion, 
provided much-needed pandemic recovery support to the 
restaurant industry. These funds were expended within one month 
of the program's launch. It is urgent that this funding be 
replenished, and it is very relevant to the Latino community in 
terms of high Latino business ownership and employment.
    The Department of the Treasury's State Small Business 
Credit Initiative (SSBCI), part of the American Rescue Plan 
Act, allocated $10 billion to fund State, Territory, and Tribal 
Governments' small business credit support and investment 
programs. The program's success will hinge on its ability to 
involve mission-based investors working with and for 
communities.
    And I will go into our recommendations.
    Of the small businesses surveyed by the Small Business 
Administration, 37 percent of respondents stated that they 
didn't apply for PPP because they did not feel they qualified 
for the loan or for forgiveness. Another 23 percent said they 
didn't apply because the program process was too confusing, and 
13 percent responded that they could not find a PPP lender.
    In developing future recovery programs in legislation, the 
barriers to access from the point of view of ease or lack of 
ease in applying should be considered seriously. In addition, 
efforts must be made to provide equal access to information on 
programs as well as clear direction on what entities are 
offering the program within communities.
    The new SBA Community Navigator Model provides promise 
insofar as it aims to better connect small businesses to SBA 
programming through a hub and spoke model that is firmly rooted 
in communities. We gladly report that several NALCAB members 
are partners in the community navigator programs that are 
currently being launched nationwide. We also commend the SBA 
for proactively pursuing community-based organizations' input.
    We are currently in bi-weekly discussions with the SBA's 
Office of Capital Access to provide feedback on and input into 
current and upcoming SBA products. The CDFI-funded Community 
Development Advisory Board, which I chair, is also a proactive 
channel for gaining input on program development from a diverse 
set of community-grounded stakeholders.
    Small business lending activity and practices have gone 
without meaningful monitoring for far too long. Section 1071 of 
the Dodd-Frank Act mandates the collection of and dissemination 
of small business lending data to facilitate enforcement of 
fair lending laws and enable communities, governmental 
entities, and creditors to identify business and community 
development needs and opportunities of women-owned, minority-
owned, and small businesses.
    NALCAB has been a leader in advocacy for Section 1071 of 
the Dodd-Frank Act to be implemented. Once implemented, Section 
1071 will prove what community-based small business lenders 
have only been able to rely on anecdotal and self-reported 
evidence to justify, which is the fact that ethnic, racial, and 
gender biases negatively impact the ability for minority-owned 
small businesses to access capital.
    Chairman Perlmutter. Ms. Bilonick?
    Ms. Bilonick. Yes?
    Chairman Perlmutter. Your 5 minutes has expired, and I 
would ask that--the rest of your testimony is written, I 
believe, and--
    Ms. Bilonick. Yes.
    Chairman Perlmutter. --you will get plenty of questions.
    Ms. Bilonick. Okay.
    [The prepared statement of Ms. Bilonick can be found on 
page 38 of the appendix.]
    Chairman Perlmutter. Thank you for your testimony.
    I now will turn to Ms. DeVane for 5 minutes for an oral 
presentation of her testimony.

STATEMENT OF STEPHANIE DEVANE, VICE PRESIDENT, ENTREPRENEURSHIP 
      & BUSINESS DEVELOPMENT, NATIONAL URBAN LEAGUE (NUL)

    Ms. DeVane. Chairman Perlmutter, Ranking Member 
Luetkemeyer, and members of the subcommittee, thank you for the 
opportunity to testify. I am Stephanie DeVane, vice president 
of entrepreneurship & business development at the National 
Urban League (NUL). I bring you greetings on behalf of Marc 
Morial, our president and CEO.
    NUL is an historic, civil rights, community-based 
organization dedicated to economic empowerment and a guarantee 
of civil rights for African Americans and other underserved 
communities in America. As a national nonprofit intermediary, 
we provide direct comprehensive services for nearly 2 million 
people yearly through our network of 91 affiliates in 36 States 
and Washington, D.C.
    In my role, I manage and advocate on behalf of 12 Urban 
League entrepreneurship centers, which provide management 
counseling, mentoring, and training services for entrepreneurs 
looking to start, grow, or scale their business.
    Our centers served as the first line of defense for clients 
during the pandemic. In 2020 and 2021, with support from a 
Minority Business Development Agency CARES Act award, our 
center served 11,250 small minority businesses, helping them to 
secure $138 million in financing and contracting opportunities 
and save or create 1,200 full- and part-time jobs.
    Last year, with the PepsiCo Foundation, we launched the 
Black Restaurant Accelerator Program (BRAP), a $10 million, 5-
year program comprised of cash grants, coaching, and technical 
assistance to 500 businesses. The grants have been a lifeline 
for many Black food service businesses unable to obtain or 
qualify for PPP loans or meet the stringent requirements of 
certain grants.
    I will share the story of De'Lish Cafe, a cajun-creole 
comfort food restaurant based in Dayton, Ohio. In 2018, De'Lish 
closed its doors after 8 years. In January 2020, owner Jasmine 
Brown began selling food again and opened a food truck. Because 
Jasmine had no business in 2019, she couldn't prove a loss, and 
although local and State grants were available, the business 
didn't qualify for them.
    Jasmine said that when the BRAP grant came along, it was 
just a feeling like, ``Okay, well, there is something out 
there. It is hard when you have a business. In terms of most 
food trucks, we have less than five employees, and for some of 
us, it may be only us.''
    She was thankful the BRAP didn't have the eliminating 
criteria that other grants had, and expressed hope that more 
such grants would be available for extra small businesses.
    Jasmine represents many of our Black entrepreneurs 
disproportionately affected by COVID. But, unlike Jasmine, most 
were not as lucky. According to data on small businesses from 
the Federal Reserve Bank of New York, nearly half of Black-
owned businesses closed between February and April 2020, 
compared to just 17 percent of White-owned businesses.
    The COVID-19 pandemic added to the impact of systemic 
racism and the racial wealth gap in these communities. These 
businesses were already financially disadvantaged with weak 
capitalization, limited banking relationships, and little to no 
cash reserves to cushion the impact of the pandemic.
    Access to capital can help bridge the gap for Black small 
business owners; however, they are more likely to be denied 
capital compared to White counterparts with similar 
creditworthiness.
    McKinsey & Company reported that Black-owned businesses are 
20 percent less likely to get a loan than businesses with White 
owners. While the PPP program was intended as a lifeline, it 
left most minority businesses behind, reaching just 20 percent 
of eligible firms in States with the highest density of Black-
owned firms.
    NUL called on Congress to enact stringent protections on 
PPP funds to ensure that funds would be directed to businesses 
with the greatest need. We advocated for dedicated PPP funding 
and rapid authorities to minority development institutions and 
community development financial institutions, which ultimately 
outperformed other PPP lenders by reaching financially-
underserved businesses with a high proportion of their loans.
    Research also showed that Black borrowers able to obtain 
PPP loans disproportionately received them from fintech 
companies. While fintech automated systems and algorithm 
methods tend to reduce racial disparities in lending, the 
popularity can be problematic. Unregulated products often lack 
transparency and come with unfair terms. Full disclosure of 
pricing and terms, reasonable underwriting, fair treatment from 
brokers, and fair collection practices are critical.
    NUL has worked closely with the Responsible Business 
Lending Coalition to address the rise of irresponsible lending. 
This phase of the economic recovery is an opportunity to get it 
right. For communities of color, access to fair, stable, 
transparent, and flexible long-term capital is virtually the 
only way entrepreneurs in these communities can sustainably 
grow their businesses.
    We offer these recommendations: Support passage of the 
Small Business Lending Disclosure Act of 2021; implement 
Section 1071 of the Dodd-Frank Act for small business 
disclosures; ensure strong supervisory enforcement of the Equal 
Credit Opportunity Act of 1974; promote and invest in supply 
diversity programs; and invest in community-based small 
business incubators.
    This concludes my testimony. I look forward to your 
questions.
    [The prepared statement of Ms. DeVane can be found on page 
44 of the appendix.]
    Chairman Perlmutter. Thank you. You hit it right on 5 
minutes. Thank you very much. I appreciate your testimony, Ms. 
DeVane.
    The Chair now recognizes Ms. Amber Littlejohn for 5 minutes 
for an oral presentation of her testimony.

  STATEMENT OF AMBER LITTLEJOHN, EXECUTIVE DIRECTOR, MINORITY 
              CANNABIS BUSINESS ASSOCIATION (MCBA)

    Ms. Littlejohn. Chairman Perlmutter, Ranking Member 
Luetkemeyer, and members of the subcommittee, thank you for the 
opportunity to testify at today's hearing.
    My name is Amber Littlejohn. I am the executive director of 
the Minority Cannabis Business Association (MCBA). The MCBA is 
the largest national trade association dedicated to serving the 
needs of minority cannabis businesses and our communities. We 
represent minority and allied cannabis businesses, aspiring 
entrepreneurs, and advocates who share a vision of an 
equitable, just, and responsible cannabis industry.
    I am pleased to appear before you on behalf of MCBA to 
discuss the challenges shared by small businesses as we 
continue to grapple with the global pandemic. For many minority 
businesses, including minority cannabis businesses, the outlook 
is dire. As the nascent cannabis industry takes shape, we see a 
common tale of small businesses seeking to shake the economic 
consequences of systemic inequities only to suffer at the hands 
of predatory investors and partners who seek to profit from 
injustice.
    In my verbal testimony, I will touch on four issues, how 
the pandemic has exacerbated them, and some of the potential 
solutions. I offer myself and the MCBA as an ongoing resource 
on these issues.
    First, the pandemic has been particularly difficult for 
small businesses, but especially for minority cannabis 
businesses that were shut out of Federal relief. Despite many 
States deeming cannabis businesses essential during the early 
stages of the pandemic, all cannabis businesses were deprived 
of access to these lifelines.
    Second, the financial challenges minority cannabis 
businesses face have been exacerbated by the pandemic, but they 
were not created by it. Despite accounting for 12.4 percent of 
the U.S. population, African Americans constitute just 2 
percent of the owners of the nation's 30,000 plant-touching 
businesses. This low representation is due to the staggering 
cost to enter and operate, where an application process alone 
can exceed $1 million.
    Third, State social equity programs intended to promote 
ownership among the individuals most impacted by cannabis 
prohibition are critical to the success of minority cannabis 
businesses. However, these programs, to date, are failing to 
adequately support minority businesses. Currently, only 15 of 
the 37 States where cannabis is legal have implemented social 
equity programs. And of that 15, only 6 provide direct funding 
to social equity applicants and operators.
    For a glimpse into the financial barriers to entry, 
consider Connecticut, where cultivation applicants must pay $3 
million or try their luck at securing one of 56 licenses 
available in the lottery, only half of which are reserved for 
social equity. Applicants seeking a cultivation or processing 
license in Pennsylvania's medical market must prove they have 
$2 million in capital and pay a $210,000 application fee. By 
and large, these programs provide too little, too late, to 
minority entrepreneurs to participate.
    Fourth, small and minority-owned cannabis businesses cannot 
access the traditional financial services they need to survive, 
let alone thrive. Many small minority cannabis businesses 
cannot access core banking services such as deposit accounts, 
loans, and electronic payments simply because they are in the 
cannabis industry.
    As of June 2021, only 700 of the approximately 10,000 
federally-insured banks and credit unions in the U.S. actively 
provide some type of banking service to the cannabis industry. 
Until small and minority-owned cannabis businesses can access 
financial services on a fair and competitive basis, they will 
continue to be left behind as other sectors of our economy 
recover.
    To address these issues, I encourage Congress to consider a 
wide range of options including: enacting the SAFE Banking Act 
this session; collecting demographic data about the 
availability of financial services to small and minority-owned 
businesses; ensuring protections for CDFIs and other 
institutions more likely to lend to small cannabis businesses; 
calling for updated guidance for financial institutions doing 
business with cannabis firms; and conducting a disparity study 
to ensure that any comprehensive legislation efforts address 
the disparate impact of Federal cannabis laws.
    Supporting small minority cannabis businesses is not just a 
moral imperative; it makes good economic sense. Despite their 
struggles, cannabis social equity businesses contribute $1.20 
in social good for every $1 invested in social equity programs. 
But without relief from Congress, minority businesses will not 
make it to the end of Federal prohibition. Some did not make it 
to the end of this week.
    Thank you.
    [The prepared statement of Ms. Littlejohn can be found on 
page 50 of the appendix.]
    Chairman Perlmutter. Thank you, Ms. Littlejohn.
    My colleagues have been hearing me talk about this issue 
for several years, so I appreciate your testimony.
    Dr. Alicia Robb, you are now recognized for 5 minutes for 
an oral presentation of your testimony.


  STATEMENT OF ALICIA ROBB, FOUNDER AND CEO, NEXT WAVE IMPACT

    Ms. Robb. Thank you, Chairman Perlmutter, Ranking Member 
Luetkemeyer, and members of the subcommittee. I appreciate the 
opportunity to provide testimony.
    My comments are going to focus on the small business 
financing data gaps and the implementation of Section 1071 of 
the Dodd-Frank Act. I would first like to highlight, however, 
our government's own conclusions about the state of small 
business financing with a few quotes.
    A White Paper from the Consumer Financial Protection Bureau 
(CFPB) states: ``With current data, it is now possible to 
confidently answer basic questions regarding the state of small 
business lending.''
    And a report to Congress by the Federal Reserve Board of 
Governors notes the following: ``One, fully comprehensive data 
that directly measures the financing activities of small 
businesses do not exist. And, two, up-to-date and comprehensive 
information about the universe of small businesses is sparse, 
and most evidence about financing needs and sources is derived 
from surveys, many of which have limited coverage or rely on 
nonrepresentative samples.''
    This last quote is particularly frustrating for me, because 
the Federal Reserve Board of Governors had been a source of 
small business financing data with their survey of small 
business finances conducted every 5 years. I was employed with 
the Federal Reserve and worked directly on the 1998 survey. 
However, they decided that after 2 decades of surveys, they had 
learned enough, and canceled the program after the fourth and 
final 2003 survey. Then, in 2008, when the economic crisis hit, 
there was no survey in place to collect data during and after 
the economic downturn.
    In their most current report to Congress on the 
availability of credit to small businesses, from 2017, which I 
just quoted and which is due to Congress every 5 years, the 
Federal Reserve relied heavily on the annual survey of 
entrepreneurs from 2015, which was a new survey conducted by 
the Census Bureau with funding support from the Kauffman 
Foundation.
    At the time, I was a senior fellow with the Kauffman 
Foundation, and I jointly proposed and advocated for this 
survey because of the need for more comprehensive and timely 
data on small business financing, especially data that included 
business owner demographics.
    I have continually pushed for more timely and comprehensive 
data on small business financing, because we know there 
continues to be gender, racial, and ethnic gaps in small 
business financing and credit market experiences, and we do not 
have sufficiently robust data to perform the kinds of rigorous 
analyses that would provide us a better understanding of the 
barriers and challenges faced by small businesses in general, 
and those underserved groups in particular. A better 
understanding would allow policymakers to design a more 
efficient and impactful program to address existing gaps and 
level the playing field.
    Congress mandated data collection by Section 1071 of the 
Dodd-Frank Act in 2010 for similar reasons. As noted in the 
2017 report from the Consumer Financial Protection Bureau, 
these data can provide a broad range of stakeholders across the 
United States with an understanding of the small business 
credit flowing into their local communities and allow them to 
identify credit deserts or sectors where credit flows may be 
restricted. This, in turn, may support localized efforts to 
increase access to credit in various communities around the 
United States to address unmet credit needs, thereby spurring 
economic development.
    In September 2021, more than 10 years after Congress first 
mandated the data collection, the CFPB released a notice of 
proposed rulemaking to finally implement Section 1071 of the 
Dodd-Frank Act, and here we are in 2022, still with no 
implementation of the data collection effort that was mandated 
by Congress.
    We have spent hundreds of billions of dollars through 
various programs, such as the Paycheck Protection Program and 
the economic injury disaster loans, and yet we don't have a 
process in place for the collection of data that would allow us 
to evaluate the small business credit market landscape, let 
alone the effectiveness of such programs. We need to implement 
Section 1071 of Dodd-Frank now, not in another 10 years.
    We should also ensure that the Federal Reserve System 
collects annual data in its small business credit survey from a 
representative sample of small businesses, and not from a 
convenience sample. These sources would provide a much richer 
picture of the small business credit market from both the 
supply and demand sides of the market. This would allow us to 
better identify credit market gaps and inform better 
policymaking.
    Thank you, and I look forward to your questions.
    [The prepared statement of Dr. Robb can be found on page 64 
of the appendix.]
    Chairman Perlmutter. Thank you, Dr. Robb.
    And I have been told that we have Mr. Luetkemeyer joining 
us by phone, so I would ask for unanimous consent that he be 
allowed to join us by phone.
    Without seeing any objections, Mr. Luetkemeyer, you can 
join us by phone. Can you hear us? Let's see if we can hear 
you.
    I think he is down in the tile called, ``anonymous.''
    Well, we will keep going with our next witness, Mr. 
Stangler, and then, Mr. Luetkemeyer, if you can hear me, you 
are welcome to do your 5-minute opening after we conclude the 
panel's testimony.
    So, Mr. Stangler, you are now recognized for 5 minutes for 
an oral presentation of your testimony.

STATEMENT OF DANE STANGLER, DIRECTOR OF STRATEGIC INITIATIVES, 
                 BIPARTISAN POLICY CENTER (BPC)

    Mr. Stangler. Thank you.
    Chairman Perlmutter, Ranking Member Luetkemeyer, 
distinguished members of the subcommittee, I am delighted to 
participate in today's discussion about small businesses and 
economic recovery. I commend you for convening this important 
hearing and thank you for inviting the Bipartisan Policy Center 
(BPC) to participate.
    I am the director of strategic initiatives at the BPC. We 
are a nonprofit organization dedicated to combining the best 
ideas of both parties to promote health, security, and 
opportunity for all Americans. We have had the pleasure of 
working with many of you. Thank you for your commitment to 
finding bipartisan public policies that help America's small 
businesses and entrepreneurs.
    As part of our work at BPC, we collaborate with a variety 
of partners to help ensure that more businesses are started by 
more Americans, in more parts of the country, in more sectors 
of the economy. This is the key to recovery, a recovery not 
only shared by small businesses and entrepreneurs, but also 
driven by them.
    There are three points I would like to highlight for you 
today.
    First, the present landscape of small business and 
entrepreneurship can be broadly characterized by two trends. On 
one hand, many small businesses continue to struggle with the 
negative effects of the pandemic. In the most recent reading of 
the Census Bureau's Small Business Pulse Survey at the end of 
January, nearly 40 percent of small businesses say they don't 
expect full recovery of their business for at least 6 months. 
Many are struggling with rising costs and difficulties in 
hiring and retaining workers.
    At the same time, new business formation is at record high 
levels and has been that way since the summer of 2020. The 
number of business applications filed by those deemed to be 
likely employers was 37-percent higher in 2021 than in 2019.
    There are some indications that entrepreneurship has been 
high among women and people of color. Millions of Americans see 
small business ownership and entrepreneurship as their road to 
opportunity.
    These trends tell us that small and young companies are 
ready for recovery. They are looking to grow. They need the 
support of a public policy framework.
    Second, there is little question that government relief 
efforts, such as PPP and COVID EIDL, helped many small 
businesses stay afloat. Many of the small business owners we 
speak to praise those programs as the difference between 
closing and continuing their businesses. In particular, 
modifications that were made to those programs along the way, 
such as inclusion of online lenders and community development 
financial institutions, were essential in helping get relief to 
those, such as business owners of color, who otherwise confront 
financing disparities. This is an important lesson for future 
policymaking.
    Third, public policy must encourage and support private-
sector financing innovations with our expanding access to 
capital for small and young companies. There has been 
considerable innovation in small business financing over the 
last several years, including new business models, new 
technologies applied to underwriting, new capital structures, 
and many more.
    Banks remain the main source of external credit for small 
businesses and entrepreneurs, and many banks have been 
investing heavily in technology. Many small and community banks 
have also formed productive partnerships with fintech 
companies. Much of this innovation is directed at closing gaps 
for traditionally underserved groups like women entrepreneurs 
and business owners of color. We encourage you to help promote 
these innovations, including by continuing to find ways that 
they can support public programs.
    Additionally, we encourage policymakers to improve 
coordination across existing Federal programs. There are 
already scores of efforts across multiple Federal agencies 
devoted to helping small businesses and entrepreneurs. Many of 
them and their partners across the country do exemplary work, 
but there are undoubtedly areas where performance can be 
improved and coordination can lead to greater effectiveness and 
resource efficiency.
    Lastly, we encourage you to continue to explore ways to 
balance the regulatory burden across lenders and reduce the 
regulatory costs, especially regarding partnerships between 
banks and fintechs, that in some cases can get passed along to 
small businesses.
    Chairman Perlmutter, Ranking Member Luetkemeyer, and 
members of the subcommittee, thank you again for your 
leadership on small-business issues. I am happy to elaborate on 
any points, and I look forward to your questions.
    [The prepared statement of Mr. Stangler can be found on 
page 66 of the appendix.]
    Chairman Perlmutter. Mr. Stangler, thank you for your 
testimony.
    I would like to reach out again to the ranking member, Mr. 
Luetkemeyer, otherwise known as, ``anonymous,'' and see if he 
can hear us?
    Mr. Luetkemeyer. Yes, I can. I apologize for all of the 
technical problems. I am in the middle of a snowstorm, ice 
storm, sleet storm here, and I have technical difficulties, and 
I am technically challenged, so we have a mess. But I apologize 
for the delay in getting on, and for being on a phone instead 
of the computer.
    Thank you, Mr. Chairman.
    Chairman Perlmutter. I am glad you joined us. If you would 
like to do your opening statement now, we would welcome it, or 
I can begin the questions, and then, you will ask questions 
after me, and you can do your opening. I want you to do it at 
your leisure.
    Mr. Luetkemeyer. Why don't we just skip my opening, and I 
will try and ask some questions, and if you give me a little 
leeway with some of the questions, a little more time, maybe I 
can insert some of the narrative from my opening comments, if 
that would be fine.
    Chairman Perlmutter. Yes, sir. I think the subcommittee 
would welcome that.
    I will begin with my questions, and I will begin with Ms. 
Littlejohn.
    In your testimony, you touch on four issues facing minority 
cannabis entrepreneurs: the pandemic; high barriers to market 
entry; a failure of State social equity programs; and the 
inability to access the traditional banking system.
    In many cases, it seems these issues can create a feedback 
loop and amplify obstacles for people of color seeking to start 
or operate a cannabis business.
    Can you describe how, without access to traditional credit 
or investors, minority cannabis business owners are being 
pushed into predatory loans and business arrangements?
    Ms. Littlejohn. Yes. Thank you, Mr. Chairman.
    So, with Federal law limiting access to traditional 
funding, many cannabis businesses are initially funded through 
friends and family and personal wealth. And given the wealth 
disparities, especially among those most-impacted by cannabis 
prohibition and the war on drugs, this is not an option.
    Large operators have no issue accessing capital. In fact, 
for many of them, the pandemic has been a boom. This 
unfortunately has not happened to small cannabis businesses 
that regularly see rates as high as 20, 25, and even 40 
percent, if they can obtain a loan at all.
    For those who can't secure loans, we commonly see 
significant undervaluation, and frequently, operators have to 
turn to equity partnerships, and these partnerships 
unfortunately are often extraordinarily predatory. We have 
inequitable distribution of profits where the social equity 
partner is living in poverty while the investor is taking 3 or 
4 times as much. We have operators who are giving up a 49-
percent stake, but then being forced to rent property at 4 to 7 
times the going rate for real estate.
    And unfortunately, again, these are really common. We see 
contracts that will force the social equity partner to sell--
even for a minor breach of contract, to sell their license to 
the investor for pennies on the dollar.
    And, because oftentimes the process of getting to the point 
of application in itself can be thousands, if not millions of 
dollars--one of my board members paid over $400,000 before she 
was awarded a license, because she was required to hold 
commercial property just to apply. That doesn't mean she was 
guaranteed, but just to apply.
    So, we have people who are selling art, selling plasma, 
mortgaging family homes, and sleeping in cars, all trying to 
stay above ground and keep themselves above water and to try 
and participate in an industry where we sold the promise of 
inclusion and participation, and we are leaving people out in 
the cold.
    Chairman Perlmutter. Thank you for your answer.
    Dr. Robb, I have a question for you.
    I want to ask you about the CFPB's 1071 proposal, which 
would require financial institutions to collect demographic 
data in small business lending. And, as you said, you worked at 
the Fed and for the Kauffman Foundation. Isn't somebody already 
collecting small business lending data, and wouldn't this be a 
duplication?
    Ms. Robb. Thank you, Mr. Chairman.
    No, it would not be a duplication. There are very little 
data available on small business financing. The Small Business 
Credit Survey, which is now being done every year by the 
Federal Reserve System, is done on a convenience sample, and it 
is not nationally-representative, so it is limited in that way. 
That is also from the demand side, which was also the case for 
the survey of small business finances.
    The Annual Survey of Economics, which is done annually by 
the Census Bureau, is nationally-representative. But the focus 
of the survey is not on financing, and so there is limited 
information about small business financing, sources, costs, et 
cetera. It is also from the demand side.
    The CFPB is actually looking to create microdata on loan 
applications from the supply side, and that does not exist. The 
closest thing to that are the call data reports, and then the 
CRA has data. But, in both of those cases, they proxy small 
business lending by the size of the loan, not the size of the 
firm. This proxy has been shown by researchers to be 
inaccurate, so you have lots of large businesses getting small 
loans and small businesses getting large loans. It is a not a 
one-to-one match. So, the CFPB, in Section 1071, is really 
collecting unique data.
    Chairman Perlmutter. Thank you very much for your 
testimony. My time has expired.
    I would now like to yield to the ranking member of the 
subcommittee, the gentleman from Missouri--who is going through 
a storm--Mr. Luetkemeyer, for such time as he may use in 
connection with opening comments as well as questions.
    Mr. Luetkemeyer, you are now recognized.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. Again, I 
apologize for the situation here.
    But, Mr. Stangler, I would like to start with you.
    Would you share your concerns that you have with the CFPB 
small business data collection rule implementing Section 1071 
of Dodd-Frank? This is, to me, a really, really big problem. I 
have a lot of problems with it. My question initially here is: 
Would creating additional compliance and resource burdens on 
financial institutions, particularly smaller institutions, 
promote or stifle small business lending?
    Mr. Stangler. Thank you, Ranking Member Luetkemeyer. I am 
located in eastern Kansas, and I think I am in the same snow 
and ice storm as you, but we have been spared the technical 
challenges. I feel sorry for you.
    Thank you for your question. As Chairman Perlmutter noted, 
I used to work at the Kauffman Foundation. I worked with Dr. 
Robb at Kauffman and helped create that annual survey of 
entrepreneurs to which she referred. So, I don't think anyone 
would ever accuse me of advocating for less data on small 
businesses or on entrepreneurship.
    I think what is concerning about the CFPB action and the 
rulemaking is that this has not gotten bipartisan political 
support, and it has not gotten support from a lot of the folks 
in the industry and the lenders. BPC had a Main Street Finance 
Task Force effort a few years ago, and that task force was 
unanimous on every single issue except for this one.
    There were concerns raised by lenders, by former agency 
folks, and by others in that effort about some of the 
suppressive effects this might create, that you referred to, 
some of the compliance costs, some of the burdens. There is no 
question that we need better data on small businesses, on small 
business financing. Some of the challenges that Dr. Robb 
alluded to are significant and real and need to be addressed.
    I think what concerns us is that there are other 
bureaucratic barriers that can and should be addressed first. 
With a lot of the data that is collected already by the Census 
Bureau, by the IRS, and by others, there are barriers to using 
and sharing that data that we might get insights from without 
creating additional burdens or additional layers.
    And I do worry, and we worry, and the folks we talk to in 
the industry among small businesses worry about some of the 
incentives or the disincentives created by some of this 
rulemaking.
    But, again, I think the broader issue is, how can we get 
better data, and how can we do it in the least-burdensome way 
possible?
    Mr. Luetkemeyer. As the ranking member on the House Small 
Business Committee, I can tell you there are a lot of different 
entities that are collecting data right now, not the least of 
which is the National Federation of Independent Businesses, 
which is comprised of small business groups. But there are 
other entities. In fact, tomorrow, I have a Zoom call with the 
Job Fairs Network, which is kind of like the U.S. Chamber of 
Commerce, although it is not a radar group that does a lot of 
surveying, and they survey small businesses, and I get a report 
from them every month or every other month.
    And so, there is a lot of data out there that I think, if 
you need some more--in fact, whenever you want a survey, let me 
know. I can ask the Job Fairs to put it on their next survey.
    I think the opportunity for more data is there. The kind of 
data that you are trying to get or they are trying to get, is 
what is concerning to me. Dodd-Frank specifically provides the 
borrowers the right to not give race and gender and ethnicity 
information to financial institutions, but the bank loan 
officer has to be very careful because they can't ask that 
question; if they do, they get in trouble, and if they don't, 
then they have to guess. And if they guess, they leave 
themselves open, in my mind--I have seen the way the CFPB 
operates. And during the incorporate years, holy cow, they went 
out and intentionally intimidated individuals and extorted 
money from the different businesses based on their guidance 
that they put out there, which is not something they can even 
enforce.
    And so, when you are now going out here and basically 
trolling these businesses to see once--if you can get them 
hooked on some kind of a problem here by putting things out 
there that they have to guess at what the answers may be, holy 
cow, this is opening up Pandora's box for these folks. To me, 
this gets them in some really murky waters, and I would just 
like your opinion on that situation.
    Mr. Stangler. Thank you, Congressman.
    You are right that there is a lot of data out there on 
small businesses, on entrepreneurs. This is where I think there 
are other ways to go about filling some of these data gaps 
before launching new processes.
    We worked a lot with some of these Federal agencies, and 
some of the folks I have talked to point to significant 
barriers in just sharing some of that information between 
agencies. So, I think there are other ways to use some of the 
information we have and get new information before we start a 
whole rash of new concerns, as you raised, with this effort.
    Mr. Luetkemeyer. If the Chair would allow me one more 
question here--I don't know what my time is, but the privacy of 
information that the CFPB wants is a very, very real concern to 
me, also from the standpoint that we have seen the different 
cyber attacks, cyber hacks that have gone on within our own 
government. I know that the CFPB is not immune to those attacks 
either.
    And, here, we are going to accumulate more information. 
Some of it is guesswork. So, if you guess wrong, what happens 
to those people if they are hacked?
    The privacy of all this additional information, for 
whatever intentions they may have, doesn't seem to outweigh the 
risk that is there for the consumer.
    What do you think about that, sir?
    Mr. Stangler. Thank you, Congressman.
    Yes, privacy is always a significant concern, especially 
with the rising number of cyber attacks we have seen. I know, 
if we are going to improve the state of small business data, if 
we are going to use those other sources that you refer to and 
that you see constantly, and if we are going to have public 
agencies hold some of this data, I know there are other 
agencies that have significant and strong confidentiality and 
privacy protocols in place.
    There are also private sector partners who work with 
government and hold government data who excel at this as well, 
so--who have found a way to protect the privacy, but this is 
obviously an overriding concern here.
    Mr. Luetkemeyer. Thank you, Mr. Stangler.
    Mr. Chairman, I want to thank you for going along with a 
little extra time here. I want to work with you. To me, this 
privacy situation is extremely important. This is something we 
have to work on together to make sure that the CFPB does not 
allow that additional information they are collecting to be 
able to have access to other folks.
    So, with that, I thank you, and I yield back.
    Chairman Perlmutter. I thank you, Mr. Luetkemeyer. Thanks 
for going the extra mile and getting on by phone, even while 
you're in a snowstorm. In Colorado, we got about 8 to 10 
inches. We handle it a lot better than you folks in the 
Midwest. That is all I can tell you.
    Mr. Luetkemeyer. We handle it. Right now, anyway.
    Chairman Perlmutter. Okay. I now recognize the gentleman 
from Georgia, Mr. Scott, who is also the Chair of the House 
Agriculture Committee, for 5 minutes.
    Mr. Scott. Thank you, Chairman Perlmutter.
    And I would like to begin my questioning with Ms. 
Littlejohn. As the chairman mentioned, I am the new chairman of 
the House Agriculture Committee. Cannabis has become our 
fastest-growing product, but there are some mixed problems 
here.
    I worked very closely with the chairman. He spent a lot of 
time working on this issue because of the criminality, and he 
has done a magnificent job in attempting to legitimatize the 
financial arrangements so that it is not cash only, a situation 
which created so much criminal activity.
    But here we are, the fastest-growing agriculture product, 
and between hemp and cannabis, we have such a variation of 
State laws. It is reminiscent of the Prohibition, which gave 
birth to our friends in the Mafia.
    Now, we are also going into our Farm Bill. We have to 
address this issue. We can no longer hide it.
    You raised several good points, but I want you to tell us 
what the state of their art is, where the problems are, and 
what we need to do to make sure our farmers are doing what they 
need to do. There are different applications between hemp and 
marijuana. Where does all of this fit?
    And in this confusion, with a lack of proper information, 
that is what the criminal element preys on. Your statement was, 
if I have it correct--you reference a social equity partner, 
and I think you meant that in that regard, African Americans 
are having difficulty in even getting the license or access to 
capital.
    I just want you to share with us and share with me where we 
are so that as we get into this issue next month in the Farm 
Bill, I want to be certain that we can help our farmers. 
Already, they are growing it.
    Can you get with us and, first of all, tell me what you 
meant by that statement relative to--you said it impacts a 
social equity partner relative to licensing, I think?
    Ms. Littlejohn. Yes, Congressman.
    What that means is certain States set up programs intended 
to ensure that the individuals who have been most harmed by 
cannabis prohibition, including primarily African Americans, 
have a chance to actually participate in this burgeoning 
industry. But unfortunately, only 15 of the now 37 States have 
these programs, and unfortunately only--
    Mr. Scott. I want to get that right. You said 15 of the--
    Ms. Littlejohn. Only 15 of the 37 States have programs.
    Mr. Scott. Why didn't you say 15 of the 50 States? Is 
there--
    Ms. Littlejohn. Yes. 15 of the 37 States that have legal 
cannabis programs.
    Mr. Scott. Oh, I see.
    Ms. Littlejohn. I assume we will get to 50 soon, but 15 of 
the 37 that are legal now. Unfortunately, in your home State, 
Congressman, we saw this in real time, where there was an 
extraordinarily high cost for the application, and that alone 
led to only four Black applicants.
    Mr. Scott. And what was that cost?
    Ms. Littlejohn. I believe it was well over $150,000.
    Mr. Scott. Wow.
    Ms. Littlejohn. It was actually $250,000. So, at that 
point, only--for the larger applications. So, only four African 
Americans applied for licenses, and all of the licenses ended 
up going to larger, nonminority firms. This is something--
    Mr. Scott. Do you think this was done intentionally to 
discriminate against those at the lower end of the economic 
ladder?
    Ms. Littlejohn. It was $200,000. It has been clarified.
    This is about discriminating against all small businesses, 
because companies are going in and trying to capture markets. 
For instance, in Virginia, there are currently only three large 
companies that control the entire medical cannabis market in 
Virginia, and I actually just got permission to run ahead of 
everybody else.
    Mr. Scott. My, my, my.
    Now, what is--
    Chairman Perlmutter. Mr. Scott, I'm sorry, but your time 
has expired.
    Mr. Scott. Okay. Let me just say this.
    Ms. Littlejohn, I would like for you, if you don't mind, to 
get in touch with my office, because we are putting together 
witnesses in which--and you have a wealth of valuable 
information that will be very helpful to our farmers who are 
engaged in this and our agriculture industry.
    Thank you, Mr. Chairman.
    Ms. Littlejohn. It would be my pleasure.
    Mr. Scott. Thank you.
    Chairman Perlmutter. Thank you, Mr. Scott.
    I now recognize the gentleman from Florida, Mr. Posey, for 
5 minutes.
    Mr. Posey. Thank you, Chairman Perlmutter. I appreciate it.
    Mr. Stangler, based on the title of this hearing that we 
are in today, to help ensure that small and minority-owned 
businesses share in the economic recovery, the usual stock and 
trade of this committee is subsidizing small and minority 
businesses in credit markets and providing what some of us 
believe is needed additional regulation.
    The economy right now is characterized by fairly strong 
recovery numbers, but crippling inflation and tight job market 
conditions. We also have the uncertainty of public health 
regulations, and those impacts on small businesses are 
profound, especially for the hospitality and travel sectors.
    Would you help us put the priorities in context? In terms 
of helping small businesses participate in the recovery, how 
does access to credit and more credit regulations for small 
businesses through the CFPB stack up against crippling 
inflation, finding workers, predicting that your business will 
be able to stay open, and easing some of the heavy-handed 
burdens of existing regulations? Where should Congress put its 
priorities?
    Mr. Stangler. Thank you, Congressman.
    I think the best place to look for guidance in 
prioritization is from the small businesses themselves, and 
right now one of the best sources of direct input from small 
businesses is the Census Bureau's Small Business Pulse Survey. 
This reaches about a million small businesses, and it has been 
through seven or eight phases. The latest phase just concluded 
at the end of January. It is very good.
    A year ago--and I can double check these statistics after 
the hearing, but I think a year ago, when the Census Bureau 
asked small businesses what their top future need was, what was 
their biggest need as they tried to recover, it was financial 
assistance. We were in the midst of a surge, and consumer 
demand had shifted. Lockdowns and restrictions were still in 
place, and a lot of small businesses said they just needed 
financial assistance.
    Fast forward to this year, to January. Financial assistance 
is now fourth, fifth, or sixth, I think, on the list. The 
number-one need that small businesses say they have is to 
identify and recruit employees, and that has been in the top 
spot for, I think, 2 or 3 months.
    The number-two need is marketing and sales. They want to 
grow. They are ready to grow.
    And so, I think those are the priorities.
    We know from other surveys, including a survey that was 
released last month by the Goldman Sachs 10,000 Small 
Businesses Program, that inflation is a major, major burden for 
small businesses in that survey. We know from these latest 
surveys, these large-scale surveys, that finding workers, 
keeping workers, and dealing with rising costs are major 
challenges right now for small businesses.
    Mr. Posey. I was going to ask you next regarding the 
inflation being a big threat, what small businesses are telling 
you about the impact, and I guess you have pretty much told us 
it is the top priority.
    Am I correct in that assumption?
    Mr. Stangler. Inflation was definitely a concern in some of 
these latest surveys, for sure, among small businesses, yes.
    Mr. Posey. Now, innovation is the hallmark in the history 
of our U.S. financial system. Could you identify the most-
promising financial innovations on the horizon for small 
businesses today and what the biggest threats are to those 
promising ideas?
    Mr. Stangler. Thank you, Congressman.
    As I mentioned in my oral remarks, and as you can find in 
my written testimony, the last several years pre-pandemic were 
characterized by lots of private-sector innovation in the space 
of small business financing. Fintechs obviously have gathered a 
lot of attention, online lenders. But traditional banks also 
have invested quite heavily in technology. Many of them have 
become almost fintech lenders themselves, and many of them have 
formed partnerships with fintechs, and those partnerships have 
really helped small and community banks as well.
    There have been a number of other innovations in the space. 
There are folks trying to pioneer new types of hybrid capital 
structures, especially directed toward helping those small 
businesses owned by women, and owned by people of color, who 
maybe can't access capital through traditional channels. And 
for some of those new business models, those partnerships, I 
think there are two regulatory concerns.
    One is, in the bank and fintech partnership, to help level 
that regulatory playing field and to help reduce some of the 
burdens on those partnerships. For some of the new business 
models, I think there can be greater regulatory clarity on what 
is and isn't permitted so that innovation can proceed for small 
business financing.
    Mr. Posey. I appreciate it very much.
    Mr. Chairman, I see my time has expired, and I am happy to 
yield back. Thank you.
    Chairman Perlmutter. Thank you, Mr. Posey.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Foster, who is also the Chair of our Artificial Intelligence 
Task Force, for 5 minutes.
    Mr. Foster. Thank you, Mr. Chairman.
    Many lenders, including fintechs, use business credit 
scores to address creditworthiness. And, similar to consumer 
credit scores, business credit scores are a metric for risk 
that are based on payment history, credit utilization, length 
of credit history, and outstanding debt. But according to a 
recent report, 45 percent of small business owners did not even 
know that they had a business credit score, 72 percent did not 
know where to find it, and 82 percent did not know how to 
interpret it.
    Now, there are various opinions among consumer interest 
groups and credit bureaus about the accuracy of personal credit 
reports and whether report inaccuracies negatively affect the 
consumers' overall credit score, and these phenomena have been 
the subject of considerable discussion within our committee.
    But in regards to business scores, Ms. Bilonick and Ms. 
DeVane, are these business scores prone to the same 
inaccuracies or mistakes that personal credit reports sometimes 
experience?
    Ms. Bilonick. Thank you, Congressman Foster. I will just 
start, and hopefully Ms. DeVane will chime in after I am done.
    I do believe they are subject to the same potential 
inaccuracies. I think this is actually a growing and emerging 
area in supporting small businesses, which is basically 
providing financial capability services that are targeted to 
small business financial management.
    We have seen in our membership that there has been a shift 
in the focus of financial capability support from working with 
consumers, potentially with the aim of building an asset like 
the purchase of a home, to shifting to more financial 
capability support for small business owners.
    There has been sort of a lack of support to small business 
owners in this area, and I do think just anecdotally, from my 
own experience as a practitioner, that most small business 
owners do not know that they have a business credit score.
    Most small business owners are using, and are impacted by 
their personal credit scores, therefore, I think there is a 
real lack of opportunity to support small business owners in 
terms of educating them about how to start small business 
credit, how to build and repair small business credit, and how 
to monitor their small business credit.
    Ms. DeVane. I would add to that--and I want to thank you 
for the question--that business credit scores are clearly an 
important indicator for many, many lenders as to how a borrower 
is going to manage their debt. And it is based on historical 
performance or behavior and whether you are more or less likely 
to be delinquent on your payments.
    So, low scores would deem you to be a higher credit risk. 
And that may even necessitate a small business having to put up 
collateral or to provide a personal guarantee, which the 
business may not be in a position to do.
    And I also think, anecdotally again, that these 
calculations can certainly vary by institution and may not 
necessarily be disclosed to the borrower, which means the score 
is somewhat subjective, and as a result, not necessarily an 
equitable measurement of risk.
    And also, the loan pricing, the term, and the amount 
depends on that business credit score. So, it has the ability 
to lead to less favorable pricing and terms for a minority-
owned business or women-owned business that just doesn't meet 
those requirements.
    So, I think it may not always be an accurate reflection of 
the risk, and we need to be very careful in terms of how we use 
those business credit scores. And those borrowers--those small 
businesses need to be aware of how those scores are being used, 
how to determine how those are calculated, and to make sure 
that they look at that as potential revenue.
    Mr. Foster. Are there organizations or businesses that are 
set up to counsel businesses on how to improve their business 
credit score, or are the same entities that are generating the 
business credit scores also making money by offering advice on 
how to improve it, which I always thought would be an 
outrageous conflict of interest?
    Ms. DeVane. I will jump in here really quickly and just say 
that our Urban League entrepreneurship mentors provide that 
kind of technical assistance and counselling, and we do spend a 
lot of time working with our business owners to educate them on 
these types of credit scores. So, I think that is one of the 
things that we want to be able to do, is to make sure that we 
have those technical assistance providers available.
    Mr. Foster. Yes. I remember, when we started--I started my 
company when I was 19, with my little brother, and it is doing 
fine now, but in the early days, we used to have regularly 
scheduled meetings where we decided which one of our vendors we 
were going to stiff that week. And we didn't have business 
credit scores to worry about in that discussion.
    But it is a new world, and I think it is important that 
businesses understand who is looking at them and how they are 
being judged.
    I guess my time is up, so I yield back.
    Chairman Perlmutter. The gentleman's time has expired. We 
don't want to know who those vendors were.
    We will now turn to the gentleman from Texas, Mr. Williams, 
for 5 minutes.
    Mr. Williams of Texas. Thank you, Mr. Chairman. I hope you 
will not use that hammer on me anytime soon.
    For the panelists, I want disclosure, as I am a small 
business owner myself in Texas and have been for over 50 years. 
Now, the Biden Administration is hammering Main Street America 
with so many regulations that it is hindering the economic 
recovery and preventing capital from flowing to rural and 
underserved communities.
    I mentioned this statistic in a hearing yesterday, but it 
was so astounding, it deserves repeating: A study by the 
American Action Forum showed that President Biden has already 
implemented over $200 billion in new regulatory compliance 
costs on American businesses during his first year in office. 
These costs are amassed by an estimated 131 million manhours in 
new paperwork that must be conducted in order to be in 
compliance with all of the new regulations coming from 
Washington, D.C.
    One of these regulations that we have heard about today is 
the CFPB's 1071 rulemaking on small business data collection. 
There are many problematic aspects of this rule, and I, along 
with Ranking Member Luetkemeyer and Congressman Hill, have 
introduced a package of bills to help mitigate some of the 
worst parts of this proposed rule.
    The bill I am introducing in this package would prevent 
loan officers from guessing the ethnicity of a loan applicant 
based on their appearance and last name if they do not 
voluntarily disclose this information. This racial profiling 
requirement is currently in a proposed rule, and we have spoken 
with numerous bankers and trade associations about how this 
will put loan officers in an extremely awkward situation and 
give inclusive, unusable data to the CFPB. There should not be 
any Federal requirement where someone must guess the ethnicity 
of another American based on their appearance.
    Mr. Stangler, how would you recommend training loan 
officers to fulfill this racial profiling requirement on how to 
properly guess a loan applicant's ethnicity using only their 
last name and appearance?
    Mr. Stangler. Thank you, Congressman.
    Forgive me for not being as familiar with the details of 
your legislation as I should be, but after this, I will 
certainly review the bill, and I would be happy to talk to you 
and your staff.
    I am not sure I have a good answer for that. I am not sure 
I would know how to train or what to tell the loan officers 
subject to these requirements.
    Mr. Williams of Texas. Well, that is actually a good 
answer, because you can't. And I want to tell you--let me go 
back in history a little bit. I am one of the oldest on this 
committee. I was actually working jobs in 1968, 1969, and 1970, 
and a lot of those were in financial institutions, banks and 
lenders: GMAC; Ford Motor Credit; interstate securities. And 
back then, there were boxes of ethnicity that had to be checked 
when somebody was applying for a loan. And it was very 
uncomfortable, very insensitive, very racial.
    And now, I think about those days. We have gotten out of 
that, and here we are back in those days again, and it really 
is something that totally takes me back and surprises me that 
we are talking about this very thing that was not satisfactory 
back when I was working in the early 1970s. That is just a 
statement I want to say. I would love to hear the argument for 
that.
    Second, if we want to help small businesses, we need to 
allow them to keep more of their hard-earned money. We saw the 
benefits that cutting taxes had on the economy before the 
pandemic, when we saw wage growth that outpaced inflation, the 
lowest unemployment numbers in decades, and there were more 
investment in durable goods that businesses could cash flow.
    Unfortunately, under this current Administration, the 
constant fear of new taxes on the horizon has forced our 
businesses to go on the defense. They are not as willing to 
invest their money in fears that they will need the money later 
to pay future tax liabilities.
    Mr. Stangler, at a time when small businesses are already 
feeling the harmful effects of inflation, how do you think 
small businesses will deal with additional tax increases if 
this Administration gets their way?
    Mr. Stangler. Thank you, Congressman.
    You are exactly correct that inflation, as I mentioned to 
Congressman Posey, is a top, if not the top concern for small 
businesses right now. At the same time, many of them haven't 
seen their revenues rebound. And as you know, as a small 
business owner, many of our small businesses are in a tight 
squeeze with revenues still not back to pre-pandemic levels, 
with inflation and rising costs in their supply chain, and 
having to pass some of those along to their consumers.
    So, I would hope that any changes on the horizon would take 
those into account, that our small businesses are in a really 
tight spot right now as they look to recover and grow and are 
really struggling with inflation and trying to get their 
revenues back up.
    Mr. Williams of Texas. Thank you. And finally, I would just 
like to say that this 1071 rulemaking actually takes us back; 
it does not take us forward. And I am saddened by that.
    Thank you very much, Mr. Chairman, and I yield back.
    Chairman Perlmutter. Thank you, Mr. Williams. The gentleman 
yields back.
    The Chair now recognizes Mr. Casten of Illinois for 5 
minutes.
    Mr. Casten. Thank you, Mr. Chairman.
    Ms. DeVane, I have a couple of just open-ended questions 
for you, and it is a little hard because we are writing history 
at the same time that we are sitting here, but you are so close 
to what is happening on the street with the entrepreneurs out 
there, and we all get caught up in our stories, but you are 
hearing the stories firsthand.
    We are almost 2 years to the day from the first COVID case 
in the United States. If you remember, it was February of 2020 
when there were those first stories about people in nursing 
homes in Seattle. We saw this huge collapse in GDP, this huge 
growth and boost in unemployment.
    And we had all sorts of folks saying, well, we have no 
playbook for dealing with this deep aid downturn that doesn't 
leave a lot of people behind, because we know, in 2008, the 
people who were banked came back well. A lot of people lost a 
lot of housing value. People who were outside the banking 
system didn't come back.
    And so, we did a lot of unconventional things. Yes, we 
expanded monetary policy, but we had a lot of fiscal policy 
touching people's pocket--the PPP, money to States--and we are 
now sitting here looking at, at least on a macro level, a 
fairly remarkable moment. We have this V-shaped recovery that 
was not on anybody's bingo card for what we thought was 
possible.
    From your perspective in the communities you serve, what 
did we get wrong? Who is still left out in this recovery?
    Ms. DeVane. Thank you for the question.
    Our minority businesses have been left out. I recognize 
that there have been relief programs. But, speaking 
specifically about the pandemic, we look at PPP, and we see 
that that was expected to provide relief to business owners who 
were struggling at the time. Many of those businesses were 
front-facing businesses. They were impacted by social distance 
guidelines, and so they were struggling to keep their 
employees, to pay their utility bills, to meet their payroll, 
and they couldn't do it.
    And that PPP program was intended to be a lifeline for 
those businesses, but it just, frankly, didn't work. And, 
anecdotally, I can tell you that, speaking with our business 
owners on the ground, they faced challenges. They didn't have 
the lending relationships with the SBA lenders. They didn't 
have the back office and the technical and financial know-how 
to fill out a lot of paperwork, and they were really 
struggling.
    And so, a lot of times they missed the boat and the 
opportunity. We were very pleased in the following iteration 
where our business owners actually were able to get some of 
that financing from CDFIs and from MDIs in the community that 
knew them and understood the challenges they were facing. But I 
will tell you that they feel very much left out of the recovery 
and the equation.
    There have definitely been some improvements. I will 
absolutely say that. But on the whole, our businesses continue 
to struggle. They need capital, and they need capital 
desperately. Loans are difficult. Grants are welcome, and some 
of the programs that we have put in place, like the Black 
Restaurant Accelerator Program that I mentioned in my oral 
remarks, would really go a long way toward helping those 
businesses.
    They need the coaching and the training to undergird the 
capital that they are getting. And capital needs to be 
affordable, and it needs to be appropriate for those business 
owners.
    Mr. Casten. I think I am hearing you echo Mr. Stangler, and 
I don't want to put too many words in your mouth, Mr. Stangler, 
but I think you said that in those surveys you saw that labor 
and marketing needs were sort of the top needs of small 
businesses, and some concerns about rising prices.
    We are having a real-time debate in Washington right now. 
On the one hand, should we invest in those communities, figure 
out how to get people to work, do the job training, make the 
investment, get the kind of grants that you are talking about, 
Ms. DeVane? On the other hand, we are hearing people say, no, 
we should not invest, because that might create inflation in 
the economy.
    And, Ms. DeVane, you are talking with people who are 
feeling all of the same pains that Mr. Stangler described. Do 
you agree that those are the top issues that Mr. Stangler 
described?
    And, put yourself in our shoes. What would you like to see 
us do in this moment? Do you think we should prioritize getting 
resources to those businesses who need them, or should we say, 
let's take the brakes off, let's not do any investment in the 
economy right now because we are concerned about inflationary 
pressure?
    Ms. DeVane. I do agree with Mr. Stangler that inflation 
certainly is a concern. I think he also mentioned hiring and 
keeping staff. Those are absolutely concerns of our business 
owners. But the top concern is capital, which allows you to 
market your business, which allows you to hire employees and 
pay those employees. And so, I would say that is the priority.
    And, yes, I absolutely think, as the pot boils down, that 
we would need you to assist those businesses more. And I know 
we are over time, but the Community Navigator Pilot Program 
(CNPP) that the SBA has is one way that we are going to be 
helping our business owners recover from the pandemic, after 
the pandemic.
    Mr. Casten. Thank you. Five minutes is never enough time, 
but I appreciate your time. And, if you have more thoughts, 
please follow up with our staff. Thank you. I yield back.
    Ms. DeVane. Thank you.
    Chairman Perlmutter. The gentleman yields back.
    The gentleman from Georgia, Mr. Loudermilk--we have a lot 
of Illinoisans and a lot of Georgians today--is now recognized 
for 5 minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman, and that is what 
makes this subcommittee great, is the number of Georgians that 
we have on here. I appreciate this hearing, and I appreciate 
that the Majority is talking about helping small and minority-
owned businesses. I have been talking about this since I have 
been in Congress, and especially during the pandemic.
    But recent history indicates that unfortunately, the 
Majority has been opposed to one of the most important tools 
that can help those businesses, which is is fintech. The list 
of lenders eligible to participate in the State Small Business 
Credit Initiative (SSBCI) was established 12 years ago, and it 
does not include fintech companies, which are now a critically 
important part of small business lending.
    In fact, fintechs were the number-one type of PPP lender 
for Black- and Hispanic-owned businesses. GAO reported that 
when Congress added fintechs as eligible PPP lenders, lending 
to minority-owned businesses increased. Last year, when this 
committee marked up the American Rescue Plan Act, I offered an 
amendment to update the list of eligible lenders for the SSBCI 
Program to include fintechs. Unfortunately, the Majority 
rejected it.
    This inexplicable opposition to fintech is depriving 
minority-owned businesses of the source of credit that they 
rely on most. Even the SBA administrators have said that we 
should embrace the role of fintech in small business lending, 
putting House Democrats at odds with the Biden Administration.
    Mr. Stangler, would including fintechs in the SSBCI help 
get funds distributed to minority-owned businesses?
    Mr. Stangler. Thank you, Congressman.
    I think you correctly characterized the research findings 
on PPP that fintechs, online lenders, when their participation 
was included in the subsequent modifications, we saw those 
disparities close.
    And research has found--I believe there was some new 
research out this week or last week confirming those findings 
that fintechs helped distribute PPP, the government relief, to 
business owners of color who didn't get the benefit, especially 
in the first and second rounds.
    Applying those lessons forward, as you suggest, would, I 
think, help continue to enhance those channels. Full 
disclosure, we do work with fintechs. We also work with banks. 
We work with advocates and philanthropies. Our advocacy arm has 
endorsed some bipartisan bills that would expand fintech 
participation in government programs, such as the 7a program, 
and we do believe that continued expansion of those channels 
would help the borrowers that you are trying to help.
    Mr. Loudermilk. Thank you. In my opinion--and to many, 
there is no question that bank/fintech partnerships have 
enhanced the ability of small businesses to access credit, but 
unfortunately my colleagues on the other side of the aisle 
eliminated the OCC's True Lender rule, which needlessly added 
legal uncertainty to these partnerships.
    Another question, Mr. Stangler. In your testimony, you said 
that small businesses benefit from a variety of private sector 
financing options. When the government takes away sources of 
small business lending, does that help or harm those 
businesses?
    Mr. Stangler. Thank you, Congressman.
    As I mentioned in my comments, I believe with Congressman 
Posey a few minutes ago, we have seen an explosion of financing 
innovations in the private sector within the last decade, pre-
pandemic, and during the pandemic. Many of those are in 
response to these financing disparities that the country has 
struggled with for many years.
    I think our position is that the government, in partnership 
with the private sector, needs to continue to do all we can to 
expand those channels and provide clarity on what is 
permissible, obviously punish bad actors when misbehavior does 
occur, but broader channels, wider channels are going to help 
our small businesses versus narrower channels.
    Mr. Loudermilk. Okay. And final question, Mr. Stangler, 
what should we as policymakers be doing to expand options for 
private-sector small business lending?
    Mr. Stangler. Thank you, Congressman.
    I would highlight two things. One, in the bank and fintech 
partnerships that you allude to, there are regulatory burdens 
in those partnerships, and we know a lot of small and community 
banks benefit from greater technology from those fintech 
partnerships, because the costs of adopting those technologies 
in-house for the smaller banks can be prohibitive. But there 
are regulatory burdens and regulatory reviews. There is 
regulatory unevenness there that I think the government can and 
should resolve.
    Two, with a lot of these new models coming on board--for 
example, I mentioned hybrid capital structures. From what I 
hear from folks who are working on these, trying to get capital 
to those underserved groups, there is a lack of regulatory 
clarity from the government, from the IRS, as to how those 
capital structures are going to be treated. So, I think 
regulatory clarity on those would be helpful.
    Mr. Loudermilk. Okay. Thank you.
    Unfortunately, Mr. Chairman, my time has expired, so I will 
yield back.
    Chairman Perlmutter. I thank the gentleman from Georgia for 
his questions and for yielding back.
    We now turn to the gentleman from Florida, Mr. Lawson, who 
has--one of his bills has been noticed as part of today's 
hearing, the Small Business Fair Debt Collection Protection 
Act.
    Mr. Lawson, you are recognized for 5 minutes.
    Mr. Lawson. Thank you, Chairman Perlmutter.
    And, to the ranking member, I am sorry he is out there in 
all this snow. And I was wondering how you were going to make 
it when I looked on TV to see what was going on in Denver, but 
I know you know how to do that. The last time I was out there, 
they knew how to handle it.
    Currently, small business loans--and I, like Mr. Williams, 
have been a small business owner for about 34 years. I think I 
still am, but I am not able to make any money from it anymore.
    Currently, small business loan borrowers do not have the 
same protection that individual consumers have under Federal 
law. Small business owners oftentimes place their personal 
finances and capital to starting and expanding their business. 
Small business owners often apply for credit using their 
personal credit cards, yet they do not receive the same 
protection as individual consumers, which is why, as the Chair 
said earlier, I reintroduced the Small Business Fair Debt 
Collection Protection Act, which protects small businesses from 
harassment from third-party debt collecting.
    Would you agree that, by expanding the protection that 
currently exists for consumers to small business owners, that 
these businesses will be more likely to succeed? How do you 
suggest we better protect entrepreneurs and provide more access 
to capital without potentially hurting their personal credit?
    And I can remember when I first went into business. They 
hardly had any credit cards when I first went into the 
insurance and financial business. You had to get something from 
the bank in order to get started. So, this will be for 
everybody on the panel, and maybe we can start with Ms. DeVane.
    Ms. DeVane. Thank you for the question.
    Yes. I think that we know that many Black-owned businesses 
do use their personal credit. We know that a lot of these 
business owners looking for PPP money did go to fintech 
companies. That was an alternative source of capital.
    They are not all bad. They tend to be race-blind in terms 
of the ability for some of those businesses to get capital. But 
we do need to be mindful that the practices are fair, because 
these business owners are often desperate for funding, and they 
really don't know what they don't know. And, in many cases, 
they are just ill-informed about the pricing, the credit, and 
the terms.
    So, what we really want to make sure of is that our 
business owners at all of our Urban League centers are not 
being subjected to any predatory or abusive products and that 
they really understand and have transparency around all of the 
terms that they need in order to get this desperately-needed 
capital.
    As a former banker, I understand the need to make sure that 
these businesses have access. But, like consumers, small 
businesses need to be protected from the bad actors.
    And I will stop there, because some of my colleagues may 
want to add to that.
    Mr. Lawson. Okay. Thank you.
    Ms. Bilonick. I would just like to hop in and say that I 
would be remiss if I didn't elevate what I believe to be one of 
the greater focuses of this conversation, which is elevating 
the rights of business borrowers to be equal to the rights of 
consumer borrowers.
    This is something that I think, if it were more widely 
known in the public, would be an outrage. Small business owners 
are targeted by predatory lenders and now, more than ever, are 
extremely vulnerable to predatory lenders.
    And I really am hopeful that, through this conversation, we 
can also discuss the importance, regardless of regulatory 
burdens on the banking industry, of really elevating the rights 
of small business borrowers and making them equal and on par to 
consumer borrowers.
    Mr. Lawson. Would anyone else care to comment?
    Many people don't realize that some credit card issuers 
report business credit card accounts to the consumer credit 
bureaus, which means that the way you use your business credit 
card could raise or lower your personal credit score.
    To what extent do business credit scores impair small 
business owners, especially minority owned- and women-owned 
businesses, from getting loans? And are these scores always 
accurate and reflective of risk?
    Ms. Bilonick. I will start with the second question.
    Much like personal credit scores, these business credit 
scores are also equally susceptible to error or misreporting, 
and so it really requires monitoring just like we do for our 
personal credit scores.
    The other piece that I think is really important is that, 
for small business owners, personal and business credit is 
always inextricably linked, because of the business structure 
that they select, which does not necessarily count their 
business as a separate entity, and they typically are starting 
off as sole proprietors, not necessarily incorporating their 
businesses, and therefore, there is an intermingling of their 
personal and business credit.
    So, I think the fact that the business credit can be 
reported to personal bureaus is absolutely something that could 
undermine the personal credit and the personal ability to rise 
out of poverty for small business owners.
    Chairman Perlmutter. Thank you, Ms. Bilonick.
    And thank you, Mr. Lawson. Your time has expired.
    Mr. Lawson. Chairman Perlmutter, before you leave, it was 
80 degrees here in Tallahassee today, and I would like to see 
if I can send something over there to you.
    Chairman Perlmutter. It was 7 degrees here this morning. 
So, thank you. I appreciate you sharing that information.
    Mr. Lawson. With that, I yield back.
    Chairman Perlmutter. The gentleman yields back.
    The gentleman from North Carolina, Mr. Budd--I am sure the 
weather is nice in North Carolina, too--is recognized for 5 
minutes..
    Mr. Budd. Mr. Chairman, thanks for recognizing me. And I 
thank the panel. And it is not 7 degrees here, but add a zero; 
it is 70 degrees today in North Carolina.
    We talked about access to capital and how important that 
was, particularly over the last few years, when businesses had 
been grappling with the effects of the pandemic. And, Mr. 
Stangler, again, thank you for being here.
    What role did financial technology companies, or fintechs--
what role did they play during the pandemic in helping to 
provide access to capital and to small businesses?
    Mr. Stangler. Thank you, Congressman.
    As I think more and more research has found over the last 
couple of years, fintechs, online lenders, were crucial in two 
ways. One, through the disbursement of government relief, 
especially through PPP. As we have heard from fellow panelists, 
as we have seen in research, and as we have heard from some of 
your fellow committee members, the fintechs, online lenders, 
helped close some of those disparities that existed pre-
pandemic, existed in the first round of PPP, and continue to 
exist, but fintechs helped to close those gaps.
    Then, second, for a lot of small business owners who either 
were unsuccessful in receiving PPP, or maybe have received PPP 
and EIDL, but still needed additional capital, or maybe didn't 
want to apply or couldn't apply at traditional financial 
institutions, I think fintechs, online lenders have helped fill 
those gaps as well outside of the public efforts.
    Mr. Budd. Very good. We have always known that small 
businesses are critical to the growth of the American economy--
it is about 43, almost 45 percent of GDP--and the creation of 
about 62 percent of new jobs since 1995. So, this growth is 
reliant on access to affordable credit.
    The CFPB's 1071 rulemaking could unnecessarily reduce the 
availability and increase the cost of credit for small 
businesses.
    So, again, Mr. Stangler, do you think that imposing new 
regulatory requirements on lenders will be counterproductive to 
increasing access to credit?
    Mr. Stangler. Thank you, Congressman.
    I think additional regulatory burdens on lenders, no matter 
their form, can always have pass-through consequences to their 
borrowers, consumer or small business. As we touched on a few 
minutes ago, especially when it comes to the partnerships that 
banks and fintechs have been forming, including with smaller 
banks, we know there are regulatory challenges there.
    When we review regulatory burdens, and the uneven 
regulatory playing field between the banks and fintechs and 
some of those partnerships, adding burdens in whatever way, 
shape, or form can really hinder some of those innovations and 
some of those kind of basic functions that, as you put it, 
those small businesses rely on.
    Mr. Budd. Very good. Continuing on, a recent National 
Federation of Independent Business (NFIB) survey reported that 
47 percent of business owners reported job openings that could 
not be filled. Could you describe some actions Congress could 
pursue to support small business owners in their currently very 
challenging effort to hire people? And again, back to you, Mr. 
Stangler.
    Mr. Stangler. Thank you, Congressman.
    This is a really important question, because this is a 
really pressing issue for many small businesses. And I have 
heard a couple of other panelists mention this as well. We know 
this from anecdotal conversations, as I am sure you hear in 
your district--we know those from small-scale surveys. We know 
this from large-scale surveys--but hiring and retaining workers 
is a major, major challenge.
    In a few weeks actually, BPC has a small business policy 
report coming out, and one of the major focuses there is how we 
can help small businesses hire and retain workers, especially 
as they seek to compete with their larger competitors.
    I think some of the things that we will highlight in that 
report, which I am happy to share with you and your staff when 
it is available are, how do we help small businesses, 
especially the smallest of the small, to help their employees 
with retirement, to help their employees with emergency 
savings? Government has already taken important steps there 
with bipartisan support, but there are still some gaps--some 
lack of regulatory clarity, some regulatory burdens facing 
those small businesses when it comes to retirement plans, when 
it comes to helping with training or education, or when it 
comes to helping with emergency savings.
    So, I think there are a number of steps there that would 
really help small businesses with their workforces.
    Mr. Budd. Mr. Stangler, as a small business owner, and as a 
Member of Congress, I look forward to reading that report, if 
you would share that with us when it is available. I thank you 
for your time, and I thank the rest of the panel as well.
    Stay warm, Mr. Chairman, and I yield back.
    Chairman Perlmutter. The gentleman from North Carolina 
yields back.
    The Chair now recognizes the Vice Chair of this 
subcommittee, Ms. Pressley from Massachusetts, for 5 minutes.
    Ms. Pressley. Thank you, Chairman Perlmutter, for convening 
this important discussion. And thank you for your long-standing 
advocacy and leadership on this issue.
    This is such an important discussion on ensuring that 
minority- and women-owned small businesses share in the 
benefits of any long-term economic recovery. Those who have 
been hurt by the pandemic, related economic hurt, should be 
those who receive the most help while our economy recovers.
    Yet, far too many Black and Brown folks have effectively 
been locked out of relief, whether by regulations or 
exclusionary credit and lending practices, a lack of start-up 
capital, or by laws that favor businesses that have already 
obtained success. This is even more true for cannabis 
businesses, which were explicitly excluded from pandemic PPP 
and EIDL programs within the SBA.
    For many Black and Brown folks working tirelessly to gain a 
foothold into this industry, this exclusion has added insult to 
injury. Ensuring Black and Brown folks can start and sustain 
cannabis businesses is a matter of economic and racial justice, 
and restoring communities that have been ravaged by the failed 
war on drugs.
    There are many attempts to keep those who were 
disproportionately locked up because of this failed war on 
drugs, and to keep them locked out from this multibillion 
dollar industry. This need has become even more evident when 
compounded by the disparate impact COVID has had on communities 
of color and minority-owned businesses. Although Black 
Americans were most heavily-impacted by the war on drugs, only 
2 percent of marijuana businesses nationwide are Black-owned.
    My home State, the Commonwealth of Massachusetts, is no 
stranger to this inequity. However, we were the first State in 
the country to mandate equity and inclusion within its legal 
cannabis industry. And we were the first to launch programs 
designed to assist folks disproportionately harmed by the war 
on drugs. And yet, the industry remains predominantly White and 
male still.
    Ms. Littlejohn, how has the pandemic exacerbated current 
racial inequities within the cannabis industry?
    Ms. Littlejohn. Like all minority-owned businesses, 
cannabis businesses are feeling a crunch, because the resources 
needed to sustain during the economic downturn, the resources 
needed to secure businesses and make the infrastructure and 
technological upgrades, are just not there. There is no access 
to loans. When folks are going out to try and get more 
resources to upgrade their businesses, their companies are 
being grossly undervalued.
    And this is also leading to safety concerns, because as 
their resources decline, there is also, again, the inability to 
make safety upgrades.
    So, while during the pandemic, we have seen an exponential 
growth in some of the large companies, there was a point during 
the pandemic at which some of these companies were almost 
actually over 300 percent of their pre-pandemic value. And, 
meanwhile, the rest of the industry, and small businesses and 
minority businesses are folding at a pretty regular rate, 
especially in States like Massachusetts and California.
    In Massachusetts, what we have seen is they are rolling out 
these equity programs, but the funding is not there, and there 
is a clock ticking on the amount of time that people have to 
get their businesses up and running in Massachusetts. I 
regularly get calls from businesses in Massachusetts. They are 
struggling.
    The pandemic has hit all minority businesses hard, but it 
has been especially hard on minority cannabis businesses that 
really don't have anywhere to turn for resources.
    Ms. Pressley. And is that exactly why we need to be 
intentional in ensuring that minority- and women-owned cannabis 
businesses are not left behind in our recovery efforts, that 
there will be a more intentional and deliberate amount?
    Ms. Littlejohn. Absolutely. And I think that many people 
agree that ensuring that the people who have been most harmed 
by cannabis prohibition are participating is an important part 
of legalization, but the way the State laws are created right 
now, they are dealing with almost insurmountable barriers to 
entry and the challenge of competing when markets are captured 
by a handful of individuals.
    So, it is really a dire situation. And if we don't get the 
resources now, many minority businesses are just not going to 
make it to legalization. They won't make it to the end of the 
year. And, as I mentioned earlier, there are some unfortunately 
that did not make it to the end of this week.
    Ms. Pressley. It is really clear that cannabis business 
owners need more support. And, again, I do want to commend our 
Chair, Mr. Perlmutter there, for his courageous leadership and 
his work to ensure that cannabis businesses are able to safely 
access financial and banking services in the face of what 
remains still great stigmatization of the industry.
    But we also need comprehensive and systemic reforms to 
ensure that our communities are not left behind, like the 
Marijuana Opportunity Reinvestment and Expungement (MORE) Act, 
to finally reverse these failed Federal policies criminalizing 
cannabis, provide expungement and resentencing for those with 
prior marijuana-related offenses, and invest in the very 
communities ravaged by the racist war on drugs. It's long 
overdue.
    So, while we have the House, the Senate, and the White 
House, we must act.
    Chairman Perlmutter. The gentlelady's time has expired. I 
thank the Vice Chair for her comments and her questions.
    It looks like we will now finish with two Tennesseeans. I 
am not sure how that happened, but we will turn to Mr. Kustoff 
for 5 minutes for his questions.
    Mr. Kustoff. Thank you, Mr. Chairman. Thank you for calling 
today's hearing. And there's nothing wrong with two 
Tennesseeans.
    Mr. Stangler, I thank you, and I also thank the other 
witnesses for testifying today.
    We have talked a lot about fintechs. Can you talk about the 
partnerships, if you will, between fintechs and community 
banks, how they interact with each other, the benefits that 
fintechs can provide to community banks, especially as it 
relates to the competitive and the source of the particular 
nature of banking? What benefits can fintechs offer community 
banks, and maybe vice versa?
    Mr. Stangler. Thank you, Congressman.
    My 9-year-old has become a Memphis Grizzlies fan, so I am 
obliged on his behalf to say, ``Go Grizzlies.''
    Congressman, I think you are right that these 
partnerships--not only have they increased in frequency and 
scale. And in the decade prior to the pandemic, partnerships 
between banks and fintechs really proliferated.
    The banks get technology. The fintechs get access to more 
traditional forms of financing. In some cases, fintechs work 
with banks to participate in programs like the SBA's 7(a) loan 
program.
    This is especially important for the small and community 
banks. The cost of investing in some of these technologies is 
just too high. It is prohibitive for them to do it on their 
own. The Federal Reserve put out a paper, I believe in 
September--I will have to double check--highlighting the 
importance of technology, of fintech partnerships for community 
banks specifically, and offering guidance on how community 
banks can do this most effectively.
    So, even the Federal Reserve has kind of put its stamp of 
approval on this and pointed to the benefits. The fintechs 
obviously benefit, too. Not all fintechs are created equal. But 
for many of them, working with the banks brings them 
credibility, brings them growth, brings them new customers, and 
also access to those in the communities that community banks 
serve who might not have access to traditional forms of 
financing.
    We believe these are highly important, and we see that 
evidence in their growth.
    Mr. Kustoff. Thank you, Mr. Stangler.
    I think we can all agree that innovation and emerging 
technologies really do offer great potential to access 
financial services, especially in underserved communities and 
in rural communities. I say that because a large part of my 
district is rural.
    Part of that is the peer-to-peer payment systems, like 
PayPal, Venmo, and Cash App, and we understand the benefits of 
that.
    In President Biden's American Rescue Plan, which was passed 
last year, last March, there was a provision in the plan that 
required businesses to report to the IRS transactions over $600 
when using these third-party payment platforms.
    I think that we can all agree that there are some strong 
potential privacy implications as it relates to individuals 
with this provision, that may also at some point be used or be 
seen as a disincentive to use these platforms.
    Do you have concerns about how they, in fact, could be 
disincentivized to use these platforms based on that provision 
in the American Rescue Plan?
    Mr. Stangler. Thank you, Congressman.
    I am familiar with this provision, although, to be candid, 
it is not something I have spent a great deal of time studying.
    I will say that, as you mentioned in your remarks, these 
new companies, these new innovations--fintechs, online 
lenders--have been very, very important for our smallest of 
small businesses. They come with costs. Their interest rates 
can be higher. Their loan terms can be shorter. But we know 
that millions of small businesses and Americans are using them, 
including those small businesses who have and who are deemed to 
be higher credit risk.
    I will say that, again, while I haven't studied this 
provision in depth, in detail, I think we need to be wary of 
steps that might overly burden some of the benefits that these 
fintech innovations bring.
    Mr. Kustoff. Thank you, Mr. Stangler.
    Mr. Chairman, I yield back my remaining 11 seconds.
    Chairman Perlmutter. Thank you, Mr. Kustoff.
    I now will go to Mr. Rose, the second Tennesseean, to close 
out the questions. Mr. Rose, you are recognized for 5 minutes.
    Mr. Rose. Thank you, Chairman Perlmutter. And there is 
absolutely nothing wrong with having two Tennesseeans to end 
this hearing. But thank you for calling this hearing, and the 
topic, I think, is timely. Small businesses have a big impact 
on our communities, and of course many are struggling with the 
current rising inflation and the cost of regulation that we 
have heard about today.
    In my district, the Sixth District of Tennessee, 93.8 
percent of employers are small businesses. The men and women 
who operate and work for these enterprises are some of the 
hardest-working people that I meet. These businesses are the 
heart of our economy and the engine that keeps this country 
moving. And I might add that I am an operator of just such a 
small business.
    Now, as time is limited, I will dive right into my 
questions.
    The pandemic was incredibly challenging for the American 
private bus and motor coach industry, as almost all major 
sources of business for this industry and revenue were 
restricted by the mandatory lockdowns. Congress created the 
Coronavirus Economic Relief for Transportation Services 
(CERTS), which provided $2 billion in grants to support this 
industry. According to data from the Treasury, 93 percent of 
CERTS grants went to small businesses, of which 33.4 percent 
were minority-owned.
    The motor coach industry is still struggling, however, and 
will be one of the last industries, I fear, to recover, 
especially given their reliance on live events and touring 
around the country.
    Mr. Stangler, could you discuss how Congress could help at 
this point to ensure that segments of our economy that were hit 
the hardest by COVID-19, like the motor coach industry, are 
able to fully recover?
    Mr. Stangler. Thank you, Congressman.
    This sector of the economy is not one that I have studied 
in depth, but I fully accept and agree with your comments that 
it has been hit hard and will likely be one of the last to 
recover, especially, as you mentioned, because of its 
dependence on live entertainment and concert venues.
    I know there are some proposals being floated around in 
Congress to provide more assistance to small businesses, 
sector-specific assistance, whether that is restaurants or gyms 
or motor coaches. I think for those proposals to be effective 
and to pass, we would like to see them have bipartisan support 
and to be targeted, because we know that many sectors of the 
economy are further along in the recovery than others.
    I would also propose that, for sectors like this--and, 
again, it is not a sector I have studied well--we can look to 
other existing streams of Federal spending that go into the 
small business economy. I will just quickly mention that we 
have done a lot of work, for example, on Federal procurement. I 
am unaware of what the state of Federal procurement spending is 
with the motor coach industry, but some of these existing 
streams of billions of dollars, I think, are really important 
for small businesses, especially minority-owned businesses, as 
they recover.
    Mr. Rose. You speak of the report, and that actually was 
going to be my next question for you, about the Bipartisan 
Policy Center's report. Could you please describe some of the 
barriers to entry that the report referenced and possible 
solutions for those?
    Mr. Stangler. Congressman, you are referring to our report 
on small business procurement?
    Mr. Rose. Yes. And particularly, focused on Federal 
procurement.
    Mr. Stangler. Yes. Thank you.
    This was a report we put out last June, that will also be 
the subject of the Small Business Policy Report--one of the 
subjects of the report that we put out in a few weeks. 
Congressman, I will give you just a couple of statistics, some 
of which I am sure you are familiar with.
    The Federal Government spends $560 billion, I think we are 
up to, each year, that is, ``small business eligible.'' Small 
businesses are supposed to get 23 percent of those contract 
awards. For 8 years in a row, the government has met that goal.
    However, the number of small businesses actually 
participating as contractors has fallen by 40 percent in the 
last decade, and the number of new entrants into small business 
procurement--so small businesses not being a contractor last 
year, being a contractor this year, that number has fallen by 
80 percent in a decade. There are significant barriers to 
entry, and this particularly harms minority- and women-owned 
businesses. The women-owned business goal, which is 5 percent, 
has only been met twice in 25 years.
    There are significant ways that the Federal Government can 
and should reduce those barriers to entry, because this is a 
lot of money that flows into the small business economy every 
year.
    Mr. Rose. Thank you for that.
    Mr. Chairman, I see my time is about to expire.
    As one small business operator, I will tell you--and it 
turns out to be helpful when you end up being in Congress--in 
my business, we just ignored government procurement because it 
seemed like such a labyrinth to try to navigate. And I consider 
myself to be a reasonably intelligent person, but every time we 
dug into that, we concluded that it was just too difficult.
    And so, one of the solutions has to be that we have to 
figure out how to make it easier for small businesses with 
limited resources to go after that government procurement 
business.
    Thank you, Mr. Chairman, and I yield back.
    Chairman Perlmutter. The gentleman yields back. Thank you, 
Mr. Rose.
    Without objection, statements from the following 
organizations will be entered into the record: the National 
Association of Federally-Insured Credit Unions; the American 
Financial Services Association; Gusto; and the joint statement 
of the Center for Responsible Lending, the National Coalition 
for Asian Pacific American Community Development (National 
CAPACD), and the National Association for Latino Community 
Asset Builders (NALCAB).
    And I would like to thank our witnesses for your testimony 
today. We really appreciated your remarks.
    I would also especially like to thank Dr. Robb for having a 
Golden Buff on this from the University of Colorado. Go Buffs.
    The Chair notes that some Members may have additional 
questions for these witnesses, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    Ms. Littlejohn, you had that specific request from Mr. 
Scott, so I hope you will follow up on that.
    Mr. Rose, thank you for your questions.
    Mr. Lawson, I think we got through your draft bill.
    I appreciate the witnesses, and I thank you for testifying 
in front of our subcommittee.
    Ms. Bilonick. Thanks very much.
    Mr. Stangler. Thank you.
    Chairman Perlmutter. And with that, this hearing is 
adjourned. Thank you all very much. That was excellent.
    [Whereupon, at 5:04 p.m., the hearing was adjourned.]

                            A P P E N D I X

                           February 17, 2022


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