Tag Archives: dodd frank

10 Years After the Housing Crisis: Have We Learned Nothing?

ANHD is extremely disappointed in the U.S. Senate for rolling back the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as “Dodd Frank.” The Senate passed S.2155, which removes key financial safeguards and transparency regulations designed to prevent the kind of financial collapse and damage the U.S. experienced just a decade ago.

This bill is filled with givebacks to the financial industry, while doing nothing to safeguard consumers and tenants from abuses, such as fraudulent accounts and security breaches. This bill also comes at a time when the Consumer Financial Protection Bureau (CFPB) is rolling back its own fair lending examinations and shirking its duty to protect consumers, as per its mandate under the Dodd Frank law.

S.2155 hides key fair lending data for 85% of depository lenders, while exempting some of these same banks from the mortgage rules that ensure consumers have home loans they can actually afford. The Home Mortgage Disclosure Act (HMDA) is one of the most important tools we have to identify lending disparities and outright discrimination. It includes data on the income, race and gender of the borrower, the amount of the loan, and if the loan is high-cost. However, it does not currently capture some of the elements common to the types of mortgages that led to the financial collapse. Dodd Frank addressed this and expanded the data home mortgage lenders are required to report to HMDA, including additional information on race, ethnicity, and the cost and terms of loans to better understand where consumers are being unjustly charged, or denied loans to purchase, refinance, or improve their homes. S. 2155 would exempt roughly 85% of bank lenders that make fewer than 500 loans from reporting this expanded data. We’re already losing data from banks that make fewer than 25 loans as well as the long-standing exemption for multifamily lenders that don’t make any 1-4 family loans.

As the recent Reveal article demonstrates, redlining persists in banks large and small, and all banks should be required to report the expanded data and be held accountable when their lending disparately impacts people of color. A recent ANHD report on 2016 HMDA data also shows how few borrowers of color in New York City are receiving home loans from banks, a number of which will be exempt from expanded HMDA reporting under this bill. While not in New York City, Evans Bank in upstate New York reached a settlement in 2015 for alleged redlining, will be exempt under this bill. Meanwhile, banks under $10 billion in assets are now exempt from the qualified mortgage rule for loans they hold in portfolio.

This bill also reduces scrutiny for large banks. It raises the threshold for enhanced regulatory scrutiny from $50 billion to $250 billion, thus exempting banks within that range from stronger capital and liquidity rules, enhanced risk management standards, living-will requirements, some stress testing requirements, and more. Some banks have long been actively staying below the $50 billion threshold in order to avoid this additional scrutiny, while many others already over $50 billion stand to benefit from the increased threshold. This threshold change would likely empower more banks to merge and expand. In this deregulatory climate, banks are less likely to have strong Community Reinvestment Act (CRA) requirements connected to these mergers, thus leaving consumers and community organizations with fewer banks and fewer resources. 

The bill now goes to the House of Representatives – we must remain vigilant and do all we can to ensure Congress protects consumers over Wall Street.

Jaime Weisberg, ANHD’s Senior Campaign Analyst

Better Small Business Lending Requires Better Data

Stories and studies have long demonstrated disparities in small business lending, particularly for minority- and women-owned businesses, but we lack the data to quantify these disparities and hold lenders accountable. Small business data must be made public.

New York City is home to 1.12 million businesses, 95% of which have fewer than 10 employees; in fact, over 883,000 have no employees and are operated solely by the owner. As of 2012, 39% were women-owned businesses and 51% minority-owned.  Additionally, 48% of New York City small businesses are immigrant-owned, and in some neighborhoods, small businesses employ up to 42% of the neighborhood population. Yet, we know virtually nothing about their ability to access financing to start, maintain, and grow their businesses.

Access to capital is critical for these small businesses to grow, yet they continue to face barriers in accessing financing from traditional banks. As a result, they are often forced to borrow from friends and family; use personal savings; defer investment; or turn to less-regulated, higher cost, sometimes predatory online lenders.

For decades, the Home Mortgage Disclosure Act (HMDA) has helped reveal disparities and identify credit needs in residential home lending to low-income and minority people and communities. Unfortunately, we do not have a similar set of data for small business lending. Currently, only large banks are required to report small business lending, and the data they report is extremely limited, with little information about the size of the business and no other important details, such as the demographics of the owners, types and costs of loans, or denial rates. And small banks and non-banks don’t report at all. Section 1071 of Dodd Frank was designed to address this – to provide the public with a wide range of small business lending data, including business size, owner demographics, types of loans, and approval rates. Yet, before it has even gone into effect, lenders are opposing it. We urge the CFPB and Congress to ensure that the small business reporting mandated by Section 1071 is fully implemented. 

In lieu of comprehensive data, we now rely upon surveys and stories that document the disparities and the need for better data. None of these provide lender details. For years now, a set of Federal Reserve Boards has been conducting a study of small business credit needs to identify trends and barriers to financing. Not surprisingly, approval rates are lower for smaller businesses. In 2016, 60% of small businesses with revenue under $1 million were approved for loans and lines of credit at small banks and 45% at large banks, versus 78% and 72%, respectively, for large businesses. They also highlight the challenges businesses face in accessing financing from the online lenders. Small businesses were much more likely to use these lenders and all businesses reported them to be higher cost and less transparent than banks and CDFIs. Another study about the online lending market found that the average alternative loan carried an annual percentage rate (APR) of 94%. Among Hispanic borrowers, they found that their average monthly payment was more than 400% of their take-home pay. Section 1071 is a critical tool to expose the details of their lending, which is now completely hidden.

Several other studies have documented the challenges small businesses, particularly those that are women-owned and minority-owned, face in accessing credit. One study showed that just 5% of women-owned businesses use bank loans to start their businesses compared to 11% of male-owned businesses. If minorities owned businesses at the same rate as non-minorities, our country would have 1 million additional businesses and more than 9.5 million additional jobs.

ANHD members who work with small businesses tell similar stories of borrowers – particularly immigrant owned businesses and minority- and women-owned businesses – who struggle to access financing to start, maintain, and grow their businesses.

Without good data, we cannot effectively document disparities in the lending market or hold lenders accountable for disparate lending.  Without good data, we cannot identify unmet credit needs.  Comprehensive data such as the data collected under 1071 is essential to increasing access to credit for small businesses, particularly those in lower-income tracts and owned by lower-income people, people of color, and immigrants.

The CFPB is collecting comments on 1071 through September 14th.We must tell show our support! Contact ANHD if you’d like sample comments you can submit – it’s simple, fast, and important.

Jaime Weisberg, ANHD’s Senior Campaign Analyst