Banks are trying to score another victory over hardworking Americans, this time by refusing to lend to minorities, women, and rural residents who own and run small businesses.
When President Obama signed the Dodd-Frank Act into law in 2010, it required the Consumer Financial Protection Bureau to collect information from banks on the types of customers who received loans.
This data now shows that businesses run by women, minorities and in rural areas don’t have the same access to capital as other businesses. But there’s still not enough being collected on small businesses, and without quality data, it is difficult to formulate and advocate for policy solutions to support them.
Why Data Matters
Now, some community banks want to be exempted from reporting on their lending practices. It’s too much of a burden, they say, and would force them to reduce lending.
In reality, this kind of exemption from reporting would render CFPB’s rule about data collection practically useless. It would mean that for years into the future, small businesses owned by minorities, women and in rural America will struggle more than their peers to obtain credit to start and grow.
This is because community banks provide a disportionately high number of loans to small businesses. While community banks have just 20 percent of the banking industry's assets, they provide almost 60 percent of the loans to small businesses.
So exempting community banks from reporting on this kind of lending would mean the CFPB’s data would only contain information on 40 percent of small-business loan recipients.
What We Learned from HMDA
When similar information was collected on the race and ethnicity of people receiving mortgages under the the 1975 Home Mortgage Disclosure Act (HMDA), the data covered 80 percent of loan transactions.
Partly as a result of putting this data to use, from 1993 through 1995, conventional (non-government insured) home mortgage lending to African-Americans and Hispanics surged 70 percent and 48 percent, respectively, far outpacing the national average.
It’s important to note that this increase in lending to minorities occurred without harming banks at all: they scored record profits throughout this period.
How We Can Help Small Businesses Thrive
The challenges faced by minorities, women who run small businesses, and in rural America, are great. Only 28 percent of minority businesses were approved for loan requests, versus 67 percent of businesses run by whites. Only about 5 percent of female entrepreneurs receive loans to start their businesses as opposed to 11 percent of male entrepreneurs.
Unless we collect more and better information for the CFPB on these loans, small business owners will continue to be denied the opportunities that would help them thrive and help our economy grow.
More than 80 Senators and Representatives have already signed a letter asking the CFPB to exempt community banks from reporting requirements, So congress needs to hear the other side of story, now - they need to hear from you.
Now is the time to call your senators and representatives to tell them you do not support any special treatment for banks. You support a fair shot for all businesses, regardless of size or the race, gender and location of the owner. Call Congress at 202-224-3121.
