I’ve been asked to talk about the importance of small business data.
I want to begin by sounding a warning we should all head. The income inequality in our country, the highest of any industrialized nation and the highest it has been in 50 years, is a festering calamity building towards an explosion of American citizens who will no longer be willing to work all day and still have an inability to maintain a decent quality of life.
Former House Speaker Paul Ryan argued that “more important than equality of results is equality of opportunity. This measures the degree to which individuals have the chance to succeed, despite their original circumstances.”
Obviously, acquiring a job is the number one mechanism to begin the process for building wealth. But it is homeownership that serves as the number one mechanism for people to rise from being working poor to experiencing equity growth, wealth growth. America is at a 50 year low in homeownership rates for low- and moderate-income households.
The problem is that real wages today, adjusted for inflation, are the same as wages from 20 years ago. Yet the cost of housing and all other goods have risen roughly 50%.
We must address this problem or we will face dire consequences. How many more economists need to tell us that another depression is imminent, and what will this mean for the overwhelming majority of Americans who already are struggling to maintain a subsistent quality of life.
The financial services sector is the key actor in this scenario. Making small business loans to traditionally underserved people, minorities and women in particular, is one key to reversing this trend. Minimum wage jobs offer scant savings for workers as household and other costs quickly absorb the available income. And such wages rarely put them in a position to buy a home. Livable wages that match the economic realities of the 21st century is key. And it is small businesses that create the majority of jobs, particularly in under-served neighborhoods.
In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 1071 of that law amended the ECOA to require financial institutions to compile, maintain and submit to the CFPB certain data on credit applications by women- and minority-owned small businesses.
I applaud the CFPB for turning its attention to this matter and for conducting a field hearing on May 10th, 2017, and for producing the document, “Key dimensions of the small business lending landscape.”
One of the basic conclusions of the CFPB was that there exists a gap in the available data that limits their understanding of the small business financing market. NCRC and others agree and have reached this same conclusion, that the small business lending data available simply was inconclusive and that further detail or data was needed to measure the level of commitment by financial institutions to address the small business needs of minorities and women.
Further, the available data via Call Reports and CRA submissions are limited to banks. This excludes data by alternative lenders and other non-depository institutions that play a major role in small business lending to minorities and women.
Sec. 1071 of the Dodd-Frank Act gives the Bureau the ability to rectify these data shortcomings.
Supreme Court Justice Louis Brandeis said, “Publicity is a…remedy for social and industrial ills. Sunlight, he said, is the best disinfectant…”
Senator Phil Gramm, past Chairman of the Senate Banking Committee, argued in favor of Sunshine, and I quote “If a law promotes the giving of money for the public benefit, there must be accountability.” He went on to say that regulations should not keep the public in the dark.
I want to repeat my quote from former House Speaker Paul Ryan, “more important than equality of results is equality of opportunity. This measures the degree to which individuals have the chance to succeed, despite their original circumstances.”
The reporting by financial institutions of detailed small business data is the very Sunshine and Opportunity that these gentlemen were addressing.
A spotlight that provides a clear vision on which lenders are fairly and equitably serving all segments of our society, safely and soundly, creates immense opportunity. There will be some lenders that do remarkably well in lending to minorities and women, and still others who seem disengaged in that effort. Sec. 1071 is the elixir that is needed to ensure that the opportunity to grow and start businesses, for traditionally underserved people, becomes more of a reality in this nation.
