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Main Street Monday — Reg B Coming to Small Business Lending

July 13, 2015

By Bob Coleman
Editor, Main Street Monday

Friday night I had the pleasure of speaking to VEDC’s Board of Directors and staff at their annual Board retreat about the state of the small business lending industry.

VEDC, formally Valley Economic Development in SoCal’s San Fernando Valley, is a nationwide CDFI with offices in eleven locations, including New York, Chicago, Miami, Las Vegas and California.

CEO Roberto Barragan’s model is simple. Provide a nationwide platform for a bank to receive CRA credit — and get capital out to underserved parts of Main Street.

The model attracted UBS Bank. UBS has provided $32 million in loans and grants to allow VEDC to directly fund small business loans to their targeted underserved markets — minorities and women. And VEDC does it well. UBS, SBA and other VEDC partners are impressed by their prudent lending standards.

VEDC is a very successful model of getting capital to underserved markets.

So, what does this have to do with Reg B? Reg B is the Equal Credit Opportunity regulation that ensures lenders document anti-discrimination compliance in consumer lending.

And, Reg B is coming soon to small business lending.

Last week, 19 Senate Democrats urged the Consumer Finance Protection Board to implement regulations authorized by Dodd-Frank five years ago regarding the collection of data about lending to the same underserved markets targeted by VEDC — minority and women-owned small businesses.

Writes the Senators, “There are nearly 28 million small businesses in the United States. While entrepreneurship can open the door to achieve the American Dream, it can be difficult for entrepreneurs to get their businesses started. Access to capital is often limited in underserved and underrepresented communities—the same communities that disproportionately endure financial hardship and lack broader access to opportunities….Current data collection efforts are fragmentary and provide an incomplete picture of lending in the small business marketplace. Regulation B will facilitate the enforcement of fair lending laws and help identify the credit needs of women-owned, minority-owned, and all small businesses.”

Wouldn’t it be better to embrace and encourage partnerships such as UBS and VEDC, rather than create a whole new bureaucracy and set of regulations with the stated goal of “facilitating the enforcement,” which is code for fines, of fair lending laws?”

And I’m not addressing implementation. How in the world do you “collect” data on a turned-down $150,000 startup loan for a cupcake shop to an approved $150,000 loan to a 20-year established Firestone franchise in the same zip code?

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