CRC Hosts CFPB Mission District Tour on Small Business Displacement

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Liana Molina discusses displacement of local small businesses at the corner of 16th and Valencia in the Mission District, San Francisco

Yesterday, CRC hosted a visit and tour by the Consumer Financial Protection Bureau (CFPB) in the Mission District in San Francisco.  CFPB Director Richard Cordray and Assistant Director Grady Hedgespeth met with local small business owners and leaders from CRC member organizations including MEDA, Opportunity Fund, and Renaissance Entrepreneurship Center who support small businesses with capital and technical assistance.

Displacement in the Mission

In the past few years, growth in the tech sector has created enormous pressure not just on housing rents in the Bay Area, but on commercial rents as well.

The displacement of neighborhood serving small businesses in the Mission is especially troubling, given the critical role they play in supporting, serving and employing longtime residents of the Mission.  Small business owners have also complained about difficulty they face in obtaining bank loans, and research by CRC confirms that small business lending by the five largest banks has dropped dramatically since the recession.

Under the Dodd-Frank financial reform, the CFPB is charged with collecting data about small business lending.  In February this year, the CFPB announced that writing these rules is considered a near term priority goal. Similar to the Home Mortgage Disclosure Act, these new rules are expected to increase transparency (and accountability) about who is getting small business loans- and who isn’t.

Small business owners share their experiences and challenges

Director Cordray and Assistant Director Hedgespeth met with several of these small business owners during the CFPB’s visit.  The first stop on the tour was Venga Empanadas, where co-owner Pablo Romano shared his experience in obtaining financing to open his restaurant.  Denied financing by a bank, Mr. Romano connected with Opportunity Fund, a Community Development Financial Institution (CDFI) who provided him with a $45,000 loan, enabling him to sustain and grow his business which now has eight employees.

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Luisa Estrada, owner of D’Maize Restaurant and Catering speaks with Director Cordray.

Next, Zenaida Merlin and Luis Estrada, owners of D’Maize Restaurant and Catering, shared how a small business loan of $80,000 from Mission Economic Development Agency’s (MEDA) new CDFI Adelante loan fund meant that D’Maize was recently able to expand their business to a full-service restaurant.  They now employ 22 people from the local community.

Elsa Valdez, the owner of El Salvador Restaurant, explained how she benefitted from working with MEDA, who helped her to get a loan from KIVA to help pay for improvements to her restaurant, which has been family owned for over 20 years.  Ms. Valdez wants to continue improvements to the restaurant and growing her business.

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Paula Tejada, owner of Chile Lindo Delicatessen and Coffee Shop

Paula Tejada, known as “The Girl from Empanada” is the owner of Chile Lindo Delicatessen and Coffee Shop, a business she first purchased in 1995.  Working with Renaissance Entrepreneur Center, she received technical assistance on running her business, including their 14 week business planning class focused on marketing, management, operations and finance.

Lunch at San Jalisco

The tour concluded with lunch at San Jalisco, owned by Dolores “Josie” Padilla-Reyes.  She took over the restaurant from her parents in the 1970s, but after rent was increased threefold, she had to close the café and reopen the eatery in its current location.  Concerned about being displaced again, she worked with the Mission Economic Development Agency (MEDA) to secure a loan to purchase her building, preventing further displacement.

Len Rogers, the owner of the Electric Bicycle Superstore, also joined the lunch.  He launched his small business in 2008 and it has grown steadily since then.  Len was denied by multiple banks for credit, making him a perfect target for expensive merchant cash advance companies. After struggling with unsustainable payments required by multiple predatory finance companies, he connected with Opportunity Fund, who refinanced him into an affordable, responsible small business loan.  Len was also a client of Renaissance Entrepreneurship Center, who helped him get a KIVA loan and provided consulting services through their Bayview Office.

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The lunch concluded with a “Happy Birthday” cake presented to the CFPB staff, since yesterday was the Bureau’s fifth birthday. In that short time, the agency has secured over $11 billion in relief for over 27 million consumers and handled nearly 1 million complaints.

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Testimony on Need for CIT Group and OneWest Bank to Develop Stronger CRA Plan

The testimony of Stephon Taylor, Director of Programs with California Resources and Training (CARAT), about the proposed OneWest and CIT Group merger, is featured in its entirety below. If you were unable to attend the hearing, CRC live-blogged it here and you may also find our CIT Group/OneWest Merger resource page help.  It outlines why 21,000 people are opposing this merger along with 100 California and national organizations. Pictures of the rally against the merger are available here.

February 26, 2015

Thank you for the opportunity to speak today.  I will keep my comments brief.

I am Stephon Taylor, Director of Programs with California Resources and Training (CARAT), a 19 year old economic development non-profit in California.  CARAT’s primary focus over the last 19 years has been research and development, and program design and implementation as it relates to Technical Assistance (TA) services for small businesses in underserved communities in California. CARAT provides technology solutions training to over 3,000 small businesses. The majority of the small businesses that we serve have less than $1 million in annual revenues and fewer than 10 employees.

California has a vast underserved population of small businesses needing access to capital as well as management and technical assistance (TA) support services to assist them in starting and sustaining their business operations.  They need affordable capital and appropriate financing vehicles.

The economic downturn in the country hit California as well and many of the existing businesses are still in need of restructuring and stabilization assistance. Additionally many people out of work turned to self employment as an option and need (TA) assistance to grow and expand their businesses.

My concerns around the proposed merger OneWest/CIT merger are as follows:

  1. Lack of banking access in LMI communities. Only two of the banks’ 73 branches are in low income census tracts, and one of those branches is slated to close post-merger. Our work with our small business constituency has shown that physical branch locations are a necessity. Mobile banking, while a great supplemental tool, is not a substitution for physical branches.
  2. The banks’ track record of performance related to community development. In the past, both OneWest and CIT have made minimal contributions to support technical assistance and economic development. Without a definitive and robust CRA plan to address those areas, I don’t see how the merger meets the “conveniences and needs” of the affected communities.
  3. The banks’ track record of performance related to small business lending. The majority of OneWest’s small business lending has been to businesses with over $1M in revenue, and they have not committed to serving smaller businesses. Their publicly stated goals to increase their lending to businesses with revenue under $1M have also fallen short of the mark.

In conclusion, my concern is that OneWest/CIT needs to bring products and services into California that fit the market needs of our small business owners, which aren’t adequately served by their current product mix.  My second concern is that there is a miniscule commitment, if any, to supporting, in a philanthropic way, economic development and business TA services that are needed.

California is always in need of more great corporate citizens. CARAT would welcome the opportunity to work with OneWest/CIT to meet the needs of the underserved small businesses within the state.

However, there is an immediate need for OneWest/CIT to develop a more robust, comprehensive and public CRA plan that details the commitments they will make to their California constituency.

I would urge that a philanthropic and community benefit commitment is made by OneWest/CIT to California that truly supports the needs of California Small Businesses.

OneWest Bank Small Business Lending Track Record: Testimony by Robert Villareal at Fed Hearing

Robert Villarreal’s testimony about the proposed OneWest and CIT Group merger is featured in its entirety below. If you were unable to attend the hearing, CRC live-blogged it here and you may also find our CIT Group/OneWest Merger resource page helpful as well. Pictures are available here.

Thank you for allowing my statement to be read into the record. My name is Robert Villarreal and I am the Senior Vice President of Community Development for CDC Small Business Finance. CDC is the largest SBA 504 and 7(a) Community Advantage lender in the country and it recognizes its responsibility to economic development and its communities. To that end, over the last 25 years CDC has created a number of small business lending products to serve small businesses located in low-moderate income communities and those owned by minority entrepreneurs. All of the lending through these programs is under $250,000

The small businesses that we serve with our programs were devastated by the Great Recession. Banks which eagerly, and sometimes recklessly, provided capital through 2007, suddenly went silent. Loans under $100,000, which have been proven to be effective in reaching minority businesses and those located in LMI neighborhoods, fell dramatically. In fact through 2013, loans under $100,000 have yet to reach one-third of their 2007 level. Here in Los Angeles, for example, loans under $100,000 from regulated financial institutions fell 68% between 2007 and 2013. But at least they are doing better than the Inland Empire, where similar lending dropped 72%.

While we believe that the large banks have failed the State’s small business community, at least some have made efforts to improve access to capital. However, one player absent in those efforts has been OneWest. In 2013 OneWest made zero loans; that is Zero loans for under $100,000 in California (FFIEC website). In that same year here in Los Angeles, only 8 loans were made under $250,000 and less than half the dollars funded were made to businesses located in LMI neighborhoods. In San Diego, where CDC is headquartered, no loans at all were made under $250,000 in 2013.

While it has failed to directly serve the small businesses discussed here, it has also done little to nothing in reaching out to mission-based lenders across its assessment area to support lending programs, technical assistance or referral initiatives; all programs which much smaller institutions readily participate.

OneWest and CIT have not demonstrated the integrity and commitment to the communities it is required to serve, yet it has benefited from the largesse of the US taxpayer. Therefore, I implore the Federal  Reserve to require that CIT and OneWest develop a comprehensive and publicly written CRA plan with commitments applicable to the size of the new bank and that also take into consideration the errors of their past and the benefits they have received from the public trust.

Thank you.

Community Letter to John Thain (CIT Group) and Joseph Otting (OneWest Bank)

Editor’s note: The letter below was sent to the CEOs of OneWest Bank and CIT Group, two banks who have proposed to the Federal Reserve to merge.  The California Reinvestment Coalition and its members and allies are concerned about the proposed merger and outline these concerns in the letter below:

 

September 16, 2014

Joseph Otting

OneWest Bank

 

John Thain

CIT Group

 

Dear Mr. Otting and Mr. Thain:

This letter is meant to suggest a framework for discussing how a combined OneWest/CIT Bank could effectively meet community credit needs by developing a strong and public Community Benefits and Reinvestment Plan with commitments proportional for a bank of its prospective size.

The California Reinvestment Coalition (CRC), based in San Francisco, is a nonprofit membership organization of over three hundred (300) nonprofit organizations and public agencies across the state of California. We work with community-based organizations to promote the economic revitalization of California’s low-income communities and communities of color. CRC promotes increased access to credit for affordable housing and community economic development, and to financial services for these communities.

We believe that strong partnerships with local community organizations, coupled with a strong Community Benefits and Reinvestment Plan that provides a roadmap for the bank’s planned CRA activity specifically geared to Southern California’s low and moderate income communities and communities of color, are essential components to the overall success of the bank’s CRA program and to its acceptance in the community.

We offer the following recommendations in the spirit of CRC and its members working to identify community needs and the appropriate reinvestment benchmarks for a bank of your size.  CRC and its members urge the Bank to agree to a 5 year Community Reinvestment and Benefits Plan that the Bank would file with the Federal Reserve Board as a supplement to your application. Plan components include:

  • The bank will set annual goals for total CRA activity (in the areas of lending, community development investing, contributions and financial services) that exceed 25% of California deposits.
  • The bank will devote at least .30% of deposits annually towards community development investments.  These community development investments could include affordable housing development, small business lending, and equity equivalents to California CDFIs, CDC’s and other non-profit community development funds. No more than half of community development investments should be for tax credits or mortgage backed securities. The bank should set a subgoal for community development investments targeted to affordable projects at or near transit stops that are being developed in LMI communities, and actively provide both residential and commercial loan products that inspire affordable developments.
  • The bank will set aside an initial $30 million philanthropic fund for community and economic development activities that target small businesses and families still hurting from the economic recession. Additionally, starting in year one, the bank will devote at least .030% of deposits annually towards contributions.  Of this amount, 60% or more will be towards housing and economic development activities that support low/moderate income people including organizations providing technical assistance to small businesses, fair housing or mortgage counseling, affordable housing development, and other similar activities.
  • The bank should commit at least 1% of deposits for community development lending that supports the construction and rehabilitation of housing that is deed restricted as to be affordable to very low, and low income households.
  • The bank should develop a one stop construction to permanent loan product for multi-family housing finance.
  • The bank should develop a line of credit for nonprofit housing developers to enable them to acquire properties, including REOs, for the benefit of borrowers, including low to moderate income first time homebuyers.
  • The bank will designate at least one staff person who will work with nonprofit groups representing homeowners seeking to secure loan modifications and/or Keep Your Home California program benefits.
  • The bank will develop a policy to prefer nonprofits and owner occupants in the sale of distressed loans and REO properties.
  • The bank will make available affordable mortgage loan products with flexible underwriting guidelines for families earning less than 120% AMI adjusted for family size. The bank should allow nonprofits, CDFIS and other affordable mortgage loan providers to become brokers through all of its distribution channels.
  • The bank should originate SBA loans to borrowers of color at a percentage that approximates their representation among businesses in the Bank’s assessment or service area, and continue to offer loans in smaller loan sizes.
  • An annual goal of half of the number of CRA-qualified small business loans shall be to businesses with annual revenue of less than $1 million or consist of loans less than $150,000 excluding credit card loans. Small business lending in LMI census tracts should approximate the % of businesses located in LMI census tracts with the bank’s assessment area.
  • The bank should develop a small business loan and technical assistance referral program so that businesses unable to qualify for small business loans from the bank can be referred seamlessly to local CDFIs and other nonprofit providers that may be able to make the loan and/or provide technical assistance in order to help borrowers better prepare themselves to qualify for conventional financing.
  • The bank will participate in the state’s small business Loan Guarantee Program.
  • The bank will develop a strong MWDBE vendor program and set a goal of 30% sourceabale spend, with at least 20% spending with MBE contractors.
  • The bank will ensure that CalWORKs recipients accessing their funds using Electronic Benefits Transfer cards will not be assessed a fee at OneWest/CIT Bank ATM machines.
  • The bank will develop a bank account that complies with CRC’s Safe Money standards.
  • The bank will commit that 30% of new branches established outside of a merger will be located in LMI census tracts.
  • The bank will sign the Plan, make the Plan public and file it with its application to merge.
  • The bank will meet annually with CRC and its members to report on progress in meeting the commitments in its CRA Community Benefit and Reinvestment Plan.
  • The bank will strive to have a diverse workforce that reflects the bank’s customer base.
  • The Bank will commit to having at least one representative from the Latino, Asian American and Pacific Islander, and African-American community on its board of directors within 3 years.

With a strong CRA plan in place, CRC and its members are willing and ready to work with the bank to further the bank’s CRA and overall business objectives.

We look forward to discussing this proposal with you further when we meet in September.  If you have any questions or would like to discuss further, please call Kevin Stein at (415) 864-3980.  We look forward to the ongoing dialogue on behalf of California communities.

Sincerely,

Affordable Housing Clearinghouse

ASIAN Inc.

Asian Pacific Islander Small Business Program

Asian Pacific Policy & Planning Council (A3PCON)

Business Resource Group

California Housing Partnership

California Reinvestment Coalition

California Resources and Training (CARAT)

CAMEO

Community HousingWorks

Community Housing Development Corporation

Community Housing Improvement Program (CHIP)

Consumer Action

East Los Angeles Community Corporation

Fair Housing of Marin

Greenlining Institute

Housing and Economic Rights Advocates

Housing Rights Center

Inland Fair Housing and Mediation Board

Korean Churches for Community Development

LA Voice

Los Angeles Local Development Corporation

Multi-Cultural Real Estate Alliance for Urban Change

Neighborhood Housing Services of Los Angeles County

Neighborhood Housing Services of Silicon Valley

NeighborWorks Orange County

Northbay Family Homes

NPHS, Inc.

Pacific Asian Consortium in Employment (PACE)

Public Counsel

Renaissance Entrepreneurship Center

Sacramento Housing Alliance

Strategic Actions for a Just Economy (SAJE)

Suburban Alternatives Land Institute

Valley Economic Development Corporation

Women’s Economic Ventures

 

Small Business Lending in California: Banks Still Aren’t Lending, Esp. to Minority and Women Small Biz Owners

CRC recently released its fourth report focused on small business lending, entitled: Small Business Access to Credit- The Little Engine that Could: If Banks Would Help.

Why does CRC care if the largest banks are lending to small businesses, especially those owned by women, Latinos, and African-Americans?

Beyond CRC’s mission of promoting equal and fair access to credit for low income communities and communities of color, and beyond the fact that demographics are changing rapidly in California, there are other reasons why access to small business loans is particularly important:

  • Minority-owned and women-owned businesses are more likely to hire people from their local communities;
  • Small businesses are a wealth-building tool;
  • Strong small businesses help strengthen local business districts; and
  • Small businesses are estimated to create two out of every three new jobs in the U.S.

To review a few figures from our December 2013 report, visit our press release:  New Report Finds 60% Drop in Small Business Lending

You can read CRC’s previous 3 reports looking at this issue here:

2010: Small Business Access to Credit

2007: Small Business Access to Credit

2003: Small Business Access to Credit

 

Small Businesses Can’t Get Loans from Banks

Today, the California Reinvestment Coalition released our fourth report analyzing the extent to which small businesses, especially those owned by women and minorities, are able to access critical loans from California’s largest banks.

Banks tightly restricted their lending as a result of the housing crash.  Despite hundreds of billions of dollars in subsidies from the federal government, banks are still hoarding their cash and not lending it to small businesses who historically have created 2 our of every 3 new jobs in the U.S.

A few statistics from our report today:

  • Only 2% (96 loans) of SBA 7a loans were made to businesses owned by African-Americans, 11% to Latinos (634 loans), and 14% to women (846 loans) in California for Federal Fiscal Year 2013.
  • Where overall SBA lending by the five banks dropped by 59 percent from 2007 to 2013, their lending to Latino-owned, African American-owned, and Asian- owned businesses dropped more dramatically– at 63 percent, 85 percent, and 64 percent, respectively.
  • Thirty percent of California businesses are owned by women and slightly over half of the population is women, however, loans to women-owned small businesses dropped from roughly twenty percent of all SBA 7a loans in federal fiscal year 2007 to just above fourteen percent in 2013.

The full report is available here: Small Business Access to Credit- The Little Engine that Could: If Banks Would Help

Join the discussion on Twitter: #smallbizca