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January 31, 2023 – Accion Opportunity Fund (AOF), the nation’s leading nonprofit lender providing small businesses with access to responsible capital, networks and coaching, has published its public policy priorities for the 118th Congress in an effort to help small business owners thrive in a challenging economy.

During the pandemic, lawmakers from both sides of the aisle worked together to pass key legislation to help overlooked and underfunded small businesses gain access to capital. These efforts included allocating unprecedented funding for the Community Development Financial Institutions (CDFIs) Fund, re-initiating the State Small Business Credit Initiative, and issuing billions of dollars in relief via the Paycheck Protection Program.

AOF hopes the 118th Congress will broaden small business support by: 1) increasing capital for underfunded entrepreneurs using public-private partnerships, which have proven effective at driving capital into the hands of underinvested small business owners and their communities; 2) finding ways to reach entrepreneurs across state lines without incurring additional regulatory burden; and 3) providing small businesses with the same borrower protections that individuals are due when accessing consumer credit.

“Policymakers have an opportunity to expand on the success of programs established during the pandemic,” said Dr. Joshua Miller, Vice President of Policy and Research at Accion Opportunity Fund. “For the 118th Congress, we envision a legislative session that builds upon the bipartisan progress made to support our nation’s most underinvested entrepreneurs. Accion Opportunity Fund is pleased to present our vision and strategy for a more fair and equitable financial system.”

Miller and AOF staff met with members of the Senate Community Development Finance Caucus (CDFC) throughout the month of January to discuss AOF’s priorities. The bipartisan caucus was formed last year and is dedicated to supporting the missions of Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) to scale their activities and fuel more lending in low- and moderate-income (LMI) communities.

Read AOF’s public policy priorities for the 118th Congress now.

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About Accion Opportunity Fund

Accion Opportunity Fund

works to create an inclusive, healthy financial system that supports the nation’s small business owners by connecting entrepreneurs to affordable capital, educational resources, coaching, and networks. Through innovative partnerships and outreach strategies, we reach entrepreneurs of color, low-income entrepreneurs, and women, who often lack access to the financial services they need to build and grow their businesses. Accion Opportunity Fund Community Development is the lending arm of Accion Opportunity Fund, California Finance Lender license #6050609. Visit our website to learn more about business growth resources and funding opportunities.

Explore Our Small Business Loans

In October 2020, the Federal Reserve Board issued an Advance Notice of Proposed Rulemaking (ANPR), inviting public comment regarding their proposed updates to the Community Reinvestment Act (CRA). The CRA was a landmark response to redlining, a persistent pattern of discrimination in bank lending that harmed communities of color. It encourages banks to provide appropriate access to capital and credit to minority, low- and moderate-income (LMI) people and communities. We strongly support the original intent of the CRA, while acknowledging there are aspects of the law and its administration that could be improved to reflect current banking trends and maximize impact.

We identified a number of positive recommendations in the Federal Reserve’s proposal; however, we also found areas that could be further strengthened:

• Allow banks to receive CRA credit for loans, investments, grants, or services in conjunction with CDFIs across the country.
• Small business loans should continue to be defined as those under $1 million and small businesses should be defined as those with gross annual revenue under $1.65 million.
• Banks do not discriminate against and are held accountable for meeting the needs of
  minority and LMI communities that they conduct business in.
• The Board ensures economic development definitions under the CRA are truly guiding banks to help serve underserved small businesses.

Lastly, any new policy proposal, and particularly a proposal of this magnitude, should be grounded in data and evidence. To our knowledge, the two other CRA regulators, the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) have not shared any evidence demonstrating the likely impact of their proposed reforms on the type and scale of CRA activities.

The Federal Reserve, on the other hand, has conducted a detailed analysis of how their proposed CRA reform framework would impact CRA lending before and after.

Therefore, we urge the Federal Reserve to place the proposed CRA rulemaking on hold until the OCC, FDIC and the Federal Reserve come together and present a common interagency proposal.

Given the COVID-19 pandemic and its long-term implications, it is crucial that banks are incentivized and held accountable to invest and engage in truly impactful activities that help minority and LMI communities and the economy recover from this multi-lateral crisis.

As we have seen, people in minority and LMI communities are at a higher risk than those in wealthier communities of losing their jobs, homes and businesses when the economy weakens, and depend on banks to engage responsibly to deliver capital to communities across the country. The CRA is critical in ensuring our nation’s equitable recovery, and it’s of the utmost importance that any updates are grounded in data, serve the original intent of the CRA and demonstrate positive impact for underserved communities.

Read our letter in full here.

Explore Our Small Business Loans

Luz Urrutia, CEO of Accion Opportunity Fund, had the opportunity to participate as a Small Entity Representative in the Consumer Financial Protection Bureau’s (CFPB) Small Business Regulatory Enforcement Fairness Act (“SBREFA”) panel. The panel was convened in October 2020 to provide perspective regarding the small business implications of the CFPB’s forthcoming Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act final ruling.

Small business ownership drives economic mobility, creates jobs, and sustains families and communities. Yet entrepreneurs of color, low-income individuals, immigrants, and women are disproportionately denied vital capital and support. After 10 long years, the CFPB is taking steps to propose a final rule for the implementation of Section 1071. Section 1071 seeks to better understand the small business lending landscape and assess the needs of small businesses seeking affordable and responsible financing.

Opportunity Fund has been a strong advocate for a rule that is broad and expansive with minimal exemptions, covers a broad range of products and collects pricing data in the form of APR. Greater transparency will help the small business lending ecosystem better serve small businesses. Implementing Section 1071 will help lenders across the country, including Opportunity Fund, better connect underserved entrepreneurs to working capital and resources in order to build a more inclusive economy for everyone.

During the panel, CEO Luz Urrutia advocated for a rule that includes all financial institutions and products (including merchant cash advances, factoring and leasing) sought out by small businesses. She underscored that a pricing data point in the form of APR needs to be collected to understand what products are offered to whom and at what cost.

To read our official written feedback following the CFPB Section 1071 SBREFA Panel click here.

To learn more about the CFPB’s small business lending data collection rulemaking and the SBREFA Panel click here.

 

Luz speaking at the Consumer Financial Protection Bureau Symposium: Section 1071 of the Dodd-Frank Act on November 6, 2019. Washington, D.C.

Individual consumers are protected by the Truth in Lending Act (TILA), which requires transparent disclosure of loan terms, fees, and annual percentage rates (APR) of loans. Small businesses, however, are not covered by this law, leaving them vulnerable to misleading or irresponsible lending practices.

For years, Accion Opportunity Fund (AOF) has been concerned by the lack of transparency provided to small businesses seeking financing – a problem requiring urgent action, particularly in light of COVID-19’s detrimental impact on small businesses. Businesses are desperately searching for financing to bridge losses in revenue due to the pandemic, cover immediate expenses, and avoid closure.

In 2016, Opportunity Fund conducted a study on the prices charged by short-term, high-cost alternative lenders and found that businesses were charged average APRs of 94%, and up to 350%, without those APRs ever having been disclosed to the borrowers. Particularly during this time of crisis, choosing an unaffordable financial product could be the difference between success and failure for small businesses that are already closing at high rates due to COVID-19-induced business interruptions. Without transparent disclosures, small business owners of color are disproportionately impacted by high-cost predatory lenders. Small businesses are critical to the health and vibrancy of our local and national economy. We must help them succeed.

AOF is a founding member of the Responsible Business Lending Coalition (RBLC), a unique cross-sector coalition of nonprofit and private-sector fintech lenders and advocacy organizations, that have worked together since 2015 when the RBLC published the Small Business Borrowers’ Bill of Rights. These Rights represent the first cross-sector consensus on responsible small business lending standards and have been endorsed by over 100 nonprofit and private-sector organizations. Below you will find an update on our TILA advocacy efforts in California, New York and Washington, D.C. which have all been guided by these rights.

California – Commercial Financing: Disclosures

California is on the verge of implementing the first financial protection bill in the nation for small business owners, a cause that AOF has championed since the law was introduced in 2018. In a strong bipartisan manner, California was the first in the nation to establish Truth-in-Lending laws to protect small business borrowers by passing SB-1235. For the past two years, AOF has been working closely with the California Department of Business Oversight (DBO), now the-soon-to-be Department of Financial Protection and Innovation (DFPI), on regulations to implement this law.

Status: Pending final rulemaking and implementation by the newly established DFPI.

New York – Small Business Truth in Lending Act

 

AOF and the RBLC worked closely with Assemblyman Kenneth Zebrowski and State Senator Kevin Thomas to build on our policy efforts in California to bring stronger protections to small business owners in New York state. Unlike the regulatory back and forth in California, New York’s Small Business Truth in Lending Act includes many of the policies needed to protect small businesses in statute, like disclosure of annual percentage rates (APR). The bill passed the New York State Legislature in July 2020, again, in an overwhelmingly bipartisan manner.

Status: Awaiting Governor Andrew Cuomo’s signature.

Federal – Small Business Lending Disclosure and Broker Regulation Act of 2020

In July, Congresswoman Nydia Velázquez, the Chairwoman of the House Small Business Committee, introduced new legislation aimed at protecting small business borrowers from predatory lenders and loans carrying unfair terms and conditions. This historic federal bill builds upon our state advocacy efforts and includes many protections enjoyed by consumers through the Truth in Lending Act.

If passed and enacted into law, we project this bill will bring over $3.8 billion in savings for nearly 800,000 small businesses annually, including hundreds of millions in savings for over 158,000 minority-owned small businesses. We encourage leaders in Congress to work together to pass this historic law, prioritizing the needs of small business owners across the country.

Status: Introduced in July 2020. Transparency in Small Business Lending hearing held on September 9, 2020.

 

May, 21 2020 Update:

On May 20, 2020, the Office of the Comptroller of the Currency (OCC) announced its final rule on the agency’s regulations under the Community Reinvestment Act (CRA), just 40 days after the public comment period ended.

The Federal Reserve did not join the OCC and the Federal Deposit Insurance Corporation (FDIC) in the rulemaking process. Notably, the FDIC did not endorse the final OCC rule, creating an even more uncertain regulatory environment that was dependent on their assigned regulator, banks will be evaluated under one of three different CRA standards.

On May 21, 2020, only one day after the final CRA rule was released, Comptroller Joseph Otting announced his resignation, leaving with a weakened CRA that reduces investment in low- and moderate-income communities as his legacy.

An initial summary of the final rule from our colleagues at the National Community Reinvestment Coalition can be found here.

Accion Opportunity Fund submitted a letter in response to the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation’s (FDIC) proposed reforms to ‘modernize’ the Community Reinvestment Act (CRA). This is our official statement on their proposed changes to the CRA. 

In addition, given the current COVID-19 pandemic, Accion Opportunity Fund expressed that it is crucial that we not distract banks with new regulatory changes at this time. They should be focusing on investing and engaging in activities that truly help LMI communities and the economy recover from this health and economic crisis.

The OCC and FDIC’s proposed reforms to the CRA threaten to weaken the historic civil rights law aimed at encouraging banks to invest in low-and-moderate-income (LMI) communities and small businesses.

The CRA was created to combat the negative effects of discrimination in lending, and while the problem of discrimination persists, the CRA has been remarkably effective. We believe the proposed reforms would significantly dilute the importance of CRA ratings and fail to ensure a sufficient flow of capital into underserved communities — especially communities of color, immigrant communities, and rural parts of the nation.

Accion Opportunity Fund has received $84 million in CRA-motivated investments from banks since 1994, which in turn has allowed us to originate nearly $500 million in small business loans to underserved, LMI entrepreneurs. This means that, through Accion Opportunity Fund alone, our CRA-funded lending activity has generated almost $1 billion in new, annual economic activity. 

While Accion Opportunity Fund agrees the CRA needs modernization, any reforms must strengthen its congressionally-mandated purpose of supporting LMI communities, which is needed more than ever due to widening income inequality and the COVID-19 crisis. Our letter to the OCC and FDIC expressed the following concerns that negatively impact small businesses and community development financial institutions:

• Small businesses should be prioritized and not redefined
• Day-to-day bank operations should not be rewarded at the expense of LMI communities
• Overly simplistic metrics incentivize fewer, bigger development projects
• Banks can fail to serve LMI communities in most of their assessment areas and still get a passing CRA rating
• New deposit-based assessment area categories won’t bring resources to LMI communities
• Double credit for CDFI activities reduces investments while still rewarding banks
• CRA reform needs to be grounded in data and built on consensus

Additionally, Accion Opportunity Fund in collaboration with Small Business Majority submitted a letter to the OCC and FDIC from almost 200 small business owners stating that small businesses should be prioritized and not redefined.

Furthermore, Accion Opportunity Fund New Market Tax Credits (NMTC) partners, Coachella Valley Rescue Mission, Compass, Little Tokyo Service Center, Ravenswood Health Center, RYSE Youth Center, and the Santa Barbara Rescue Mission submitted individual letters expressing their concerns regarding how proposed reforms to CRA qualifying activities and performance standards would harm the NMTC program that they depend on to bring high-impact development projects to transform their communities.

To view all the comment letters submitted to the OCC and FDIC, you may visit the Federal Register page. 

Earlier this week, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) released their plan to modernize the Community Reinvestment Act (CRA). The two governing bodies are soliciting feedback on their proposals, due mid-February. This is our first statement on the proposed changes; we will be submitting a formal comment letter in response before the February 2020 deadline.

The Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation’s (FDIC) proposed changes to the Community Reinvestment Act threaten to weaken the historic civil rights law aimed at encouraging banks to invest in low-to-moderate-income communities and small businesses.

Based on our initial read of the proposed changes, the reforms would significantly dilute the importance of CRA ratings and fail to ensure a sufficient flow of capital into underserved communities — especially communities of color, immigrant communities, and rural parts of the nation.

One prime example is a proposed definition of ‘small business loan’ that is completely out of touch with the needs of underserved entrepreneurs. Seventy-six percent of American small business owners who are seeking financing seek a loan of less than $250,000. By giving CRA credit for business loans of up to $2 million, and by making total dollars lent the primary measure for CRA credit, this proposal gives banks even less incentive to make the smaller loans a majority of small business owners truly need.

Meant to usher in the modernization of the CRA, these proposed changes resemble deregulation instead. What’s more, without the participation of the third major bank regulator, the Federal Reserve, the result will be confusion and inconsistency, rather than the stated goal of increasing transparency and consistency.

Changes that would weaken the CRA could result in the loss of up to $16 billion in small business lending to low- and moderate-income areas over five years, according to a forecast by the National Community Reinvestment Coalition.

The reforms don’t modernize the CRA, they jeopardize it. The CRA was created to combat the negative effects of discrimination in lending, and while the problem of discrimination persists, the CRA has been remarkably effective. While Accion Opportunity Fund agrees the CRA needs modernization, any changes must strengthen its congressionally-mandated purpose of supporting low- and moderate-income communities, which is needed more than ever due to widening income inequality.

Accion Opportunity Fund has received $84 million in CRA-motivated investments from banks since 1994, which in turn has allowed us to originate nearly $500 million in small business loans to underserved, low- and-moderate income entrepreneurs.

 

Luz Urrutia, CEO of Opportunity Fund, spoke at the Consumer Financial Protection Bureau Symposium: Section 1071 of the Dodd-Frank Act on November 6 in Washington, D.C. where she discussed the current state and future outlook of the small business lending marketplace and the urgent need for the CFPB to begin collecting data from commercial lenders in order understand the scope of predatory lending affecting small businesses.

Section 1071 of the Dodd-Frank Act requires the CFPB to collect data in certain circumstances involving credit applications made by women- or minority-owned businesses and small businesses. However, in the 10 years since the passage of Dodd-Frank, the CFPB has failed to begin the process of writing regulations to do so. We have called on the CFPB to begin collecting data from small business lenders before, during, and even after Luz’s service on the CFPB Consumer Advisory Board.

During her remarks, Luz argued that “We cannot ignore the cost of small businesses not getting access to the capital they need that is responsible and affordable. They’re bearing a lot of this burden, and we’ve seen firsthand what happens when businesses don’t get the capital they need.”

At Opportunity Fund, we see firsthand both the meaningful contributions that these business owners make to their local communities and the economy, as well as the challenges they face in accessing responsible and affordable capital in an evolving marketplace. Thorough data collection of small business financing can benefit all stakeholders—industry, regulators, and, ultimately, American small business owners.

You can read Luz’s written testimony here.

California is on the verge of implementing the most significant financial protection bill in the nation for small business owners, something Accion Opportunity Fund has been advocating for many years. We are proud to be part of a broad coalition of lenders, nonprofit groups, and small businesses urging state regulators to strengthen proposed regulations so they are structured in a way to best support small businesses.

The proposed regulations recognize that small business financing has changed. Many small businesses now commonly pay effective APRs of higher than 90%—sometimes as high as 350%—without these rates ever being disclosed to them. While the federal Truth in Lending Act requires consumer creditors to disclose key information about transactions in a clear and comparable way, no such national standard exists to protect the millions of small business owners seeking financing to grow their businesses.

We were very pleased to see the following included in the first round of proposed regulations:

• APR or Estimated APR disclosed for all small business financing products
• Total Payments Per Month or Projected Payments Per Month disclosed in dollars
• Prepayment language included preventing hidden prepayment penalties

We also identified ways to strengthen the proposed regulations, including:

• Clarify that disclosures must be presented as soon as possible and in time for comparison shopping, not at a “final loan offer” after it is too late.
• Modify the proposed method for calculating the Estimated APR for sales-based transactions to ensure that providers’ flexibility in required estimations is paired with sufficient accountability.
• Clarify the disclosure responsibilities of brokers.
• Clarify the method of APR calculation for lines of credit.
• Clarify required and prohibited language in the disclosure form.
• Clarify flexibility in disclosure formatting.
• Require disclosures of both APR and amount of funds provided in order to include all costs associated with financing renewals.
• Offer online APR calculation aids to ensure greater transparency.
• Establish a public complaint portal to support monitoring.

Other state and federal policymakers will look to California as a model, so it is particularly important that we get it right here in the Golden State.

As a founding member of the Responsible Business Lending Coalition (RBLC), Accion Opportunity Fund is elated to see that Representatives Phillips (D-MN), Timmons (R-SC), and Velazquez (D-NY) have introduced a bipartisan resolution in support of the RBLC’s Small Business Borrowers’ Bill of Rights.

H. Res. 370 is a colossal step in moving the industry towards greater transparency and fairness, and the timing of the resolution could not be better as it coincides with National Small Business Week.

Small business owners across the country have found themselves in the crosshairs of predatory lenders after traditional lenders tightened their lending practices post-recession. Abetted with a profound lack of protections and clarity in the small business lending industry, these bad actors offer products with an average APR of 94%, with one reaching an astounding 358%.

“Small businesses are a critical component of America’s competitiveness, and Congress should work to promote an environment in which they can thrive.” – Representative Timmons

The RBLC developed the Small Business Borrowers’ Bill of Rights in 2015 after observing the rise in irresponsible business lending. Our coalition of for-profit and non-profit organizations is committed to propelling innovation in small business lending, with a focus on making affordable credit more accessible to business owners across the country.

The tenets of the Borrowers’ Bill of Rights include:

• The Right to Transparent Pricing and Terms
• The Right to Non-Abusive Products
• The Right to Responsible Underwriting
• The Right to Fair Treatment from Brokers
• The Right to Inclusive Credit Access
• The Right to Fair Collection Practices

From H. Res. 370 to California’s SB-1235, the first truth-in-lending act enacted in the nation, Accion Opportunity Fund and the RBLC will continue to advocate and work towards greater small business protections across the country.

For more information on the bi-partisan resolution, please visit the official press releases from the RBLC and the Office of Representative Phillips.

The Responsible Business Lending Coalition (RBLC), a group of non-profit and for-profit leaders and small business advocates, joined together in 2015 to protect main street from irresponsible small business lending. On May 2^nd, the group was honored by the California Reinvestment Coalition in Oakland with a Community Heroes Award.

 

Left to right: Gabriel Villarreal of Accion Opportunity Fund, Heidi Pickman of CAMEO, Kurt Chilcott of CDC Small Business, Louis Caditz-Peck of LendingClub, Brian Pifer of Small Business Majority, Gwendy Brown of Opportunity Fund, Paulina Gonzalez of California Reinvestment Coalition.

The RBLC was recognized for successfully leading an effort last year to pass California’s SB 1235, the nation’s first truth-in-lending law for small business financing. Gabriel, our Senior Policy Advocate, accepted the award alongside Heidi Pickman of CAMEO; here are his remarks in full:

 

Good evening everybody. My name is Gabriel Villarreal, Policy Advocate at Accion Opportunity Fund, and I am honored to accept this award on behalf of the Responsible Business Lending Coalition.

The RBLC is a group of private sector and not for profit lenders and advocates who all believe that small business owners deserve access to responsible, affordable capital.

Our coalition includes Accion Opportunity Fund, Accion, the Aspen Institute, LendingClub, Funding Circle, Community Investment Management, and Small Business Majority.

 

 

SB-1235, the Small Business Truth in Lending Act, that we and many of the people gathered here helped pass, represents a monumental step forward in the protections available to small business owners in CA who need capital to run and grow their businesses.

We know that small business ownership can be a path to economic security for many underserved communities, but what often doesn’t get talked about is the why. Running a business is hard, so why do people do it?

The answer, more often than not, is an economic necessity. This is what people need to do in order to provide for their families.

Policy can often be viewed as monolithic and unrelatable, so allow me to provide some context.

My grandfather, Roberto Villarreal, immigrated to the US from Mexico in the late 1940’s at the age of eighteen and settled in San Diego. He used to tell me that he came here with no language and no connections, only a desire to support his family.

That desire led him and my grandmother to become two of the first Latino franchise owners in the US, owning and operating a Jack-In-the-Box just feet from the San Diego-Tijuana border.

Owning that Jack-In-the-Box established a degree of economic stability for my family that has echoed across generations. It made my father’s and, later, my education possible.

Running a business requires perseverance, yes, but it also requires capital. For families without vast amounts of material wealth, this capital is often acquired from outside sources. In the US, being poor is expensive and it means you often only have access to high-cost financial products.

Everyday, small business owners like my grandparents access financing from lenders who seek to obscure the cost of their products and take advantage of the urgency of small business owners’ capital needs.

At the most basic level, borrowers, like my grandfather, deserve to know how expensive their financing options are.

Because of SB-1235, these disclosures, for the first time ever in the history of the United States, now exist in California.

This bill has ignited a movement across the United States from the Golden State all the way to New York and DC. California was step number one. Many of you here including the CRC team played a key part in making this bill possible. Thank you.

RBLC members alongside community partners who played major roles in helping to pass SB-1235.

Press release.