There are disparities between how lenders treat Black and white small-business owners seeking loans, according to a recent Consumer Financial Protection Bureau (CFPB) study.
Trained individuals posing as small-business owners seeking credit visited 25 different bank branches in Fairfax County, Va., and 25 branches in Nassau County, N.Y., for a total of 100 in-person test visits. Visits were audio recorded, and participants completed a survey after their bank interactions to documented their experiences.
For the test, Black participants were assigned slightly more favorable financial profiles, and at many branches the black and white participants met with the same bank representative.
“The results of our secret shopping are consistent with the longstanding concerns that small business loan borrowers experience different treatment based on their race,” CFPB Director Rohit Chopra said. “Fair access to small business loans is essential for the success of our economy.”
Disparities were found in two key areas:
Lenders expressed interest in applications from 23 percent of black participants compared to 40 percent of white participants. Black participants also felt less encouraged to apply for loans.
Lenders suggested alternative credit products, such as personal credit cards and home equity loans, to 59 percent of Black participants compared to 39 percent of white participants.