Yesterday, the CFPB (Consumer Financial Protection Bureau) released a study revealing disparities in how lenders treat Black and white small business owners seeking loans.
CFPB Director Rohit Chopra said, “The results of our secret shopping are consistent with the longstanding concerns that small business loan borrowers experience different treatment based on their race. Fair access to small business loans is essential for the success of our economy.”
Key Findings from the Study
The CFPB’s study focused on 50 bank branches in two counties—Fairfax County, Virginia, and Nassau County, New York—where trained individuals posed as small business owners seeking loans. The research found troubling patterns in the lending process, particularly in how Black business owners were treated:
- Less Encouragement to Apply for Loans
One of the most concerning findings was that Black entrepreneurs were significantly less likely to be encouraged to apply for loans. Only 23% of Black participants were encouraged to apply, compared to 40% of white participants. This suggests that Black business owners may face subtle discouragement when attempting to access traditional small business financing. - Steering Toward Alternative Credit Products
Another finding was that lenders were more likely to suggest alternative credit products, such as personal credit cards and home equity loans, to Black participants. These products were discussed with 59% of Black participants, compared to only 39% of white participants. This suggests that Black business owners may be steered toward less favorable and potentially more expensive credit options. - Differences in Customer Service and Information Exchange
Although the study did not provide specific details about customer service, the findings point to a broader pattern of unequal treatment. Black participants were less likely to receive the same level of detailed information about loan products as their white counterparts, further hindering their ability to make informed financial decisions.
You can find the full 57-page report here.
While this study is limited to just two counties, its implications are wide-reaching. The CFPB’s findings make it clear that racial disparities in small business lending persist and reinforces that lenders engaging in illegal discrimination can be subject to penalties and other sanctions under the Equal Credit Opportunity Act.
With Section 1071 and new data collection rules on the horizon, as well as a new administration, we’ll keep you up to date with any changes or updates you’ll need to meet compliance expectations.