A joint exercise by the Consumer Financial Protection Bureau and U.S. Department of Justice found that individuals posing as Black small-business owners allegedly received less favorable treatment than white individuals when applying for financing at various bank branches in Virginia and New York State. However, because of the limited scope of the study, the agencies warned against drawing conclusions about the general small-business lending market or specific financial institutions.
The agencies created identities for fictitious Black and white small-business owners and then sent testers out to 25 bank branches in each state. Unknown to bank representatives, the visits were audio recorded. According to a CFPB report on the findings, Black testers received less favorable treatment than white testers on measures of encouragement and discouragement to apply for financing. Also, in terms of small business loan products discussed and potential steering, bank representatives were more likely to discuss non-requested credit products — such as business credit cards or real estate-secured loans — with Black testers than with white testers.
However, the report warned that given the design and scope of the exercise, the findings should not be viewed as representative of the overall lending market or any individual financial institution. “These findings do, however, highlight the existence of differential treatment in small business lending,” the report states. “This research reveals evidence of — and provides a framework for detecting — differential treatment of well-qualified Black and white small business owners seeking credit at large bank lenders in select counties.”
