Story at a glance
- A study found that white applicants looking to secure Paycheck Protection Program (PPP) loans were treated more fairly than Black applicants in the D.C. area.
- A second test in Los Angeles confirmed the initial results: White Paycheck Protection Program borrowers were treated better than Black and Hispanic borrowers.
- Discrimination in lending is a violation of the Equal Credit Opportunity Act of 1974.
Back in July, a nonprofit sent Black and white borrowers with similar credit and assets to banks in the Washington, D.C., area to secure Paycheck Protection Program (PPP) loans, which the Small Business Administration has offered to forgive if all businesses use the money to keep their employees on the payroll. Then, they tried it again — this time in the Los Angeles metropolitan area.
The results revealed what Black, Indigenous and Americans of color know from personal experience: White people — especially white men — are treated better.
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“The tests show that old patterns of systemic discrimination in lending didn’t magically disappear when banks made PPP loans,” Jesse Van Tol, CEO of the National Community Reinvestment Coalition, said in a statement after the initial results were published. “Banks still have a long way to go to root out discrimination, and clearly they need better training for their employees and more testing to create internal checks and internal pressure to drive out racist practices.”
Out of 60 tests with 47 different financial institutions from July 27 to Aug. 7, the last two weeks that federal Paycheck Protection Program (PPP) loans were available to businesses affected by the coronavirus pandemic, white testers were favored over either or both Black and Hispanic testers 35 percent of the time, the study concluded. Women were more likely to be treated differently based on race or national origin than men, according to the study, with Black women treated significantly worse than both white and Hispanic women.
“Women-owned businesses are vital to the sustenance of a strong and growing economy,” said the authors of the study, which included Anneliese Lederer, Director of Fair Lending and Consumer Protections, and Sara Oros, Program Coordinator of Fair Lending and Fair Housing.
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The differences could also be in violation of the Equal Credit Opportunity Act of 1974, which was passed to allow women to obtain credit cards without needing a man to sign off. The act prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age or because you get public assistance. Still, discrimination persists and the study revealed the added barriers non-white Americans face as they fight to stay afloat during the COVID-19 pandemic, which has taken a disproportionate toll on BIPOC communities.
At one financial institution, the study reported, the Black female tester was told “that my business was not the type of business they would do loans for and he stated that [X type of business] was not a stable business to be in. He spoke in a negative manner about my business saying that I would probably have some difficulty getting a loan.”
But discrimination isn’t always overt and the tests revealed subtle differences in treatment that contributed to the overall results. In another test, a loan officer gave a white tester information about a business loan, but told the Black tester that “their bank is not offering any type of business loans” and suggested they go through a larger bank.
“As the COVID-19 pandemic persists and the economy continues to suffer, our tests revealed that lending discrimination is still playing a role in minority and women-owned businesses not being able to access help from financial institutions to keep their businesses open. The differences in treatment observed in this round of testing confirm that there is still not enough being done to ensure that all equally qualified business owners have equal access to credit,” the study concluded.
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