Next City:‘Secret Shopper’ Tests Find Possible Evidence of Bias in Small-Business Lending (Again)

There is new evidence showing that black business owners — as well as Hispanic business owners — are treated differently than non-Hispanic white business owners when they approach banks for a loan. Using the same “secret shopper” methodology often employed to discover racial discrimination in the housing market, the new research, published this week, shows banks asking more questions and requesting more information up front from black or Hispanic business owners compared to white business owners — even if the black or Hispanic business owners come in with slightly stronger business profiles.

“We know that when it comes to things like denial disparities, from the point of actually applying for a loan, there are disparities by race and gender, but this is really pre-application, what’s the experience of minority-owned businesses in even inquiring about a bank loan,” says Jesse Van Tol, CEO of the National Community Reinvestment Coalition (NCRC), the national network of bank watchdog and community development groups that commissioned the new research.

It’s the second time that NCRC has done a “secret shopper” test of small business lending. The first test took place in the Baltimore metro area and had similar findings. Both studies came at crucial moments for federal agencies in the process of implementing or tweaking regulations around banks and other small business lenders. The 2017 Baltimore study came out at a time that the Consumer Financial Protection Bureau was taking comments on how to implement a rule around reporting requirements for small-business lenders, a rule that would, in theory, shed more light on discrimination in lending — a rule that still has not been implemented. This new study could help shape the debate around the modernization of the Community Reinvestment Act. It also comes at a moment where, NCRC hopes, it can help inform the debates and narratives ahead for the 2020 presidential campaign.

“Part of the reason for this is to create a little more awareness and hold politicians accountable for these kinds of statements that they tend to make on the campaign trail around the importance of small business to the economy,” Van Tol says.

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