On November 13, 2024, the CFPB released a study revealing significant disparities in how lenders treat Black and white small business owners seeking loans. The study was a result of a matched-pair testing conducted by the CFPB and the DOJ to test for and detect differential treatment of fictitious well-qualified Black and white small business owners seeking credit at large bank lenders in two counties.
The CFPB conducted matched-pair testing with trained individuals posing as small business owners seeking credit. Black participants were given slightly more favorable financial profiles than white participants, with both groups often meeting the same bank representative during the tests. A study of the test results by the CFPB examined four key aspects of the loan inquiry process: encouragement or discouragement to apply for a loan; information provided about requested loan products and potential steering to other products; the overall quality of treatment or customer service; and the amount of business and credit information requested.
The research found that:
Black participants received less encouragement to apply for a loan. Black test participants received significantly less encouragement to apply for loans. Lenders showed interest in 40% of white participants' applications compared to only 23% of Black participants. Furthermore, Black participants felt less encouraged to apply than their white counterparts, highlighting a pattern of reduced support for Black entrepreneurs.
Lenders were more likely to suggest credit cards and home equity loans to Black business owners. Lenders were more likely to suggest alternative credit products to Black participants than white participants. Specifically, 59% of Black participants were discussed alternative options like personal credit cards and home equity loans, compared to 39% of white participants.
The CFPB reminds institutions that lenders that engage in illegal discrimination can be subject to penalties and other sanctions under the Equal Credit Opportunity Act.
The CFPB’s press release can be found here.
The full report can be found here.
