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Signs Of Discrimination In PPP Lending By Banks

By Anna Peel. Originally published at ValueWalk.

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More Tests And More Signs Of Discrimination In PPP Lending By Banks


Q3 2020 hedge fund letters, conferences and more

Discrimination In The PPP Bank Loan Application Process

Despite published evidence and widespread media coverage of discrimination in the Paycheck Protection Program (PPP) bank loan application process, a second round of tests over the summer showed discrimination continued.

Matched pair “mystery shopper” tests conducted by telephone by the National Community Reinvestment Coalition (NCRC), beginning in late July 2020, found that Hispanic and Black female testers experienced different levels of encouragement to apply for loans, different products offered and different information provided by bank representatives compared to White female testers. The testers experienced these differences through overt statements, discouragement and information asymmetry.

In the follow-up study, Hispanic, Black and White testers spoke directly with bank employees to inquire about loans to help their small businesses stay open during the pandemic. The tests were conducted over the telephone between July 27 and August 7, 2020, at the end of the second round of PPP lending, and more than two months after NCRC’s first round of testing. Testers called 60 bank branches representing 47 financial institutions in the Los Angeles, California, metro area.

The second set of tests

The second set of tests found no significant change or improvement in behavior of bank representatives compared to the first set of tests.

“The second set of tests showed that banks didn’t respond adequately to what we found in the first tests, and they didn’t listen well enough to the cries of the American public for racial equity,” said Jesse Van Tol, CEO of NCRC. “Banks have an obligation to follow the law, and ensure that their employees are not discriminating against potential customers. This is particularly vital now as we try to rebuild from an economic crisis that, like the pandemic, has disproportionately harmed people and communities of color.”

“President-elect Biden’s transition team has pledged to make economic recovery and racial justice a high priority. Stronger penalties for bad banks will help, but we also need stronger leadership from banks themselves, starting at the top. It’s mind-blowing that banks don’t have better training and better processes in place to avoid the kinds of discrimination we found. It looks like they just don’t care.”

Matched-pair testing is a method used to detect discrimination by using a pair of testers with different races (or other protected class) but similar profiles as a way to determine differences in treatment.

This new study underlines the need for policymakers and private sector lenders to take additional steps to prevent discrimination in lending, and for the Small Business Administration to release additional data on PPP borrowers

Read the full report:

https://ncrc.org/lending-discrimination-during-covid-19-black-and-hispanic-women-owned-businesses/

The post Signs Of Discrimination In PPP Lending By Banks appeared first on ValueWalk.

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