Racial bias cited in fed stimulus loans

Black business owners are more likely to be hindered in seeking coronavirus financial aid than their white peers, a new study has found.

The study looked at how more than a dozen Washington-area banks handled requests for loans under the federal government’s Paycheck Protection Program. It was conducted by the National Community Reinvestment Coalition, a nonprofit in Washington, in partnership with researchers from universities in Utah and New Jersey.

Between late April and late May, the researchers and the nonprofit, which advocates for better access to capital for low-income and minority communities, sent pairs of would-be loan applicants to branches of 17 banks. In each pair, a Black borrower and a white borrower shared similar credit and asset characteristics, so the only difference between them was their race. To make the study more conservative, the researchers gave each Black borrower a slightly better financial profile than his or her white counterpart.

The Black borrowers were offered different products and treated significantly worse by employees than white borrowers were in 43 percent of the tests, the study found. Of the 17 banks, some of which were tested through multiple branches, 13 had at least one test in which a white borrower was treated better than his or her Black counterpart. In the rest of the tests, the pairs were treated relatively equally or the difference wasn’t significant enough to count as a violation of fair lending laws, in the researchers’ view.

Critics of the $660 billion program — which was intended to prop up small businesses through forgivable loans — have said that its structure was likely to perpetuate historical inequalities in the financial system, where Black Americans have struggled to obtain credit and capital.

Since the government didn’t begin collecting data on the race and gender of aid recipients at the outset, it is nearly impossible to use data recently released by the Treasury Department to determine whether Black business owners were approved for loans as often as white business owners.

The study published last week — conducted by Sterling Bone, a marketing professor at Utah State University; Glenn Christensen, a marketing professor at Brigham Young University; and Jerome Williams, a business professor at Rutgers University — shows that Black borrowers were at a disadvantage even before they submitted a loan application.