White small business owners in New York City received significantly better treatment from bank employees than Black and Latino business owners while inquiring about loans, a new report from the National Community Reinvestment Coalition (NCRC) found.
NCRC researchers sent White and non-White “mystery shoppers” with strong credit histories and nearly identical small business profiles to 34 New York City bank branches in the summer of 2022 to assess the state of small business lending after governments eased or eliminated most COVID-related business and personal behavior restrictions.
The White mystery shoppers were more likely to be offered assistance, greeted warmly and encouraged to complete an application by staff at banks ranging from small community lenders to major institutions holding over $10 billion in assets.
“The same industry currently suing to prevent implementation of basic data collection rules for small business credit activity is flagrantly discriminating against Black and Latino business owners,” said Jesse Van Tol, President and CEO of NCRC. “It’s not just upsetting, it’s illegal. Everyone should be treated equally and with respect when they approach a financial institution for the capital they need to grow their business and provide for their family’s future. Try as they might to evade accountability in court, banks won’t be able to keep small business lending discrimination a secret forever, as investigations like this one demonstrate to regulators that discriminatory banks won’t clean up their act until the government forces them to.”
Bank staff stood up to greet White customers more than 80% of the time, but stayed seated 75% of the time when the prospective applicant was Black. Staff thanked testers for coming in 75% of the time with both White and Black participants, but barely 20% of the time when speaking with a Latino business owner. Staff overtly encouraged White mystery shoppers to apply for a loan 81% of the time, compared to just 43% for the aggregate of NCRC’s non-White testers. These numbers track closely with those found in a previous 2021 NCRC mystery shopper study of small business lender behavior.
Preferential treatment of customers by race was not limited to the social niceties described above. Staff also asked Black and Latino testers for much more documentation and were significantly more likely to offer personal help filling in forms when the prospective borrower was White.
NCRC’s testers had more than 100 individual interactions with staff at 28 different financial institutions. Staff engaged in discriminatory conduct in 37 of those interactions. The full report breaks down the details of these numbers. It also includes recommendations for how banks and policymakers can act to cure these deficiencies.
