Black/Hispanic men seeking business loans faced more scrutiny than whites

[essentialsaltes]

Black and Hispanic men seeking small business loans faced more scrutiny and worse treatment from bank officers than less qualified white men, according to a study released this week by the National Community Reinvestment Coalition.

The organization sent teams of white, black and Hispanic “mystery shoppers” who acted as prospective borrowers to evaluate customer service interactions with the banks’ small business lending representative at 60 Los Angeles area banks. The testers had nearly identical business profiles and strong credit histories, with black and Hispanic testers possessing slightly better incomes, assets and credit scores than their white counterparts.

Not a single white tester was asked to provide a personal W-2 form, which are not required for a small business loan — although 17 percent of black and 12 percent of Hispanic testers were asked for the document.

Black testers were the only group asked about their education level. Hispanic testers were asked more often about the size of their credit card debt. Blacks and Hispanics were more frequently asked for their credit report and personal financial statements.

The study.

 

[Kaon]

Black and Hispanic men seeking small business loans faced more scrutiny and worse treatment from bank officers than less qualified white men, according to a study released this week by the National Community Reinvestment Coalition.

The organization sent teams of white, black and Hispanic “mystery shoppers” who acted as prospective borrowers to evaluate customer service interactions with the banks’ small business lending representative at 60 Los Angeles area banks. The testers had nearly identical business profiles and strong credit histories, with black and Hispanic testers possessing slightly better incomes, assets and credit scores than their white counterparts.

Not a single white tester was asked to provide a personal W-2 form, which are not required for a small business loan — although 17 percent of black and 12 percent of Hispanic testers were asked for the document.

Black testers were the only group asked about their education level. Hispanic testers were asked more often about the size of their credit card debt. Blacks and Hispanics were more frequently asked for their credit report and personal financial statements.

The study.

Oh man no way...

 

[lambofgod43985889]

racism is bad, it's like a cancer

 

[timewerx]

Such behavior only fuels the hate and now you see why things are the way it is.

 

[Kaon]

racism is bad, it's like a cancer

No one believe racism exists anymore because they have a one-dimensional Antebellum view of it. This is why when it is brought up, it is dismissed as prejudice against the person who is being oppressive, for example.

The study is only slightly surprising in that grant money was approved for it.

 

[Endeavourer]

I have worked in sales leadership in the business financing industry. This type of racial differentiation has never occurred in the over $300 Million of deals I've closed.

There is a certain culture (originating external to the US) which habitually treats each scheduled payment as a new opportunity to negotiate so some lenders may shy away from businesses owned by first generation business owners from this culture because of their experience with the high cost of dealing with them. Second generation members of this culture are reviewed the same as any other applicant since, historically, the problem is mostly contained to first generation arrivals to the US.

Otherwise, if any business owner appears to be first generation to the US from any country, we will do an additional check to make sure their assets are in the US to ensure there is not a flight risk once the loan is funded.

We do not know the racial makeup of any applicant until we ask for a copy of the driver's license to be returned with the executed documents once the loan is approved. Sometimes a name might be indicative but I have never experienced an underwriter taking that into consideration. The underwriters know they have to defend their credit declines to the sales person, or sales management, who see the same numbers they see.

 

[Endeavourer]

Further, from a personal perspective, my name would place me solidly in one of the categories found in the study to be discriminated against. I've never experienced a loan decline, even when I borrowed $75k for a cash loan to make a down payment on an investment property. I give that example because it's one of the more sketchy types of loan a bank would consider. My mortgages, 2nd mortgages and banking relationships have never shown a trace of any type of discrimination. The neighbors? Yeah. Banks? No.

I would not place a lot of stock on this study. I'd be interested to know more about the organization behind it, and what the founders of the organization are trying to prove.

 

[Kaon]

Further, from a personal perspective, my name would place me solidly in one of the categories found in the study to be discriminated against. I've never experienced a loan decline, even when I borrowed $75k for a cash loan to make a down payment on an investment property. I give that example because it's one of the more sketchy types of loan a bank would consider. My mortgages, 2nd mortgages and banking relationships have never shown a trace of any type of discrimination. The neighbors? Yeah. Banks? No.

I would not place a lot of stock on this study. I'd be interested to know more about the organization behind it, and what the founders of the organization are trying to prove.

This is the problem when you based the experience of a people on your personal experience.

It is a commonplace practice to discriminate based on ethnicity - through institutional methods that evade "overt" racism. This is especially common in financial institutions in which voice, face or demographic is public knowledge.

 

[Ana the Ist]

Black and Hispanic men seeking small business loans faced more scrutiny and worse treatment from bank officers than less qualified white men, according to a study released this week by the National Community Reinvestment Coalition.

The organization sent teams of white, black and Hispanic “mystery shoppers” who acted as prospective borrowers to evaluate customer service interactions with the banks’ small business lending representative at 60 Los Angeles area banks. The testers had nearly identical business profiles and strong credit histories, with black and Hispanic testers possessing slightly better incomes, assets and credit scores than their white counterparts.

Not a single white tester was asked to provide a personal W-2 form, which are not required for a small business loan — although 17 percent of black and 12 percent of Hispanic testers were asked for the document.

Black testers were the only group asked about their education level. Hispanic testers were asked more often about the size of their credit card debt. Blacks and Hispanics were more frequently asked for their credit report and personal financial statements.

The study.

They definitely shouldn't have done this in LA.

 

[essentialsaltes]

They definitely shouldn't have done this in LA.

Although the 'mystery shoppers' were in Los Angeles, the study also analyzes overall data from seven cities: Atlanta, Houston, LA, Milwaukee, NYC, Philly, DC.

 

[Endeavourer]

This is the problem when you based the experience of a people on your personal experience.

It is a commonplace practice to discriminate based on ethnicity - through institutional methods that evade "overt" racism. This is especially common in financial institutions in which voice, face or demographic is public knowledge.

My contribution to this thread is that I have closed $300 Million in financed deals without encountering this bias at any time.

Additionally, as a person who would be categorized within your "experience of a people", I also have never experienced lending bias.

I'd be interested to know the biases of the people funding and/or conducting the study.

 

[Endeavourer]

This is especially common in financial institutions in which voice, face or demographic is public knowledge.

What expertise do you have to make this claim?

 

[Endeavourer]

I would not accept a "study" as proof of anything. For example:

A study affirming SJW biases easily accepted by academic journals:
Hoaxers Slip Breastaurants and Dog-Park Sex Into Journals

A spoof medical paper full of easily detectable flaws was submitted in a sting operation to 304 open access journals and accepted by more than half of them.
Spoof research paper is accepted by 157 journals

 

[Kaon]

My contribution to this thread is that I have closed $300 Million in financed deals without encountering this bias at any time.

That is excellent, but what industry? Commodities, real estate, bonds, trading, hedge funds? That also matters, because each of those (and any, in general) cater to specific demographics.

Additionally, as a person who would be categorized within your "experience of a people", I also have never experienced lending bias.

I am saying one person does not account for a monolithic experience of a people. That you have never experienced love, for example, doesn't mean love doesn't exist. Your experience is unique to what you have perceived - along with all of the assumptions, denials and philosophical dilemmas that come with human thought.

I'd be interested to know the biases of the people funding and/or conducting the study.

Sure, that is important to know (who funds particular research), but the meat of the research is something that should be commonplace; it isn't new:

Banks find loopholes to deny blacks and Latinos home loans at twice the rate of whites

A 'Forgotten History' Of How The U.S. Government Segregated America

The red line: Racial disparities in lending

Modern-day redlining: How banks block people of color from homeownership

https://www.csus.edu/indiv/c/chalmersk/econ251fa12./evidenceofdiscriminationinmortgagelending.pdf

 

[bèlla]

Business loans are a different animal. It isn’t uncommon for lenders to request additional information or hope to secure it with personal assets. This has been discussed on the F.I.C.O. boards quite thoroughly.

The article doesn’t disclose the business type, length of time in business, or borrower experience. Most people seek funding from banks where they’ve established a relationship. It works in their favor to do so.

Nor are we privy to the default rates for each ethnic group in the places mentioned. This may necessitate greater scrutiny to alleviate further losses.

 

[Kaon]

What expertise do you have to make this claim?

I am not going to list my credentials or degrees, but I have plenty of experience in finance - particularly as a mathematician. I rejected at least a few jobs from big name hedge funds and financial institutions because of what they stand for - back before the 2008 Correction Recession.

But, I shouldn't have to be credentialed to see...

A layperson should also be able to realize what is going on around them.

 

[Ana the Ist]

Although the 'mystery shoppers' were in Los Angeles, the study also analyzes overall data from seven cities: Atlanta, Houston, LA, Milwaukee, NYC, Philly, DC.

Although the 'mystery shoppers' were in Los Angeles, the study also analyzes overall data from seven cities: Atlanta, Houston, LA, Milwaukee, NYC, Philly, DC.

I'm looking at the study and not seeing anything about approval rates.

Is it solely about things like "did the loaner stand to greet the borrower" and "did they smile"?

 

[Endeavourer]

Modern-day redlining: How banks block people of color from homeownership

Or, perhaps just blocks of high crime neighborhoods.

I've been involved in an inner city church plant for the last year. Before getting involved in this ministry I was not fully aware of how blocks and blocks of areas are not a good investment and how dangerous repossession activities could be. There have been cases of workers being shot for simply approaching the door because the occupant was expecting that the person might be coming to collect rent or some other bill. Further, in some of those areas the cost of home insurance is prohibitive, if available.

Some of my dear friends who are attendees at our church often have stories of gunshots in their neighborhood or of someone on their block being murdered during prayer request time. I've given some of my friends rides to their homes after dark and the journey within their neighborhood is tense as they are on the lookout for whether the corners look safe enough to stop at a red light, or whether it's safe enough to stop at their doorstep and if not, take a detour and come back in ten minutes or so. On one occasion my friend thought it would be better to approach her home through the alley and when we got behind her home there was a crowd of loiterers right there and she tersely commanded me to keep driving without looking at them. Crime is rampant and a home owners insurance company faces inordinate liability in the event a crime is committed on the property, and outsize possibilities of home damage.

These are financial factors to consider. Doesn't matter if the applicant is white, black or whatever, the property itself is a poor investment.

The situation in the one anecdote about the bank being interested when she brought in another borrower may simply be that the credit enhancement of adding another borrower helped get the deal over the hump. In some of these areas the cost of the real estate taxes is over half of the cost of annual mortgage payments; add to that expensive home owners insurance, so her salary of $60k could have been challenging, especially if she had little/no down payment.

Like you said, one story does not make a pattern.

 

[essentialsaltes]

Is it solely about things like "did the loaner stand to greet the borrower" and "did they smile"?

No. From the OP:

Not a single white tester was asked to provide a personal W-2 form, which are not required for a small business loan — although 17 percent of black and 12 percent of Hispanic testers were asked for the document.

Black testers were the only group asked about their education level. Hispanic testers were asked more often about the size of their credit card debt. Blacks and Hispanics were more frequently asked for their credit report and personal financial statements.

 

[Endeavourer]

Hispanic testers were asked more often about the size of their credit card debt.

The size of credit card debt shows up in the credit report so asking about the size of the credit card debt per se is unnecessary. It could be that the Hispanic borrowers in that study disproportionately had something weird about their credit card debt that needed clarification.