STUDY FINDS LENDING DISCRIMINATION WITHIN THE PAYCHECK PROTECTION PROGRAM

A just-released study from the National Community Reinvestment Coalition (NCRC) has found that there has been racial discrimination in the implementation of the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act which created the Paycheck Protection Program (PPP). 

The PPP is a lending program that provides money, in a potential grant format, to small businesses to help them weather the economic effects of the pandemic. The majority of the loan needs to be allocated for employee salaries and then the remainder can be used for other business expenses like rent and loan payments.

The study involved matched-pair testing for requesting loans in Washington, D.C. It was found that there was racial discrimination in levels of encouragement in applying for a loan, the products offered, and the information provided by the bank staffer.

To correct this, the NCRC proposes:

1. Financial institutions should implement rigorous compliance programs that include matched-pair testing of their bank branches and review of their decision to deny a PPP loan to ensure that there is no disparate treatment or impact. 

2. The federal government can aid compliance efforts by ensuring that data related to small business lending is made public. The SBA should immediately release the business name and address for businesses that were able to access a PPP loan for less than $150,000 and the terms of those loans, and the Consumer Financial Protection Bureau (CFPB) should fast track its efforts to implement the Small Business Data Collection provision of the Dodd-Frank Act, Section 1071, that requires lenders to disclose small business loan data. 

Without these measures, it is concluded that existing disparities will continue, hampering economic development in minority  communities.

Read the study: https://ncrc.org/lending-discrimination-within-the-paycheck-protection-program/.

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Source: NCRC, November 6, 2020.