CFPB - Consumer Financial Protection Bureau
10/17/2024 | Press release | Archived content
Matched-Pair Testing in Small Business Lending Markets
The Consumer Financial Protection Bureau ("CFPB") and the U.S. Department of Justice ("DOJ") conducted matched-pair testing to test for and detect differential treatment of fictitious well-qualified Black and white small business owners seeking credit at large bank lenders in two counties. This report describes a research study that analyzes the data collected from the matched-pair testing.
Pairs of testers visited 25 bank branches located in Fairfax County, Virginia and 25 branches located in Nassau County, New York-consisting of 100 total visits across 23 financial institutions-over several months in 2023. Testers were trained to present themselves based on a pre-developed small business profile and inquire about available business financing options. Each visit was audio recorded and testers completed a post-visit survey documenting their visit to generate the data analyzed in this report.
Our aggregate-level analyses reveal that Black testers received less favorable treatment than paired white testers in two of the four treatment domains we considered. First, Black testers received less favorable treatment on measures of encouragement/discouragement to apply for financing than white testers. Second, in the domain of small business loan products discussed and potential steering, bank representatives were more likely to discuss non-requested credit products-such as business credit cards or real estate-secured loans-with Black testers than with white testers. These differences in treatment are statistically significant.
Given the design and scope of this pilot research, these findings should not be generalized to the broader small business lending market or to specific financial institutions. These findings do, however, highlight the existence of differential treatment in small business lending. This research reveals evidence of-and provides a framework for detecting-differential treatment of well-qualified Black and white small business owners seeking credit at large bank lenders in select counties.