CFPB Pilot Study Finds Differential Treatment in Small Business Lending Markets

WASHINGTON, D.C. - Today, the Consumer Financial Protection Bureau (CFPB) released a study revealing significant disparities in how lenders treat Black and white small business owners seeking loans. The research found that Black entrepreneurs received less encouragement to apply for a loan and were more frequently steered toward alternative loan products compared to white shoppers with similar or weaker business credit profiles. While focused on specific testing sites, this research provides insights into potential lending disparities that warrant further exploration.

"The results of our secret shopping are consistent with the longstanding concerns that small business loan borrowers experience different treatment based on their race," said CFPB Director Rohit Chopra. "Fair access to small business loans is essential for the success of our economy."

The CFPB conducted matched-pair testing using trained individuals who posed as small business owners seeking credit. Testers visited 25 unique bank branches in Fairfax County, Virginia and 25 branches in Nassau County, New York, resulting in a total of 100 in-person test visits. Each visit was audio recorded and participants completed a survey after the bank interaction that documented their experience. Black participants were assigned slightly more favorable financial profiles compared to their white counterparts. In many tests, the Black and white participant each met with the same bank representative.

A study of the test results by the CFPB examined four key aspects of the loan inquiry process: encouragement or discouragement to apply for a loan; information provided about requested loan products and potential steering to other products; the overall quality of treatment or customer service; and the amount of business and credit information requested.

The study revealed statistically significant disparities in two key areas:

• Black participants received less encouragement to apply for a loan: Black test participants received significantly less encouragement to apply for loans. For example, lenders expressed interest in applications from 40% of white participants, but only 23% of Black participants. Additionally, Black participants consistently reported feeling less encouraged to apply for loans than their white counterparts. These differences were statistically significant, indicating a pattern of reduced encouragement for Black entrepreneurs.
• Lenders were more likely to suggest credit cards and home equity loans to Black business owners: While lenders discussed requested small business lending products with both Black and white participants, they were significantly more likely to suggest alternative credit products to Black participants, including personal credit cards and home equity loans. Non-requested or alternative credit products were discussed with 59% of Black participants, compared to 39% of white participants.

In 2010, Congress enacted legislation to require small business lenders to collect data about small business loans, similar to existing federal requirements for residential mortgages, subject to rules established by the CFPB. In 2019, the CFPB was sued for failing to institute these rules. Consistent with a court order to complete the rule, the CFPB finalized a rule last March to increase transparency in small business lending decisions.

This pilot study, though limited to two counties, illustrates why collecting comprehensive lending data is crucial for uncovering potential discrimination. Starting in July 2025, the largest lenders will be required to collect and report data on their lending decisions. The CFPB will review this lending data starting in July 2026 to ensure small business lending decisions comply with the law.

Lenders that engage in illegal discrimination can be subject to penalties and other sanctions under the Equal Credit Opportunity Act.

Read today's report, Matched-Pair Testing in Small Business Lending Markets.

Tell the CFPB Your Small Business Story.

Consumers can submit complaints about financial products and services by visiting the CFPB's website or by calling (855) 411-CFPB (2372).

Employees who believe their company has violated federal consumer financial protection laws are encouraged to send information about what they know to [email protected]. To learn more about reporting potential industry misconduct, visit the CFPB's website.