From the very start of the Paycheck Protection Program last year, it was clear that minority entrepreneurs, especially Black business owners, struggled more than white borrowers to find a willing lender. A new research project indicates that the problem was particularly pronounced at smaller banks — and human bias appears to be the main reason, the New York Times reported. The majority of Black borrowers who received aid from the $800 billion relief program got their loan from a financial technology company, not a bank, according to an economic working paper released yesterday. The skew toward those so-called fintechs was far sharper among Black borrowers than any other racial group. It turned out that the automated loan vetting and processing systems used by the fintechs, as well as some of the nation’s biggest banks, significantly improved approval rates for Black borrowers, the researchers found. They didn’t find such stark gaps for any other racial group they examined, including Asian and Hispanic applicants. The findings come amid growing scrutiny of how algorithmic systems can inadvertently perpetuate biases. Regulators like the Consumer Financial Protection Bureau are examining whether lenders using such systems run afoul — even inadvertently — of fair-lending laws. A trade group for small banks, the Independent Community Bankers of America, defended its members, saying community lenders “outperformed the rest of the banking industry in serving minority-owned, women-owned and veteran-owned businesses.”
