Op-Ed: Big bank racism corrupts PPP lending process
In recent weeks, US banks have denounced systemic racism and pledged their support for black lives. Yet their practices during this pandemic and their role in distributing the $ 660 billion paycheck protection program money shows just how ingrained systemic racism is in their business model.
Last week, the Trump administration finally disclosed the names of many companies that have received forgivable loans from the program, which aims to keep small businesses afloat. Yet among the beneficiaries were large investment firms, large law firms and companies linked to prominent political insiders.
Large banks were chosen to process the loans. But instead of helping thousands of struggling small businesses, the banks funneled the initial $ 349 billion into the pockets of mostly white-owned, well-connected companies that had previous relationships with the banks.
Countless small businesses, which did not have this advantage, were excluded from the first round of the PPP. In fact, three quarters of the money distributed went to only 15% of the companies applying for loans.
While wealthy corporations have been portrayed as the manipulative, it is the banks that have been afforded outsized fees, up to 5%, to process loans. Higher value loans meant less work and more fees, estimated at a total of $ 24 billion. PPP loans require minimal processing time and there is no risk, making these exorbitant fees ineligible.
Black and minority-owned businesses were the most disadvantaged by this fiasco.
New research suggests that black business owners seeking P3 loans are treated less favorably than white applicants. The study, conducted by the National Community Reinvestment Coalition, used paired testers, a common method to show discrimination in housing, loans, and employment. In 43% of cases, black borrowers who contacted banks were offered less information about PPP loans, were discouraged from becoming new bank customers, or were offered less advantageous products, compared to borrowers. slightly less qualified whites. Many black testers were subjected to multiple forms of discrimination.
This is the latest example of how banks have fostered systemic racism – from the financing of the slave trade to the redlining of the modern era that has created entrenched housing segregation in many cities across this country.
In the 2000s, banks moved from financial exclusion to predatory inclusion of black families wanting to own their homes. This predatory frenzy sparked the global recession and the 2008 subprime mortgage crisis that wiped out half of black wealth.
These banking practices widened the enormous wealth gap between black Americans and whites, but banking leaders remained indifferent to the racial impact of their actions.
Meaningful reform will require fundamental changes in the culture of the banking sector combined with tighter government regulation. For starters, banks need to hire more black executives.
Black professionals make up a meager 3% of banking industry executives. The opening of the upper ranks would be a step to fight against structures of discrimination in the banking sector. Some black executives in banking and other industries have already spoken about black businesses being excluded from pandemic relief, proposing a 25% set-aside of PPP funds for black-owned businesses.
Of course, having more black executives cannot, in and of itself, transform business practices or decisions, but research suggests that their mere presence on the team can make white leaders more racially sensitive, more open-minded. mind and more likely to recognize systemic problems. .
We want to be optimistic when banks say black lives matter and commit to addressing systemic disparities. However, actions speak louder than words. We need multiracial corporate leadership. And, as we saw with the P3 debacle, the financial sector plays a devastating role in sustaining racism and its consequences. This must change.
Emma Coleman Jordan is Professor of Business Law at Georgetown University Law Center. Jamillah Bowman Williams is Associate Professor of Law at Georgetown Law and focuses on bias in employment law.