Op-Ed: Surprise, surprise. Big bank racism is corrupting PPP loans

A shopper walks past a closed barber shop.
Countless small businesses were shut out in the first round of the federal Paycheck Protection Program, which is intended to keep them afloat during the pandemic.

(Associated Press)

In recent weeks, American banks have denounced systemic racism and pledged support to Black lives. Yet their practices during this pandemic and their role in distributing money from the $660 billion Paycheck Protection Program show how systemic racism is embedded in their business model.

Last week, the Trump administration finally disclosed the names of many companies that received forgivable loans from the program, which is intended to keep small businesses afloat. Yet included among the recipients were big investment firms, big name law firms and companies connected to prominent political insiders.

Big banks were chosen to process the loans. But instead of assisting thousands of struggling small businesses, the banks directed the initial $349 billion into the pockets of primarily white-owned, well-connected businesses, which had prior relationships with the banks.


Countless small businesses, which didn’t have this advantage, were shut out in the first round of PPP. In fact, three-quarters of the money distributed went to only 15% of the companies applying for loans.

While wealthy corporations have been painted as the manipulators, it was the banks that benefited from outsized fees, up to 5%, to process the loans. Higher value loans meant less work and more fees, estimated to total as much as $24 billion. The PPP loans require minimal processing time and there is zero risk, making such exorbitant fees unconscionable.

Black and minority-owned businesses have been the most disadvantaged by this fiasco.

New research suggests that Black business owners seeking PPP loans are treated less favorably than white applicants. The study, conducted by the National Community Reinvestment Coalition, used match-paired testers, a common method for showing discrimination in housing, lending and employment. In 43% of cases, Black borrowers who contacted banks were offered less information about PPP loans, were discouraged from becoming new banking customers, or were offered less favorable products, compared with slightly less qualified white borrowers. Many Black testers were subjected to multiple forms of discrimination.

This is the latest example of how banks have fostered systemic racism — from financing the slave trade to modern era redlining that created entrenched housing segregation in many cities in this country.

In the 2000s, banks turned from financial exclusion to predatory inclusion of Black families eager to own their homes. This predatory binge triggered the global recession and the subprime mortgage crisis of 2008 that wiped out half of Black wealth.


These bank practices have expanded the huge wealth gap between Black Americans and whites, yet bank leaders have remained indifferent to the racial impact of their actions.

Meaningful reform will take fundamental changes in the banking industry culture combined with stronger government regulation. To start, banks need to hire more Black leaders.

Black professionals make up a meager 3% of executive leadership in banking. Opening the top ranks would be one step to addressing structures of discrimination in banking. Some Black leaders in banking and other industries have already been speaking up about Black businesses being shut out of pandemic relief, proposing a 25% set-aside of PPP funds for Black-owned businesses.

Of course, having more Black executives may not, by itself, transform corporate practices or decisions, but research suggests that their mere presence on the team can make white leaders more sensitive to racial effects, more open minded, and more likely to acknowledge systemic issues.

We want to be optimistic when banks declare that Black lives matter and pledge to address systemic disparities. However, actions speak louder than words. We need multiracial corporate leadership. And, as we’ve seen from the PPP debacle, the financial sector plays a devastating role in keeping racism and its consequences in place. That has to change.

Emma Coleman Jordan is a professor of business law at Georgetown University Law Center. Jamillah Bowman Williams is an associate professor of law at Georgetown Law and focuses on bias in employment law.