Shaping Small Business Lending Policy Through Matched-Paired Mystery Shopping

Abstract

With limited financial sophistication, entrepreneurial consumers approach the financial marketplace more like retail financial consumers than business customers. However, the assumption of both legislators and regulators is that business-borrowers are more financially savvy than consumer-borrowers, and thus do not require as broad-reaching protections. This gap between marketplace policy protections and the lived reality of the vast majority of small business entrepreneurs sets the stage for entrepreneurial consumers to fall through the regulatory cracks and sets the stage for possible exploitation and abuse. This situation is potentially exacerbated for minority entrepreneurs who belong to protected classes that are generally more vulnerable to exploitation in the marketplace including the small business lending marketplace. In this paper, we highlight the current state of this policy gap in the marketplace relative to minority entrepreneurial consumers and present a matched-paired mystery shopping study that demonstrates the critical need for reliable, primary data to inform regulatory agencies as they work to implement available protections to ensure equal access to credit within the small business lending marketplace.

Keywords: fair lending, small business, discrimination, social justice