FINDINGS AND RECOMMENDATIONS

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This study was conducted to determine whether or to what

extent minority businessmen received unequal treatment by financial institutions in the District of Columbia because of race. The

hearing also explored the roles of government-sponsored loan programs (primarily the Small Business Administration) in alleviating some of the financial problems of mimority businessmen.

The findings of District of Columbia Advisory Committee are:

1. Minority businessmen and representatives from technical assistance organizations in the District of Columbia generally believe that banks:

a. Maintain a minority business portfolio.

b. Assign one person to administer this portfolio.

c. Assign a dollar amount to the portfolio above which

it will not invest.

2. While most banks deny these allegations, some banks admitted the existence of a ceiling on "high risk" loans. Banks also admitted that SBA guaranteed loans were considered high risk loans,

and that most small minority business loans were guaranteed by

SBA. Thus, we conclude that the beliefs referred to above are supported by some evidence and testimony adduced at the open meeting 3. Although we conclude that some banks in the District of Columbia operate in a manner that has the effect of discriminating against minority group members, we do not conclude that loans

or other banking services are denied solely because of race, creed,

color or sex of the applicant. The banks' traditional tests of

financial ability often do the job of discriminating againgt minority group members.

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4. The traditional test of financial ability (character, capacity and credit) may have a distinct cultural bias that dictates the rejections of minority applicants. Just as many educational achievement and employment tests developed and validated for the white majority population have been attacked as invalid for testing minority persons, so the 3-C's test of financial ability may be invalid as applied to minority businessmen.

5. A large percentage of minority businessmen in the District of Columbia find it necessary to obtain SBA guarantees. Although this practice limits the exposure of the bank, it does not create a positive customer-client relationship between the borrower and the bank. In fact, it may serve as an impediment to receiving further financing. As stated at the open meeting, "If the Small Business Administration is on your balance sheet on the liability side, either with a direct loan or guarantee, it's next to impossible to garner any additional financing until they are paid out."

6. Federal agencies have the authority and the responsibility to regulate, investigate, and monitor financial institutions in this area. However, neither the District of Columbia Government, nor the Federal Reserve System, or other Federal agencies having jurisdiction over this matter have exercised any regulatory authority.

In light of the above, the District of Columbia Advisory Committee to the U.S. Commission on Civil Rights offers the following recommendations: 1. That the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Comptroller of the Currency, and the Small

Business Adminstration immediately cause to be issued regulations to assure against discrimination in commercial lending on the

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basis of race, sex, creed, color, religion,or national origin. The Committee further recommends that individuals and organizations petition these regulatory agencies to issue such regulations.

An example of such a petition appears in the Appendix.

2. That the Federal Deposit Insurance Corporation, the Federal Reserve System, the Comptroller of the Currency, and the Small Business Administration require by regulation or otherwise that banks within their jurisdiction, or participating in their programs, collect and provide data concerning the race, sex, creed, color, religion, and national origin of commercial loan applicants and other data sufficient to determine whether there is discrimination in lending to minority businessmen.

3. That banks and financial institutions, either on their own volition or in concert with organizations in the District of Columbia,

examine the new community involvement models being developed by

banks in such cities as Denver and Chicago as prototypes for

their development in the District of Columbia.

4. That all banks institute an internal system of appeals and review for business loan application rejections.

5. That banks and financial institutions, in consultation with technical assistance firms, review the application of the 3 C's of credit with regard to minority businessmen.

6. That Congress pass the District of Columbia Bank Act which the Committee feels will increase the availability of technical and monetary resources to minority businessmen in the District.

7. That the Department of the Treasury, Bureau of Accounts consider the advisability of revising its regulation 31 C.F.R. 202 to incorporate a nondiscrimination provision covering all bank services and practices into the contract of deposit for Federal funds.

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Petitioners request that the Board of Governors of the Federal Reserve/FDIC/Comptroller of the Currency issue a regulation expressly prohibiting discrimination on the basis of race, sex, creed, color, religion, or national origin in the conduct of all business by their regulatees; the discrimination prohibited shall include, (1) the denial of services, (2) the provision of services in a different manner and,(3) otherwise offering services in a manner which exclude or discriminates against particular individuals on the basis of race, sex, creed, color, religion, or national origin, and making violations of said regulations subject to the sanctions provided in 12 U.S.C. 1818 (1969).

In implementation of this requirement of nondiscrimination, petitioners also request the Board of Governors of the Federal Reserve FDIC/Comptroller of the Currency to issue regulations requiring that each regulated financial institution:

A. Keep on file a record of all loan applications, specifying

the following:

1. race, sex,

color,or minority group identification of

each applicant,

2. date of the application,

3.

date of the decision with respect to the loan,