Attorney General Janet Reno vowed Friday to crack down on racial bias in small-business lending.
"We want to take the successes that we have had and the lessons we have learned in home mortgage lending, and apply them to business lending," Ms. Reno said.
"Just as the availability of credit to purchase, refinance, and improve our homes is critical to the well-being of local communities, so is the availability of credit for small businesses."
Speaking to the National Community Reinvestment Coalition, Ms. Reno said she has become increasingly alarmed by studies showing that minorities are rejected more often than whites for small-business loans. Also, other studies have found that minorities who are approved are offered smaller loans than whites with similar credit histories, she said.
"That is not right, and the Department of Justice is exploring ways that we can effectively confront discrimination in this area," she said.
Industry leaders reacted confidently.
"Banks are doing a heck of a lot more than is known in small-business lending," said Joe Belew, president of the Consumer Bankers Association. "We ought to look great."
"Most large lenders are so hungry for the business of small businesses that I would be hard pressed to say that any doable loan is not getting done," said Catherine P. Bessant, president of community reinvestment for NationsBank Corp.
James D. McLaughlin, director of regulatory and trust affairs at the American Bankers Association, urged the Justice Department to include nonbank small-business lenders in its probe. "The banking industry already has a tremendous amount of oversight, but our competitors too often do not," he said.
Ms. Reno also called on the Federal Reserve Board to allow banks to voluntarily collect data on the race and gender of small-business and consumer loan recipients. Currently, banks may collect this data only for home mortgages.
The change "would greatly assist the department's efforts to investigate business-lending discrimination," Ms. Reno said. "The Department of Justice, along with the Comptroller of the Currency, the Office of Thrift Supervision, and the Treasury Department, urge the Federal Reserve to consider making this change."
The Fed last week issued an advanced notice of proposed rulemaking, asking whether the restrictions on gathering data, contained in Regulation B, should be dropped. Comments are due May 29.
Ms. Reno said that bankers should support the change because it would allow them to monitor their performance in serving minorities, and could identify new markets for loans.
The attorney general also praised the New York banking department's recent fair-lending prosecution of Roslyn Savings Bank and urged more states to investigate lending bias.
Ms. Reno's remarks earned her a standing ovation from the crowd, which consisted mostly of community activists. "This is terrific news," said NCRC president John Taylor. "She is absolutely right. We can't singularly focus on housing."
"What she said is appropriate," said Matthew Lee, executive director of the Bronx-based Inner City Press/Community on the Move. "We are not saying housing discrimination is solved. But the volume of mortgage lending is way up."
The Justice Department has filed 13 lending-bias cases since 1992. All were settled, and involved either mortgages or consumer loans.