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A new act sheds some light on small-business lending to keep discrimination in check.

This story appears in the June 2002 issue of Entrepreneur. Subscribe »

More than a quarter century after Congress passed the Home Mortgage Disclosure Act (HMDA)--and opened banks' books on consumer lending, inviting scrutiny and exposing discriminatory practices--a handful of politicians are now saying it's high time the same rules applied to small-business lending as well.

Introduced in November, the new Access and Openness in Small Business Act of 2001 would force banks to collect race and gender information from their small-business borrowers, just as they do from consumers. Or, at least, it would require them to ask for the data; the responses would be entirely voluntary. But the bill would reverse current Federal Reserve rules, which prohibit lenders from asking. "The [original] idea was, if banks collect this information, they'll discriminate," says Giles Giovinazzi, legislative counsel for U.S. Representative Jim McGovern (D-MA), who first introduced the bill. "HMDA [supporters] took the opposite tack, saying, 'We're going to force banks to disclose, because we can't monitor what's going on in that market.' " That kind of disclosure would be the guiding principle for the new bill. "Sunshine is the best disinfectant," Giovinazzi says.

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