Banking and Finance Law Daily Wrap Up, CONSUMER CREDIT—Barr comments on financial inclusiveness for those with criminal records, (Sep 1, 2026)

By Sherri M. Schroeder, J.D.

In his speech, the Fed board member discussed the challenges these individuals face, entrepreneurship as a path to opportunity, the lending and support this will require, and how new technologies could improve opportunities.

In his speech entitled, “Unlocking Opportunities for Workers and Entrepreneurs with a Criminal Record,” delivered at the Second-Chance Lending Forum’s symposium on Developing Evidence-Based Policy on Creditworthiness and Criminal History, Member of the Board of Governors of the Federal Reserve System Michael Barr highlighted the importance of expanding credit access for individuals with arrest or criminal records. After noting the challenges these individuals face, Barr delved into entrepreneurship as a pathway to economic opportunity and how lending combined with training and networking can make this possible. Barr also discussed how better data can lead to improved evidence-based policies and how technology that looks to the future, such as the use of artificial intelligence (AI), can create greater opportunities for these individuals.

The challenges. Barr highlighted some of the obstacles faced by those with criminal records in his speech. Individuals with criminal records face employment barriers that limit their access to formal employment, leaving them far less likely to be employed, per Barr. Incarceration leads to persistently lower employment rates and reduced earnings trajectories following release. People of color are often disproportionately affected by their criminal records. Furthermore, these employment gaps persist, with criminal records continuing to create lasting employment barriers despite initiatives such as “ban the box” and “clean slate” laws. Occupational licensing requirements compound the challenge, as several state licensing boards disqualify applicants with criminal records regardless of whether the offense was related to the occupation or poses and substantive public safety risk. According to Barr, some research suggests that reducing occupational licensing burdens may lower recidivism rates and improve employment outcomes for those with criminal records.

Beyond employment, individuals with criminal records face systemic barriers and “multiple dimensions of financial vulnerability.” A report by the Consumer Financial Protection Bureau called attention to the labyrinth of consumer financial issues related to the criminal justice process (see Banking and Finance Daily, Feb. 1, 2022) and examined the lack of bona fide competition in the marketplace for consumer financial services that have a connection to the criminal justice system. Barr also noted that those with records have significantly lower levels of financial well-being, reduced access to credit, and a higher incidence of being “unbanked.” Instead, they rely heavily on financial services like payday and pawnshop loans.

Entrepreneurship. According to Barr, entrepreneurship as the pathway to economic opportunity for those with criminal records. According to research, approximately 20 to 30 percent of people with criminal records report being self-employed business owners, while roughly 1.1 million small business owners—nearly 4 percent of all small business owners nationally—have criminal records. “Lending is a key input in supporting entrepreneurs with a criminal record, and it is most effective when paired with the training and networks that help a business succeed once its credit needs have been funded,” stated Barr. He goes on to note the Small Business Administration’s (SBA’s) 2024 final rule removing many criminal history bars from the SBA’s small business loan and loan guarantee programs and the model provided by a community development financial institution operating as a lending subsidiary of Texas’s Prison Entrepreneurship Program, which was established to provide business loans to entrepreneurs with a record. Small Business Development Centers also assist entrepreneurs in connecting with lending and funding, as do local, state, or regional economic development organizations.

The future. “Evidence from programs related to entrepreneurship among those with a record shows it reduces recidivism,” stated Barr. “We also need more data to show the broader economic effects on individuals and the savings and other benefits to society.” Pilot programs can help build this data, and long-term program evaluations can assess which entrepreneurship training and development programs prove the most successful, according to Barr.

Barr also noted that technology, especially AI, can support entrepreneurship and improve financial inclusion for those with criminal records. AI-powered cash flow underwriting or alternative financial data underwriting would be particularly important for those with thin credit files or low traditional credit scores, per Barr. “Alternative data can support the provisioning of ‘second look’ initiatives for the second-chance population,” opined Barr. AI can also be used to provide financial advice and answer common questions and can help entrepreneurs with records to start and manage their companies. Finally, AI can be used to automate tasks, improve customer relations, and identify growth opportunities.

Conclusion. “’Unlocking’ is a good word to use in extending opportunity to individuals whose challenges do not end when their imprisonment or other engagement with the legal system is over,” concluded Barr. “Financial inclusion could help them to succeed as workers, consumers, and entrepreneurs.”

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