On September 1, Fed Governor Barr delivered remarks at a Second-Chance Lending Forum on financial inclusion barriers facing individuals with criminal records. Barr discussed research showing that incarceration leads to persistently lower employment rates and reduced earnings, with employment propensity falling roughly 7 to 26 percent after an initial criminal charge, and noted that people of color are often disproportionately affected. He noted that occupational licensing requirements compound these barriers, as nearly one in four U.S. jobs requires a government-issued license and several states allow licensing boards to disqualify applicants with criminal records regardless of whether the offense relates to the occupation. Barr cited Fed survey data indicating that individuals with a record have significantly lower levels of financial well-being, reduced access to credit, and higher rates of being unbanked, and that those who experience incarceration are 16 percentage points less confident about credit approval but 10 percentage points more likely to have applied for credit — suggesting limited credit supply rather than lack of demand.

Barr highlighted entrepreneurship as a pathway for this population, noting that an estimated 20 to 30 percent of people with criminal records report being self-employed and that roughly 1.1 million small business owners — nearly 4 percent nationally — have a criminal record. He cited research estimating that formerly incarcerated individuals who start businesses could earn approximately 24 percent more in annual earnings than those in traditional employment, and that entrepreneurship may reduce five-year recidivism relative to traditional employment. He pointed to the SBA’s 2024 final rule removing many criminal history bars from its small business loan and loan guarantee programs, community development financial institutions operating second-chance lending programs, and the role of Small Business Development Centers in connecting entrepreneurs with lenders. Looking forward, Barr discussed how AI-powered cash flow underwriting and alternative financial data could expand credit access for individuals with thin credit files, and how AI tools could assist entrepreneurs with business planning, market analysis, and operations.