September 01, 2026 Unlocking Opportunities for Workers and Entrepreneurs with a Criminal Record Governor Michael S. Barr At the Second-Chance Lending Forum, Developing Evidence-Based Policy on Creditworthiness and Criminal History, Washington, D.C. Share --> --> --> --> --> --> Watch Live Thank you to the organizers of this important event for the opportunity to be part of it. 1 This conference sits at the intersection of several policy issues that are central, I believe, to the future of the U.S. economy—entrepreneurship, financial inclusion, technological innovation, including artificial intelligence (AI)—and, critically, how to bolster these forces in ways that support employment, lift living standards, and promote an economy that works for everyone. The Federal Reserve has a stake in all of these outcomes. Realizing full employment depends on a labor market in which everyone can participate productively, including those formerly incarcerated or otherwise with a record of navigating the legal system. Perhaps in part because they face obstacles to employment that others do not, many of these individuals pursue entrepreneurship, so extending options to them includes the opportunity to build a business. For them, financial inclusion is essential, and meeting their banking and financial needs is also critical to a healthy economy. Before I proceed, I wanted to share a few thoughts about the economy. The labor market is stable, with relatively low unemployment. The economy has been growing solidly, powered in part by the boom in AI-related business investment and the buildout of AI-related capabilities. Productivity and new business formation have been strong for a number of years. Consumer spending to date has been largely resilient. But inflation remains too high—and has been for over five years. We made enormous progress from inflation's peak of more than 7 percent in 2022 to a bit above 2 percent in 2024, but that progress stalled in 2025. A series of shocks—from tariffs and then the conflict in the Middle East, as well as from the rapid AI buildout—pushed us off course. And core non-housing services inflation remains elevated. With inflation above target for a protracted period, there is a risk of broader price pressures taking hold, a risk I am watching closely. At our September FOMC meeting, we will again discuss the outlook for inflation and our policy stance. If trends in the data give me some confidence that inflation is moderating on a path to 2 percent, then I think we can take a bit more time to assess our policy stance. However, if inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates. Now, turning back to the topic at hand, my interest in financial inclusion predates my time at the Federal Reserve and has been an important part of my life's work over the past three decades. During my years at the University of Michigan, I worked with several colleagues to launch the Detroit Neighborhood Entrepreneurs Project to help entrepreneurs start and grow their businesses, helping that city to bounce back from the dire place it was in a dozen years ago. And I have studied how exclusion from basic banking services can make it harder for people to find a stable living situation and employment. 2 I'd like to spend some time today discussing financial well-being and entrepreneurship for those with a criminal or arrest record, encouraging research to enrich our knowledge, and touching on how the emergence of new technologies could improve financial access and business opportunities for this group. The Challenge Individuals with criminal records experience high employment barriers that substantially limit their access to formal employment and leave them far less likely to be employed than others. 3 Some of these labor market penalties stem from socioeconomic disadvantages associated with those who have a criminal record, but a large share come from the effects of justice involvement—the incapacitation and human capital loss during incarceration or legal proceedings and the aversion of employers to hiring those with a record. 4 Research shows that incarceration leads to persistently lower employment rates and reduced earnings trajectories after release. 5 By one measure, employment propensity falls around 7 to 26 percent after an initial criminal charge and remains persistently low even six years later. 6 A 2018 study found unemployment rates among the formerly incarcerated are nearly five times higher than for the general population. 7 Research shows people of color are often disproportionately affected by the existence of criminal records. 8 While there have been large-scale initiatives in recent years to reduce these disparities, such as "ban the box" and "clean slate" laws, employment gaps persist and criminal records continue to create lasting employment barriers. 9 Another hurdle that compounds these challenges comes from certain occupational licensing requirements. 10 Nearly one in four jobs in the United States requires a government-issued occupational license. 11 Several states allow licensing boards to disqualify applicants with criminal records, regardless of whether the offense is related to the occupation or poses any substantive risk to public safety. 12 In addition to the financial consequences for these individuals, such barriers reduce available labor in communities. 13 Some research suggests that reducing occupational licensing burdens may help lower recidivism rates and improve employment outcomes for those with a criminal record. 14 Beyond employment outcomes, these individuals experience multiple dimensions of financial vulnerability. A 2022 Consumer Financial Protection Bureau report highlights how people with a record face systemic barriers. Financial obligations and the high cost of essential services—including bail bonds and money transfers—put them at elevated risk of high-cost debt, credit delinquency, and lower credit scores. 15 These credit challenges make it harder to access affordable loans, secure stable housing, and find employment. The Federal Reserve's 2023–24 Survey of Household Economics and Decisionmaking (SHED) data indicated that those with a record have significantly lower levels of financial well-being, reduced access to credit, and a higher incidence of being unbanked. These gaps persist after accounting for demographic and economic differences, and they widen with longer incarceration and other measures of greater justice system contact. 16 As an example, the SHED found that, among people with no criminal records, 75 percent report doing okay financially or living comfortably, while for those convicted and once incarcerated the rate is 60 percent doing at least okay financially. Those with a record, especially those with convictions, are also less connected to the financial system. According to the SHED, those who have a previous conviction are less likely to have a bank account or a credit card; instead, they rely more heavily on alternative financial services like payday loans and pawnshop loans. This disconnection from traditional credit systems appears to stem from limited credit supply rather than a lack of demand. Those who experience incarceration are 16 percentage points less confident about approval but are 10 percentage points more likely to have applied for credit in the past year. This tells us they face substantial barriers to the mainstream credit that they need. Enhancements to underwriting, like cash flow–based underwriting and the use of alternative financial data, may help expand financial inclusion for a cohort that often has a thin or poor credit history. Entrepreneurship as a Pathway to Economic Opportunity People with a record may be an underutilized source of talent and effort. Second-chance hiring initiatives could help these individuals to find pathways into the labor market. Entrepreneurship is another path to better economic outcomes for those with a criminal record. One estimate finds that, among formerly incarcerated individuals, those who have started their own business could earn 24 percent more in annual earnings than those in traditional employment. 17 The same research finds that entrepreneurship may reduce five-year recidivism relative to unemployment, with a larger decline in reoffending than that associated with traditional paid employment. And those individuals with a record see this opportunity. Research has found that roughly 20 to 30 percent of people with criminal records report being self-employed business owners. 18 According to research conducted in 2021, approximately 1.1 million small business owners, nearly 4 percent of all small business owners nationally, have a criminal record. 19 Those who pursue business ownership may have the talent and motivation to succeed but are more likely to be disconnected from the networks and support that other entrepreneurs draw on—mentors from larger businesses, peer entrepreneurs, professional contacts—the very channels that often point people toward available credit and financing options as well as business opportunities. Lending and Support that Makes Entrepreneurship Possible The difference between a good idea and a lasting, operational business often boils down to three essentials: access to credit, access to business networks and opportunities, and access to missing skills or technical assistance needed to run a business well. 20 Entrepreneurs who have been involved in the criminal justice system face these needs as well, often with fewer opportunities to meet them. 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. 21 In 2024, the Small Business Administration (SBA) finalized a rule removing many criminal history bars from the SBA's small business loan and loan guarantee pro
