Fed’s Barr Urges AI-Powered Lending for Second-Chance Borrowers

Americans with criminal records often struggle to obtain affordable credit because incarceration, employment barriers and reliance on costly financial services can leave them with low scores or thin credit files. That exclusion also constrains entrepreneurship: research cited by the Federal Reserve estimates that about 1.1 million US small-business owners, nearly 4% of the national total, have a criminal record. More current measures of repayment capacity could help lenders distinguish past financial damage from present creditworthiness.

Federal Reserve Governor Michael S. Barr told the Second-Chance Lending Forum in Washington on Sept. 1, 2026, that formerly incarcerated people were 16 percentage points less confident their credit applications would be approved, yet 10 percentage points more likely to have applied during the previous year. Barr urged lenders to consider cash-flow underwriting, alternative financial data and AI-powered assessments, including “second look” reviews for applicants initially rejected under conventional scoring. He announced no new federal lending fund or dollar commitment, and said more evidence was needed to identify scalable programs.