Closing the Credit Gap

Structural Barriers to Capital

The credit gap for women and minority small business owners is not an accident—it reflects decades of deliberate discrimination and structural barriers in our financial system. In 2023, only 45% of women-owned businesses were fully approved for the loan amounts they requested, compared to 55% of men-owned businesses.¹ Twenty-five percent of women are denied business loans entirely, versus 19% of men.¹ The disparities are even starker for minority entrepreneurs: just 41% of startups owned by people of color are considered low credit risk, and firms owned by people of color are far less likely to have paid professionals in their networks who can help them navigate the lending process.²

These gaps did not emerge naturally. They are the product of a financial system that was designed to exclude women and people of color from building wealth. Before the Equal Credit Opportunity Act of 1974, lenders routinely and explicitly discriminated against women, discounting married women’s income and denying single women credit entirely.³ It took Congresswoman Lindy Boggs personally inserting anti-discrimination language into the bill—telling her colleagues “I’m sure it was just an oversight”—to ensure women were protected.³ Even after ECOA passed, Congress had to amend it in 1976 to prohibit discrimination based on race, color, religion, national origin, and age.³

The legacy of redlining compounds these barriers. From 1934 to 1962, the Federal Housing Administration backed $120 billion in mortgages, but fewer than 2% went to people of color.⁴ The FHA systematically excluded Black families from government-backed loans, confining them to neighborhoods that banks then refused to serve.⁴ Today, over 74% of white residents own homes compared to just 46% of Black residents, and the typical homeowner in a formerly redlined neighborhood has gained $212,000 less in wealth from property appreciation over the past four decades.⁵ On average, Black families have $23 for every $100 of white family wealth.⁵ This wealth gap translates directly into a credit gap: entrepreneurs with less collateral and smaller networks face steeper barriers to financing their businesses.

Postal Banking: Financial Services for Every Community

Addressing the credit gap requires providing alternatives to a private banking system that has abandoned underserved communities. Ninety-three percent of bank branches that closed since 2008 were in neighborhoods where the median income is below the national average.⁶ An estimated 5.9 million American households are completely unbanked, and another 18.7 million are underbanked, often relying on predatory payday lenders that extract billions in fees from the poorest Americans.⁶

The United States already solved this problem once. From 1911 to 1967, the Postal Savings System provided affordable banking services through post offices nationwide.⁷ The system was especially popular with immigrants and working-class Americans who struggled to find honest banking options. During the Great Depression, when private banks failed, the Postal Savings System remained a safe haven—by 1947, more than 4 million people had $3.4 billion in savings across 8,000 postal units.⁷

I support reviving postal banking through the Postal Banking Act, introduced by Senator Kirsten Gillibrand and Senator Bernie Sanders.⁶ The legislation would allow the United States Postal Service to offer basic financial services including checking and savings accounts, small-dollar loans, and bill payment services. With over 30,000 retail locations—the world’s largest retail network—the USPS can reach communities that private banks have abandoned.⁶ Polling shows postal banking enjoys 74% support among all voters, including 67% of Republicans.⁶ The USPS Office of Inspector General has estimated postal banking could generate nearly $9 billion in annual revenue while serving millions of currently unbanked Americans.⁶

Public Banking: The North Dakota Model

Beyond postal banking, I support establishing public banks at the state and federal level. Public banks operate without the profit motive that leads private lenders to discriminate or avoid communities they deem insufficiently profitable.

The Bank of North Dakota has demonstrated for over a century that public banking works. Founded in 1919 by a farmer protest movement, the bank has turned a profit every year since its founding and has returned over $1 billion to North Dakota’s general fund.⁸ During the Great Depression, while teachers across the country were being paid in IOUs typically redeemed at a 15% loss, the Bank of North Dakota paid them in full.⁸ Today, the bank reports assets of $10.8 billion and a return on investment of 15.8%—outperforming Wall Street giants.⁸

The Bank of North Dakota succeeds by partnering with community banks rather than competing with them. It functions as a “bankers bank,” spreading risk and enabling small local institutions to punch above their weight.⁸ North Dakota leads the country in community banks per capita, and during the pandemic, the state distributed more federal Paycheck Protection Program loans per capita than any other.⁸ States like Massachusetts should establish their own public banks to provide affordable credit to underserved entrepreneurs, using the North Dakota model as a template.

Expanding Community Development Financial Institutions

Community Development Financial Institutions represent another proven approach to reaching underserved borrowers. CDFIs are mission-driven lenders—including banks, credit unions, and nonprofit loan funds—specifically focused on serving low-income communities.⁹ Over 1,400 certified CDFIs operate across the country, offering competitive interest rates and flexible qualification requirements to borrowers who cannot access conventional financing.⁹

CDFIs proved themselves as financial first responders during the COVID-19 pandemic, distributing over $34 billion in Paycheck Protection Program loans while maintaining their focus on underserved businesses that larger institutions could not reach.⁹ As of 2023, 46 states are implementing CDFI-supported lending programs through the State Small Business Credit Initiative, totaling $3.4 billion.⁹

I support dramatically expanding federal funding for CDFIs through the CDFI Fund, which was created in 1994 to promote economic development in distressed communities.⁹ CDFIs have a proven track record, but they remain underfunded relative to the scale of the problem. Federal investment in CDFIs delivers direct returns to underserved entrepreneurs and communities.

Strengthening Fair Lending Enforcement

The Equal Credit Opportunity Act and the Community Reinvestment Act are only as effective as their enforcement. CRA was passed in 1977 specifically to combat redlining, requiring banks to meet the credit needs of the communities in which they operate.¹⁰ But enforcement has weakened dramatically. Recent reports indicate the Office of the Comptroller of the Currency has stopped fair lending examinations, while the Consumer Financial Protection Bureau has reversed enforcement actions related to discrimination.¹⁰ Total enforcement actions against financial services firms fell 37% between the final six months of 2024 and the first six months of 2025.¹⁰

I support fully funding financial regulators to conduct aggressive audits and impose meaningful penalties on lenders that discriminate. When federal agencies abdicate oversight, discrimination flourishes. As the National Community Reinvestment Coalition has warned, “federal abdication of oversight does not mean nobody is watching”—but community organizations should not have to fill the gap left by gutted federal enforcement.¹⁰

Algorithmic Discrimination: The New Frontier

As lending decisions increasingly rely on algorithms, we face new forms of discrimination that existing laws struggle to address. Research from Lehigh University found that commercial AI systems—including models from OpenAI, Anthropic, and Meta—consistently recommended denying more loans and charging higher interest rates to Black applicants compared to otherwise identical white applicants.¹¹ The bias was most pronounced for riskier applications with low credit scores or high debt-to-income ratios.¹¹

Algorithmic discrimination often operates through proxies. Even when AI systems do not include explicit racial data, factors like ZIP codes, educational background, and employment history can stand in for protected characteristics due to historical inequalities.¹² The CFPB has confirmed that creditors must explain specific reasons for adverse actions even when using complex algorithms—but our legal framework, built on laws from the 1960s and 1970s, is not equipped to handle AI-driven lending decisions.¹²

I support robust federal oversight of algorithmic lending systems, including mandatory bias audits, transparency requirements, and clear liability for discriminatory outcomes regardless of whether discrimination was intentional. Technology should expand access to credit, not perpetuate historical exclusion.

Addressing the Wealth Gap

Ultimately, closing the credit gap requires closing the wealth gap. Generations of redlining, predatory lending, and exclusion from wealth-building opportunities have left women and minority entrepreneurs with less collateral and smaller networks. The racial wealth gap is currently wider than it was during the Jim Crow era.⁵

I support the American Opportunity Accounts Act, introduced by Senator Cory Booker and Representative Ayanna Pressley, which would establish federally-funded savings accounts for every child at birth.¹³ Each account would be seeded with $1,000 and receive additional annual deposits based on family income, growing with interest until the child turns 18.¹³ These “baby bonds” would help ensure that every young American has capital to start a business, buy a home, or pursue education—regardless of the wealth their parents were able to accumulate.¹³

The legislation is fully paid for through reforms to federal estate and inheritance taxes.¹³ States including Connecticut, California, and the District of Columbia have already begun implementing their own baby bonds programs, demonstrating momentum for this approach.¹³

The Bottom Line

The credit gap is not a natural feature of markets—it is the predictable result of policies that excluded women and people of color from building wealth for generations. Addressing it requires structural solutions: postal banking to reach abandoned communities, public banks to provide alternatives to profit-driven lenders, expanded CDFIs to serve mission-driven purposes, strengthened enforcement of existing fair lending laws, oversight of algorithmic discrimination, and long-term investments in closing the wealth gap.

Private banks have proven they will not solve this problem on their own. Public options and aggressive enforcement must fill the gap. Every entrepreneur deserves a fair shot at capital, regardless of their race, gender, or ZIP code.

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