Citigroup joins efforts to expand access to credit

The bank plans to launch the programs under the Office of the Comptroller of the Currency’s Project REACh, or Roundtable for Economic Access and Change. One program will issue credit cards to people without credit scores, while the other will make it easier for small businesses owned by minorities, women, and veterans to get credit.

Citigroup is also launching a pilot program in 20 branches in Los Angeles to funnel more loans to small businesses owned by women, minorities, and veterans. To do so, the bank will lower its threshold for acceptable credit scores and tinker with other underwriting standards.

According to the officials, the bank has been testing ideas on how to reach more minority borrowers as part of its broader work on racial equity. As a result, the bank stopped charging overdraft fees in 2022. The bank also changed some home-loan requirements, like eliminating the need for mortgage insurance for some applicants.

The Project REACh

The Project REACh small-business lending program is partly modelled off a special-purpose credit program started in 1993 by Union Bank. The program allows the bank to be more flexible on some clauses like supplier diversity, allowing small businesses to get a loan even if they are heavily tied to a single customer. Such borrowers also face lower down-payment requirements for loans tied to commercial real estate.

Banks including J.P. Morgan Chase, Wells Fargo, and U.S. Bancorp are already working with Project REACh, sharing bank-account data to help approve a wider swath of borrowers for credit cards. Some 50 million Americans lack traditional credit scores, which banks typically require when reviewing applications for all manner of consumer debt.

Project REACh is part of a broader push in the banking industry to find ways to lend to a broader set of customers. Bank of America earlier said it was also launching a pilot program in some cities to lend to minority home buyers with no down payments or minimum credit scores.

Offering credit to underserved communities

More than 45 million consumers are either credit unserved or underserved in the US, according to a global TransUnion study. However, the study found that about one in four consumers (24%) who started as credit underserved were found to have migrated to becoming credit active in a two-year window prior to the pandemic. During the height of the pandemic, the percentage of consumers becoming more credit active decreased slightly to 22%, with the profile of those consumers skewing younger than the pre-pandemic sample.

A lack of a credit score and any history of credit activity is an impediment for these unserved consumers to get their first credit product, as many lenders are hesitant to extend credit to consumers without any credit history or score.

Researchers have found that information on an applicant’s income and spending habits are as good a measure of creditworthiness as credit scores, bankers said.

The efforts are still in the early stages. They’re also taking shape during a period marked by unusually low consumer-loan defaults, the result of pandemic stimulus that padded Americans’ bank accounts.