Keeping Up with Compliance: February 2025

Welcome to another issue of LoanPro’s compliance newsletter, bringing you news from across the industry with a focus on compliance. Expect new editions monthly. Subscribe to the newsletter to make sure you don’t miss an issue.

Compliance actions & changes in the industry

Rulemaking

• Proposed credit card interest cap. Senators Bernie Sanders (I-VT) and Josh Hawley (R-MO) introduced a bill that would cap credit card interest rates at 10%, with Hawley citing a campaign promise from President Trump. If passed, the price cap would take effect “immediately” and expire in five years.?
• Overdraft rule may face congressional review. House republicans are poised to begin the Congressional Review Act (CRA) process for a CFPB rule that would limit overdraft charges to $5 at major FIs.
• Oregon considers opting out of DIDMCA, enforcing local interest rate maximums. Oregon’s House Commerce and Consumer Protection committee approved legislation that would opt the state out of some provisions of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) that allow multi-state banks to offer loans with the highest interest rates offered at any of the states they operate in. If passed, Oregon’s proposed law would require out-of-state banks to offer loans at or below Oregon’s 36% usury law.

Enforcement actions

• State agencies step up consumer protection enforcement. Ballard Spahr reported on several state-level agencies and prosecutors who are stepping up to fill the CFPB-sized hole in the regulatory landscape. If the trend continues, credit providers will need to shift their focus from federal regulations to a web of state-by-state rules.
• Enforcement actions paused at CFPB. Russel Vought, the new acting director at the CFPB, has paused all enforcement actions. (More on this below as we discuss the happenings at the CFPB).

Research

• Credit card interest cap may bring unintended consequences. Critics of Senators Sanders and Hawley’s proposed interest rate cap have pointed out that it may bring unintended consequences: when New Mexico capped small dollar loans’ interest rate at 36%, borrowers lost access to credit, and instead turned to more expensive options, like overdrafting their bank accounts or borrowing from unlicensed loan sharks.

Other items

• Bessent, then Vought, and finally McKernan tapped to direct CFPB. Rohit Chopra was replaced first by former Treasury Secretary Scott Bessent, who served for less than a week before the Trump administration installed Russel Vought as the new acting director. The Trump administration then nominated Jonathan McKernan, a former director on the board of the FDIC, as a full (not just acting) director.
• Work halted at CFPB, other agencies. In his brief tenure as the CFPB’s acting director, Bessent had ordered staff to cease new rulemaking. Vought, however, then ordered them to “not perform any work tasks,” including enforcing existing rules. (Vought has since restored a few select functions, like monitoring mortgage rates to develop APOR tables and a tipline for regulatory weaponization by the agency itself.) In the House and Senate, meanwhile, bills have been introduced to cut all funding to the CFPB.
• Lawsuits to block CFPB shutdown underway. Joined by a group of 23 state attorney generals, the city of Baltimore is suing the CFPB, asking the court to keep the agency from defunding itself. The city argues that it relies on CFPB complaint data to protect citizens. The National Treasury Employees Union has filed its own suit challenging Vought’s orders to halt all work.

Industry news

• Taktile secures a $54 million Series B. Big news from our friends at Taktile! They just closed a $54 million Series B led by Balderton Capital. Taktile has been on a tear, helping fintechs and banks rethink decisioning. We’ve seen firsthand how Taktile makes it easier for lenders to test, adjust, and optimize credit models in real time. Congrats Taktile team!?
• Alkami acquires MANTL for $400 million. Alkami is acquiring MANTL to bring account opening to its digital banking platform. The deal will help banks and credit unions attract more deposits with faster onboarding and lower fraud. This acquisition is another sign of accelerating M&A activity in fintech.
• @A16z on how voice AI is reshaping banking. Andreessen Horowitz recently highlighted how voice AI is going to transform financial services. As banks and fintechs look to scale customer interactions, AI-powered voice agents are stepping in to handle complex inquiries, reduce costs, and make banking more accessible. While a ton of challenges remain, voice AI could fundamentally change the way financial organizations engage with their customers.

Insights

While most of our compliance news has focused on deregulatory drama, it’s worth taking a step back and putting it into the broader context of what’s happening in the industry. That’s especially true for the proposed interest rate cap on credit cards and other consumer protections being considered by various state regulators.

Last quarter, total consumer debt in the U.S. reached $18 trillion dollars—a new milestone. Let’s break that down:

• Housing debt makes up a tidy $13 trillion.?
• Non-housing debt totals $5.04 trillion (full breakdown below) and comprises debt from student loans, auto loans, credit cards, and the catchall ‘other’ category.

Looking at the data, we see a trend: unsecured debt is more abundant than ever, and it’s at much higher risk.

Mortgages and HELOCs rarely default. Delinquency rates steadily declined after the 2008 financial crisis and leveled off around 1%. Auto delinquency is higher, but barely reached 5% even at its 2010 peak. Student loan delinquencies are low, but that's more of a reporting artifact than an insight on borrower behavior: before payments were paused during COVID, delinquency rates typically exceeded 10%.

The major risk is in credit cards and “other”. Both categories are at record highs in total debt, and both have delinquency rates approaching their 2010 peaks, up from just over 7% in 2022. Credit card delinquency has actually exceeded its COVID peak.

That might bear repeating: Credit card delinquency spiked during COVID, went back to normal, and has since rocketed back to where it was in 2009. It’s begun decelerating, but still showing no signs of stopping even as the amount of debt increases to the tune of hundreds of billions of dollars.

Major delinquencies and defaults are bad in and of themselves, but they could also bring a shift to credit availability throughout the industry. If cards and other unsecured credit products are riskier, they’ll either come with higher interest rates or stricter underwriting. Sanders and Hawley’s proposed interest rate cap would keep the rates themselves at 10%, but credit providers would of course limit availability to mitigate the risk.

But credit providers have other options, too. Secured credit sees significantly lower default rates, and a credit builder product can easily evolve into a self-backed line of credit without adding new infrastructure for collateral tracking and recovery. And better portfolio management—aided by tools like two-way SMS, integrated data monitoring, and custom automation—can help reduce delinquencies and defaults without changing your products. LoanPro clients, for example, see an 38% average decrease in credit losses when they modernize their operations. Delinquencies may be trending upwards, but that doesn’t mean yours have to.

Feature spotlight

Suppose Senators Hawley and Sanders get their bill passed, and credit card interest is suddenly capped at 10%. Or, suppose that any number of state legislatures pass more strict usury laws, limiting the interest or fees that lenders can charge. Not only will it be harder to keep a product profitable, but it will also be harder to attract borrowers in the first place.?

Under that legislation, borrowers would no longer be shopping for the best interest rates—they’d be shopping for the best experience. But most legacy platforms leave you with scant options for personalization. That’s where LoanPro’s transaction level credit? comes in. It allows program managers to customize interest rates, credit limits,? and deferral options? based on purchase and account details, turning the financial mechanics of the card into a personalized reward program.

With transaction level credit, you can fine-tune your card programs to target demographics or even individual preferences, allowing you to win and retain cardholders through personalization.

Thanks for reading this month's edition of Keeping up with Compliance! Don't forget to subscribe, and keep your eyes peeled for our March issue.