Stablecoin Workarounds Threaten Subprime Lending Economics, Industry Groups Say

The GENIUS Act — signed in July by President Donald Trump — was marketed as a hard stop on interest payments by stablecoin issuers. But bank trade groups say the new law leaves open three big loopholes.

The law still lets middlemen pay interest on stablecoins, allows out-of-state firms to dodge state oversight, and gives nonfinancial companies a back door into issuing stablecoins.

They cite affiliates and exchanges that deal in stablecoins but still provide yield-like benefits. Such benefits usually come in the form of bank interest and are marketed in combination with stablecoins. That makes things opaque for the consumer — and possibly disrupts the economics of lending.

“Without an explicit prohibition applying to exchanges, which act as a distribution channel for stablecoin issuers or business affiliates, the requirements in the GENIUS Act can be easily evaded,” wrote a coalition of banking groups including the American Bankers Association and Bank Policy Institute.

Stablecoin Incentives Could Disrupt Lending Economics

Yield-linked offerings — such as crypto reward programs or stablecoin wallets that pay interest — could pull deposits from banks. That’s not strictly a theoretical concern. Smaller funding for banks lending to subprime borrowers could have trickle-down effects.

Take OppFi, OneMain Financial, and Mariner Finance. They are in the habit of granting credit to borrowers with FICO credit scores below 620.

OneMain makes loans to applicants with scores below 580, and Mariner often works with applicants in the 600 or below range. OppFi works with thin-file clients and has had APRs into the triple digits for short-term loans.

If such lenders are subject to tighter capital as a result of deposit exodus, interest rates can increase, approvals can decline, and susceptible borrowers can have fewer, more expensive choices.

Industry groups claim the steady coin rewards can potentially raise the cost of lending and decrease business and consumer household loans unless unchecked.

Behavioral Changes Can Make Credit Models Problematic

Consumer preferences are changing. Income-generating stablecoins can seem more rewarding than the average savings account — particularly for income-limited households. If consumers move money into electronic purses, their banking habits could change.

That applies to credit modeling. Subprime consumers are already walking a financial tightrope. High APRs and other cash flows introduce uncertainty. There may not even be consistent indicators like regular payments or debit card usage on which to base credit decisions.

Scoring companies may have to factor in new signals — wallet activity, crypto transaction flows, or earnings tied to stablecoins. That transformation demands new analytics tools and new behavioral benchmarks.

Regulatory Clarity Remains a Wild Card

The GENIUS Act laid the groundwork toward regulation, but banking groups warn that its shortcomings could undermine stability unless regulators move to close the remaining loopholes.

Backers of stablecoin flexibility — including some fintech platforms — say limited yield features fuel innovation. But banks argue that sidestepping deposit protections and oversight distorts the market.

Regulatory outcomes may shape whether stablecoins become a financial backbone — or a destabilizing threat. To subprime lenders, the response forms the basis of the business model.

Key Strategic Takeaways for Subprime Lenders

The transition isn’t speculative. Interest-yielding stablecoins exist — and their emergence may squeeze lenders to nonprime borrowers.

Here’s what to look for:

• Track capital movement to detect early warning signs of deposit outflow.
• Adjust pricing models as funding costs trend upward.
• Refresh scoring systems to capture digital behavior trends.
• Keep abreast of regulators’ interpretations of the GENIUS Act on an ongoing basis.

Digital finance is redrawing the map. For lenders working on the edge of affordability, staying ahead of that shift may be the difference between resilience and retreat.