The Subprime Headlines That Defined Credit in 2025

The subprime sector will not look back at 2025 fondly. It was a stressful year for lenders and borrowers. It was also a very dynamic market.

Regulation took a backseat. Lenders’ methods of evaluating credit changed. A couple of industries were hit hard (Tricolor, I’m looking at you). The impact: It made traditional subprime credit more expensive and more difficult to obtain.

There is much to discuss in this annual review. We will go beyond the news headlines and identify the financial and economic drivers that were evident at times and murky at others. The lending market remains dynamic because of new data and products. Things seem uncertain for many in the subprime industry as we enter a new year.

April 16: CFPB Signals Enforcement Pullback

On April 16, the CFPB signaled it would no longer push enforcement against certain nonbank companies. That altered incentives for compliance investment and risk tolerance. But it did not eliminate risk.

Howard Dvorkin, Chairman at Debt.com, said the environment was ripe for bad actors. “Instead, with the CFPB diminished, I expect 2026 to be the Year of Bad Actors,” he said. In addition, he said that scams and abusive practices could spread. Indeed, survey data show a sharp rise in reported fraud. Whether enforcement moved elsewhere is hard to tell.

Kevin King of LexisNexis Risk Solutions spotlighted another problem. Nonbank lenders faced a strategic dilemma. Changing how they operate due to weaker supervision could eventually backfire. Yet doing nothing could hurt profits.

The key message here is that risk moved because of relaxed regulation, but risk did not disappear. There are reputations at stake, and uncertainty is prevalent.

“For businesses needing credit, the subprime industry is booming with limited regulations feeding the frenzy,” said Leslie H. Tayne, a debt relief lawyer and finance and debt expert. “On the consumer end, there are a lot of hoops lenders need to jump through to lend to consumers, so their only option is to really scrutinize the borrower.” 

April 21: Education Dept. Restarts Collections on Student Loans

On April 21, the U.S. Department of Education announced it would restart collections on defaulted federal student loans. This ended pandemic-era relief. It placed immediate pressure on millions of borrowers already struggling to stay current.

Suddenly, millions of borrowers found themselves stretched beyond the breaking point. As expected, defaults increased, and to make matters worse, the government went after borrowers’ wages and tax refunds.

The problem began with the resumption of federal student loan payments after several years of pandemic forbearance. Borrowers were forced back into repayment before they were able to fully recover.

King said, “We could be in a position by next spring where there are well over 10 million federal student loan borrowers in default.”

Those borrowers didn’t disappear from the credit market. They showed up as increased demand for nonprime products — often while already under financial pressure.

Medical debt added more pressure, as unpaid medical balances exceeding $500 reappeared on many credit reports. But a hodgepodge of state restrictions remained in place.

“We could be in a position by next spring where there are well over 10 million federal student loan borrowers in default.” — LexisNexis Risk Solutions VP Kevin King

Court rulings increased pressure on certain states that had barred the use of medical debt in credit evaluations. The ranks of new subprimers swelled. These innocents got caught up in a crush of reporting and policy changes.

Lenders saw demand and delinquency increase in tandem. Growth also meant more risk, so lenders tightened underwriting and pulled back on who they approved.

Aug. 11: BNPL Reporting Blind Spots Raise Subprime Risk

On Aug. 11, BadCredit.org reported that major BNPL providers were withholding large portions of repayment data from credit bureaus. The providers included Klarna and Afterpay. This created a growing blind spot for subprime lenders assessing risk.

BNPL went mainstream in 2025. Stretched consumers looked to this type of credit to finance spending without a credit card. Increasingly, consumers use BNPL for small transactions such as dining and takeout. The question is whether this trend is due to the attractiveness of BNPL or the tight budgets of subprime consumers.

OppFi CEO Todd Schwartz said, “Buy-now-pay-later has exploded beyond large purchases. People now use it for $50 to $100 transactions, like meals at Chipotle.” Clearly, BNPL has grown beyond its original purpose. It raises issues of sustainability: Many now use these short-term loans to cover weak cash flows.

“Buy-now-pay-later has exploded beyond large purchases. People now use it for $50 to $100 transactions, like meals at Chipotle.” — OppFi CEO Todd Schwartz

Increasingly, subprime lenders will have to worry about late payments. This threatens their profit margins. For borrowers with multiple debts, BNPL has gone beyond convenience. It could become a crutch that’s difficult to do without.

Dvorkin said, “It might also be the year when easy credit leads to deepening debt.” He criticized the use of BNPL for routine expenses. Overspending can result without full regard for the long-term cost. Consumers once had to seek out credit. Now, BNPL is easily available on the checkout screen.

For subprime lenders, the BNPL story was paramount. It revealed the fragility of household finances. It also signaled increased debt from discretionary spending.

Sept. 10: Tricolor Auto Group Files for Chap. 7 Bankruptcy

Funding risk exploded this year after years of relative calm. On Sept. 10, Tricolor Auto Group filed a Chapter 7 bankruptcy petition in federal court.

The collapse of Tricolor sent shockwaves through the subprime market. It exposed how intertwined many lenders and funders had become.

Trust Science VP Colin Tran said, “The turmoil surrounding the Tricolor collapse sent shockwaves throughout the industry.” He said that many funders in the subprime credit market were forced to reevaluate risk. That made them pull back capital. They tightened deployment and repriced capital.

The impact was immediate for risky subprime products. Warehouse lines became more restrictive. The appetite for securitization went limp.

The bankruptcy of Tricolor taught lenders that money can dry up real fast. Good lenders can see their money sources dwindle with a loss of confidence. The impact was not limited to one business. It made lenders hold back on funding in the latter half of the year.

Auto lenders had to modify loan terms. Many loans went underwater — balances higher than vehicle values.

Oct. 2: Credit Scoring Faces Strain as FICO Bypasses Bureaus

One of the less noisy but significant stories this year was credit data itself. On Oct. 2, FICO announced plans to sell its credit scores directly to lenders. This bypassed traditional credit bureau channels. In addition, it underscored the growing strain in how credit risk is measured and distributed.

Lenders were already grappling with unreliable credit signals. Many people saw an increase in their credit scores. But these boosts have not corresponded with actual user behavior. Schwartz pointed out an increase in credit report disputes due to the influence of social media influencers.

“Finfluencer-driven credit report disputes surged significantly,” Schwartz said. He said the increase did not reflect widespread reporting errors — it stemmed from tactical attempts to manipulate credit files.

A rise in unreliable credit signals and FICO’s introduction of direct-to-lender credit scores have caused structural shakeup in the lending industry.

That noise compounded a broader structural shift this year. The middle tiers are shrinking, while the affluent will continue to build their credit. Others are losing ground.

Lenders increasingly face a bifurcated market, which makes it harder to segment risk. In other words, credit files are sending mixed signals.

Tran spoke to a parallel issue. Credit-building products helped borrowers boost scores quickly. But that’s not always a recipe for creditworthy behavior. BNPL usage is seldom reported to the credit bureaus, and that creates holes in traditional credit files.

Alternative data sources include cash flows and transaction insights. They gained attention as a way to fill those holes, but adoption was inconsistent. It was often limited to second-look underwriting and higher-dollar products.

Many lenders will enter the new year with more data. But they will have less confidence in any single score.

Looking Back to Look Ahead

The important lending stories this year had a common theme. Stress surfaced in places the market had previously thought to be stable. Consumer liquidity weakened, funding tightened, oversight scattered, and credit data became harder to trust at face value.

These issues changed how lenders approached growth and risk, as well as pricing, heading into the new year. The year made existing problems harder to ignore.