📉 Summary: Implications of the Federal Reserve’s Economic Bulletin on Subprime Lenders
1. Headline Insight
As of January 2025, subprime credit card delinquencies have declined for two consecutive months following a sharp increase that began with the March 2022 monetary tightening cycle. This marks a potential turning point in consumer
credit behavior among subprime borrowers.
2. What’s Driving the Shift
Reduced demand for credit by subprime consumers: evidenced by falling purchase activity and decreasing APRs on subprime cards.
A possible “credit fatigue”
effect: higher rates and rising delinquencies in prior months may have pushed borrowers to reduce reliance on revolving credit.
🔍 Strategic Implications for Subprime Lenders
1. Customer Demand Is Cooling, But Opportunity Remains
Don’t misread the drop in delinquencies as purely positive. It reflects shrinking credit demand not improved consumer financial health.
As noted in the LegalShield Bankruptcy Trends Report, bankruptcies and financial stress are still rising. This contradiction reveals an unmet demand for structured, predictable credit alternatives like installment loans and lines of credit.
🔧 Action: Shift messaging to emphasize structured budgeting, fixed payments, and debt recovery tools over “quick cash.” Position your products as responsible, repeat-use tools—not desperation plays.
2. New Loan Acquisition Strategy: Quality > Quantity
The current
borrower pool may be shrinking due to lower risk tolerance and higher financial literacy post-pandemic.
Returning borrowers are still essential, but need re-onboarding and reframing of your value proposition, especially if they’ve had negative credit experiences in 2023–24.
🔧 Action: Introduce automated requalification and loyalty discount programs. Make returning feel “safer” and more dignified.
3. Declining APRs: Time to Revisit Your Pricing and Risk Tiers
The Fed report shows subprime APRs dropping
faster than prime likely due to reduced demand. But as documented in our Illinois rate cap study, a 36% APR cap creates a “loan desert” for small-dollar borrowers.
🔧 Action: Use flexible rate tiers with clear APR explanations and examples. Offer optional add-ons (e.g., faster funding, credit-builder reporting) to preserve margins while keeping headline APRs lower.
4.
Compliance and Advertising Constraints: Adapt or Vanish
As noted, Google AdWords prohibits advertising loans with APRs above 36%. Many lenders are invisible online at the exact moment consumers seek help.
But as per your Trihouse manual, demand remains strong—and can be captured organically or through compliant advertising strategies.
🔧 Action: Invest in SEO, lead gen partnerships, and state-licensed lending
models that allow compliant ads. Build a robust local presence with a strong, free Google Business Profile listing, SMS follow-ups, and referral programs.⬇️👇
