The OCC Turns in the First Draft of Its Debanking Homework
Happy Monday, Fintech Takers!
One more week until I take a well-deserved holiday break. No travel. No last-minute shopping (well, maybe a little). Just lots of time with family and an outrageous amount of good food.
I’ve got lots of fun stuff teed up between now and the end of the year, and I need your help for one of them.
I don’t really like writing the New Year's Predictions essay typical of industry analysts, because, to be candid, I’m not that smart. I have no idea what’s going to happen next year. I may have one or two good guesses, but after that? I’m just throwing darts in the dark.
So, instead, I’d like to pull together a crowdsourced 2026 Fintech Predictions essay. Hit reply to this email and send me your best predictions for next year. I’ll pull all the submissions together (with a little bonus commentary) and send them out early in the new year!
And if you’re a member of the Fintech Takes Network, hop over there now and add your thoughts!
- Alex
Trampas, New Mexico. The Lopez children doing their homework on the kitchen table.
3 FINTECH NEWS STORIES
#1: Tala Tries to Bring Microlending On-ChainCopy anchor linkCopied
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Tala, a microlender focused on serving unbanked and underbanked consumers in emerging markets, is venturing into crypto lending:
Tala will deploy $50M credit facility in USDC to power blockchain-enabled, permissionless lending for millions of global customers
Tala, the financial infrastructure company building the world’s most accessible financial services, today announced the launch of its tokenized lending platform for the global underbanked. Powered by Solana and supported with USDC liquidity facilitated by the Huma Protocol through a partnership between Tala and Huma Finance, the new platform is the first to bring trustless, AI-underwritten consumer lending to underserved borrowers at global scale.
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I haven’t written much about Tala, but it’s an interesting company. Founded in 2011, it distributes microloans — usually between $10 and $500 — via its mobile app to unbanked and underbanked consumers in Latin America, Asia, and East Africa. It underwrites its loans using data collected from borrowers’ mobile phones (Editor’s Note — This “big data” approach to underwriting can work very well analytically, but runs into compliance problems in more mature markets like the U.S.) To date, the company claims to have loaned out roughly $6 billion to nearly 13 million people, which is an impressive level of scale.
Huma Finance is a much younger company (founded in 2022) that focuses on facilitating on-chain lending (using the Solana blockchain) for short-term “payments financing” use cases. For example, Huma will provide short-term revolving USDC credit lines so payment companies can settle cross-border transfers without pre-funding accounts in destination countries. In other words, they cover the float risk between sending a payment and receiving final settlement across rails/jurisdictions. They support a number of other, similar payments finance use cases, including trade finance and stablecoin-backed cards.
On the funding side, Huma operates two different models. Its first model is basically a private credit fund, with on-chain investors combined into structured pools with two different tranches. The junior tranche absorbs losses first, but gets paid a higher yield. And the senior tranche is protected from losses, but is paid a lower, more predictable yield. The second model (what the company calls Huma 2.0) is a set of permissionless DeFi-style lending pools, where the risks and yields are blended together and made available to anyone with a Solana-compatible wallet.
The Tala-Huma press release is a bit light on technical details, but I’m guessing that it works similarly to the Huma 1.0 model: a structured $50M USDC credit facility that likely sources capital from Huma liquidity pools and distributes tokenized, Tala-originated consumer loan receivables to on-chain capital providers.
The interesting part is the credit risk for Huma LPs. Unlike Huma’s typical payments-finance use cases (where underwriting can lean on signals like settlement receipts, invoiced payments, and card settlement flows), the performance of the Tala portfolio will depend entirely on Tala’s underwriting and servicing/collections. Tala has a track record to point to (though it has reportedly gotten too aggressive on collections in the past), but this still isn’t your typical “pay $100 to borrow $80” crypto-collateralized loan.
To address this, the companies are promising an “overcollateralized lending facility,” which is likely achieved through structural credit enhancements rather than borrower-level collateral (which isn’t a thing in microlending). These enhancements could include like advance rates or borrowing-base limits (the pool only lends, say, $80 against $100 of loans), reserves funded by excess interest (some of the loan interest is set aside as a loss buffer), and potentially a junior/first-loss position (held by risk-on LPs and/or Tala/Huma) that protects a more senior capital layer.
The question is, will these credit enhancements always be necessary? Or, over time, will Tala’s on-chain reputation and performance track record lead to on-chain investors (particularly in a fully permissionless fashion) accepting the risk of undercollateralized or uncollateralized loans?
#2: Unregulated Debt RecoveryCopy anchor linkCopied
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The wonderful Jeff Kauflin at Forbes reports that debt recovery companies are stepping on the gas (and running over consumers):
Encore is a publicly traded company with $1.5 billion in annual revenues and a $1.2 billion market value, and it’s one of the three largest debt recovery companies in the United States. Like its biggest peers, it makes money by buying charged-off debt, or loans that lenders like credit card issuers write off after bills have been deemed uncollectible by the merchant or bank. Norfolk, Virginia-based Portfolio Recovery Associates (PRA Group) is a $1.2 billion (revenue) publicly-traded debt buyer and collector. A third is Resurgent Capital Services, which was once owned by billionaire Ben Navarro’s Sherman Financial Group. In the third quarter of 2025, Encore collected 20% more money from consumers than it did a year ago and more than it ever has since its 1953 founding.
The major factor driving its boom in business is that people are holding more debt than ever–with $1.2 trillion in revolving credit card balances alone–and they’re having trouble paying their bills. The amount of charged-off credit card debt spiked a year ago to $55 billion, a level that hadn’t been seen since the Financial Crisis. It remains elevated at $50 billion (see chart above).
Over the past 11 months, consumers filed 253,000 complaints about collection companies to the Consumer Financial Protection Bureau (CFPB), up from 140,000 during the same period in 2024.
The complaints range from collectors failing to provide proof that a debt was owed to aggressively contacting “current and previous employers, relatives, friends, even acquaintances.” The potential for heavy-handed tactics and abuse is large–nearly one in four Americans with a credit report has at least one debt in collections, according to the Urban Institute.
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In his article, Jeff points out that debt recovery companies have become alarmingly efficient at filing lawsuits:
Midland [a debt recovery firm owned by Encore Capital] alone will likely file more than 600,000 lawsuits against consumers in 2025, according to January Advisors, up from about 300,000 in 2022. Resurgent Capital will probably file more than one million consumer debt lawsuits this year.
Debt collectors will often sue consumers for as little as $800, says Bill Kaludis, a Nashville plaintiffs’ attorney who often represents consumers who sue and are sued by debt collectors. One reason such small prizes are appealing to collectors: the price tag isn’t too high for even cash-strapped people to pay, and it likely won’t drive them into bankruptcy, in which case the collectors get nothing. Lawsuits are also effective because they set off alarm bells for consumers. Getting hit with a judgment over a $700 overdue medical bill, for example, often stays on your permanent record.
Another reason why debt collectors sue for such tiny sums is because they’ve automated the legal process and found ways to keep costs low. They use templated lawsuit filings, have their attorneys handle huge caseloads and outsource work to outside law firms. For instance, in 2024, London & London filed 7,720 debt-collection lawsuits against consumers on Midland’s behalf in Connecticut alone, or an average of 29 lawsuits per business day, according to January Advisors.
According to Pew, more than 90% of consumers don’t show up in court when they get sued by collectors. Many don’t recognize the debt collection company’s name and think the notices are a scam, or they ignore them, hoping the issue will disappear. But when consumers don’t show, the debt collector gets a default judgment against them, which often gives them the legal right (depending on the state) to garnish their wages or bank account.
While, at the same time, being less responsive to consumer complaints:
In the first 11 months of 2025, PRA has been responding less often to consumers’ complaints filed to the CFPB. According to the agency’s publicly available database, it hasn’t provided a timely response to 611 complaints, or about 4.3% of all complaints it received, up from just 0.7% over the same period in 2024. A PRA spokesperson declined to comment.
Norwood, Massachusetts-based debt collector Credit Collection Services (CCS), whose website sports the tagline “where cash flows,” hasn’t provided timely responses to 2,870 complaints this year, or 40.4% of all complaints, up dramatically from an untimely response rate of 20.8% over the same period in 2024.
The timing here isn’t a coincidence. Russ Vought has crippled the CFPB’s ability to supervise bank and non-bank financial services companies and bring enforcement actions against those that harm consumers.
That’s not good, but in certain areas of B2C financial services, it’s not always catastrophic. When consumers’ interests are aligned with companies’ interests, there is less of an incentive for companies to engage in bad behavior.
The debt buying and recovery space is not one of those areas. The interests of consumers and companies are deeply unaligned, and having a “cop on the beat” is absolutely necessary.
#3: The OCC Turns in the First Draft of Its Debanking HomeworkCopy anchor linkCopied
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The OCC published its preliminary findings after looking into debanking:
The OCC’s preliminary findings show that, between 2020 and 2023, these nine banks [JPMorgan Chase Bank, Bank of America, Citibank, Wells Fargo Bank, U.S. Bank, Capital One, PNC Bank, TD Bank, and BMO Bank] made inappropriate distinctions among customers in the provision of financial services on the basis of their lawful business activities by maintaining policies restricting access to banking services or requiring escalated reviews and approvals before providing certain customers access to financial services. For example, the OCC identified instances where at least one bank imposed restrictions on certain industry sectors because they engaged in “activities that, while not illegal, are contrary to [the bank’s] values.” Sectors subjected to restricted access included oil and gas exploration, coal mining, firearms, private prisons, tobacco and e-cigarette manufacturers, adult entertainment, and digital assets.
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My eldest son hates doing his homework. Getting him to sit down and do it is like dragging a stubborn mule up a hill during a blizzard. Just very unfun and frustrating for everyone involved. I can only imagine how much worse it would be if, in addition to his regular homework assigned by his highly competent and caring teacher, he also occasionally had to complete pointless and vaguely defined homework assignments given to him by an idiot.
Unrelated, leading a federal regulatory agency in this administration seems super fun!
On the subject of debanking, there are two fundamental belief systems that you can have:
- Banks are businesses competing in a free market, and they are allowed to choose which customers they want to work with, based on the value and risks those customers pose. The only forms of discrimination that aren’t allowed are those defined in the Equal Credit Opportunity Act, the Fair Housing Act, and the Civil Rights Act of 1866. Otherwise, banks get to pick their customers, and the magic of supply and demand will, over time, solve for any imbalances.
- Banks are public utilities, like those that send natural gas and electricity to your house, and, as such, they are required to serve all customers who are legally permitted to access their services, regardless of how risky or unprofitable they are.
The first belief system is the one that we have enshrined in law and practice here in the U.S. However, you can at least see, theoretically, the argument for the second system. It doesn’t strike me as a particularly Republican idea, but in an era of populism, you could imagine the administration working with Congress to pass a whole bunch of new laws to make a public utility banking system a reality.
But that hasn’t happened. And it isn’t going to happen. And someone should tell the OCC that.
Their press release and report are written to suggest that big banks did something wrong. Here’s just one quote: “The OCC is today providing visibility into the debanking actions against customers and lawful businesses taken by the nation’s largest banks to ensure public awareness, and to halt these harmful and unfair practices.”
Note the language used, “harmful and unfair practices.” Not “illegal.”
The OCC didn’t find any evidence of illegal debanking because, in the free market banking system we have today, it’s not against the law for banks to restrict access to banking services or to subject customers to escalated reviews and approvals based on the risks posed by those customers, including reputational risks.
Now, if you want to argue that banks’ perceptions of the reputational risks posed by businesses in certain industries were inappropriately influenced by regulators during the last administration, I am willing to hear you out. But you can’t blame the banks for that! To the extent that happened (and I’ve yet to see any real proof), that’s the fault of Biden-era regulators, not the banks they oversaw. And the Trump Administration has already solved this issue by taking the reputation risk bullet out of bank examiners’ guns.
I expect the folks working at the OCC, including Comptroller Gould, know all this. They just had a dumb homework assignment they needed to complete.
2 READING RECOMMENDATIONS
#1: Everyone is Gambling and No One is Happy (by Kyla Scanlon) 📚Copy anchor linkCopied
Depressing!
#2: Can Large Language Models Develop Gambling Addiction? (by Seungpil Lee, Donghyeon Shin, Yunjeong Lee, Sundong Kim) 📚Copy anchor linkCopied
Alarming!
BONUS: Acquisition Requires Attention. Retention Requires Trust. (by me, with Cross River Bank) 📚Copy anchor linkCopied
This one is neither depressing nor alarming. Just interesting!
Banking used to be about physical proximity; now it’s about attention.
Whoever owns the habit gets to distribute the product. Here’s why that’s reshaping financial services.
* This rec is brought to you by one of our fantastic brand partners
1 QUESTION FROM THE FINTECH TAKES NETWORK
There are a TON of interesting questions being asked in the Fintech Takes Network. I’ll share one question, sourced from the Network, each week. However, if you’d like to join the conversation, please apply to join the Fintech Takes Network.
What are your predictions for fintech and banking in 2026?
If you have any thoughts on this question, reply to this email or DM me in the Fintech Takes Network!
Thanks for the read! Let me know what you thought by replying back to this email.
— Alex
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