The Roundup: State Regulators Step Up, UK Urges AI Oversight, FDIC Revamps Appeals Process, OCC Eyes Market Imbalance, Rate Cap Debate Heats up

Welcome to the PerformLine Regulatory Compliance Roundup, home of the latest news, articles, and reports from our industry, curated for you. Let’s get into it.

In this edition:  State regulators ramp up oversight, UK lawmakers sound alarm on AI risk, FDIC finalizes supervisory appeals reform, OCC looks to level the lending field, Banks push back on rate cap plan

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States Step Into CFPB’s Enforcement Gap

As the Consumer Financial Protection Bureau (CFPB) significantly scales back enforcement and supervision, state attorneys general and banking regulators are stepping into the gap by increasing enforcement actions, hiring former CFPB officials, and leveraging their own consumer protection authority under federal and state law.

Several states, including New York, California, Pennsylvania, Massachusetts and Connecticut, are actively pursuing consumer protection cases and expanding regulatory initiatives. State entities are also tracking emerging risks such as AI‑related discrimination in lending. They’re updating disparate impact rules weakened by federal rollbacks and coordinating enforcement across multiple states.

Despite this uptick, experts caution that states lack the funding and breadth of authority to fully replace the CFPB’s nationwide supervisory role, particularly against large national banks. American Banker

Why It Matters: With the CFPB retrenching, a patchwork of state standards and enforcement actions is emerging, increasing compliance complexity for banks and nonbanks alike. Firms now face multiple enforcement fronts, from state AG consumer protection actions to state banking regulator scrutiny, raising operational and legal risk for products and practices previously governed at the federal level.

UK Regulators Urged to Act Now on AI Risks

UK regulators are under pressure to move faster on AI oversight in financial services. A new report from the House of Commons Treasury Committee warns that the Financial Conduct Authority (FCA), Bank of England (BoE), and the Treasury are exposing consumers and markets to “potentially serious harm” by taking a “wait-and-see” approach to AI risks. The report urges stress tests for an AI-driven market shock and clearer guidance on how current rules apply to AI.

The committee also urged quicker action on regulating Big Tech cloud and AI providers, along with greater transparency around how AI is used in lending, fraud detection, and trading. Regulators acknowledged the concerns and pointed to recent efforts, like the FCA’s AI sandbox and live testing program, while also pledging a fuller response later this year. Financial Times

Why It Matters: This push from MPs reflects rising concern that AI deployment is outpacing regulation. Lawmakers warn that without proactive oversight, AI could amplify risks like discrimination, fraud, and financial instability. Regulators, meanwhile, are working to strike a balance between innovation and responsible governance.

New FDIC Rule Strengthens Bank Oversight Appeals

The Federal Deposit Insurance Corp. (FDIC) has finalized a rule overhauling its supervisory appeals process, establishing a new, independent Office of Supervisory Appeals to replace the current internal review committee. The appeals panel must now include a former banker or someone with direct experience in bank-related services, an addition requested by commenters to ensure industry perspectives are represented.

The final rule also expands banks’ appeal rights in cases tied to potential enforcement actions. Institutions can now challenge certain supervisory findings before enforcement moves forward, provided the issues don’t involve unsafe practices or violations tied to anti-money laundering or sanctions compliance.

The new office will operate independently from FDIC divisions and won’t defer to prior judgments, aiming to enhance transparency, consistency, and fairness. Comptroller of the Currency Jonathan Gould signaled that the OCC is preparing to propose a similar reform. American Banker

Why It Matters: This reform strengthens banks’ ability to challenge supervisory decisions and brings more industry perspective into the appeals process. With expanded rights and an independent review structure, the change could shift how supervisory disputes are resolved, potentially improving fairness, trust, and consistency in regulatory oversight. 

OCC Eyes Regulatory Relief to Level the Playing Field

The Office of the Comptroller of the Currency (OCC) signaled that reducing certain regulatory burdens, especially around leveraged lending, could help traditional banks better compete with the rapidly growing private credit sector. Comptroller Jonathan Gould made the remarks in a letter to Sen. Elizabeth Warren, asserting that tailoring regulations will “reduce burden, empower banks, and mitigate the demand that has underpinned the growth of private credit.”

Private credit has expanded sharply in recent years, roughly doubling in size over the past five years according to Federal Reserve data, and now rivals traditional bank lending in influence. Banks continue to play a role in private credit markets by providing credit lines and financing facilities that support private credit origination. Reducing regulatory burdens may shift the balance in favor of traditional lenders over private credit firms. PYMNTS

Why It Matters: As private credit firms capture more market share, traditional banks face competitive pressure in areas such as leveraged lending and middle‑market financing. The OCC’s push to ease regulatory burdens reflects a broader effort by federal regulators to balance risk oversight with competitive dynamics. How these changes unfold may influence credit availability, pricing, and strategic choices for banks, and affect regulatory compliance strategies in lending‑intensive business lines.

Bessent Backs 10% Rate Cap Despite Industry Pushback

Speaking at the World Economic Forum in Davos, Treasury Secretary Scott Bessent defended the Trump administration’s proposed 10% cap on credit card interest rates, calling it part of a broader effort to ease consumer costs. While the move has drawn criticism from banks, Bessent pointed to ongoing deregulatory efforts as a counterbalance, highlighting reduced compliance burdens and an estimated $2.5 trillion in additional lending capacity.

While analysts warn the cap could slash bank earnings and limit consumer access to credit, Bessent argued that relaxed regulation, particularly for small and mid-sized lenders, will help the sector adapt. Bank trade groups issued a joint statement expressing concern that the cap would backfire by pushing borrowers toward less-regulated, costlier credit options.

Despite industry pushback, the proposal has drawn rare bipartisan support in Congress, echoing previous legislative efforts from both Senator Bernie Sanders and Senator Josh Hawley. American Banker

Why It Matters: The proposed 10% credit card interest rate cap has reopened questions around the balance between consumer protection and credit access. Critics warn it could restrict lending and reduce margins for issuers, while the administration points to deregulation as a possible offset, particularly for community banks. The outcome could significantly affect compliance strategies, credit market dynamics, and how financial institutions structure consumer lending.