Navigating the Regulatory Shift in Commercial Lending Trends

The commercial lending landscape in 2025 is undergoing a transformation, driven by the new administration, shifting regulatory priorities, and evolving economic conditions. This "Year of Regulatory Shift" brings potential relief from federal compliance burdens but also introduces new complexities, particularly for community banks and credit unions that lack the extensive compliance resources of larger institutions.

The 2025 Regulatory Environment

The commercial lending scene in the United States is experiencing changes in 2025. KPMG's "Ten Key Regulatory Challenges of 2025" report characterizes this as the "Year of Regulatory Shift"—a period of significant change across technology and data risks, consumer/investor protections, and risk management and governance frameworks.

"2025 will be the Year of Regulatory Shift fueled by a new administration, agency leadership changes, and expanded regulatory divergence," notes Amy Matsuo, Regulatory Insights Leader at KPMG. "Companies will look to 'roll through the shift' but must remain vigilant to potential new, emerging, and downstream risks—even amidst an agenda to reduce regulatory burden."

For community banks and credit unions, these changes create a complex operating environment that requires careful navigation. While the deregulatory agenda at the federal level may reduce certain compliance burdens, the increasing state-level regulation and growing competition from larger institutions and non-bank lenders present significant challenges.

Federal Regulatory Shifts Under the New Administration

The administration has catalyzed significant changes in the federal regulatory landscape for commercial lending in 2025.

Leadership Changes and Regulatory Direction

The financial regulatory apparatus is undergoing a major overhaul with new leadership at key agencies:

Consumer Financial Protection Bureau (CFPB): The bureau has experienced dramatic leadership turnover, with the possibility of having its fourth director in 2025 alone. Acting CFPB Director Russell Vought has issued orders to "stand down" on all supervision and enforcement activities, signaling a major shift in the agency's approach to oversight.
Federal Deposit Insurance Corporation (FDIC): Acting Chairman Travis Hill indicated in January 2025 that "the agency needs a new direction," calling for a reorientation of bank supervision away from "process-related issues that have little bearing on a bank's core financial condition or solvency."
Federal Reserve: The resignation of Michael Barr as the Federal Reserve's vice chair for supervision clears the way for appointments more aligned with the administration's deregulatory agenda.

Deregulatory Agenda

The administration has prioritized deregulation in the banking sector, with several key initiatives already underway:

Capital Requirements: Proposed changes to capital requirements aim to ease the burden on banks, potentially increasing liquidity in commercial lending markets. The Basel 3 Endgame rules are expected to be re-proposed with substantial changes to soften requirements.
Bank Mergers: Merger activity is expected to accelerate, with antitrust reviews returning to a more traditional focus on competitive effects rather than rigid market concentration standards.
Consumer Protection: Consumer protection policy is shifting as the CFPB retreats from its enforcement-first approach. The agency will likely withdraw its credit card late fee rule and revise policies on overdraft fees and data-sharing requirements.

These changes potentially benefit community banks and credit unions by reducing regulatory burden and creating opportunities for strategic growth. However, as FDIC Acting Chairman Hill noted, "basic controls and risk management infrastructure still matter," suggesting that while regulatory oversight may be less intrusive, fundamental compliance expectations persist.

The Rising Tide of State Regulation

As federal oversight recedes, state-level regulation of commercial lending is expanding significantly in 2025, creating a more complex compliance landscape for institutions operating across multiple jurisdictions.

Expanding State Licensing and Disclosure Requirements

With the currently revolving door of directors at the federal CFPB and the "stand down" order on supervision and enforcement activities, many consumer financial providers and market participants are shifting their attention to state regulators as potential sources for increased regulation and enforcement activity.

State licensing laws often authorize state regulators to conduct periodic examinations or audits of licensees and can require licensees to collect data and submit reports. These laws may also provide state regulators with a favorable forum to initiate enforcement actions through a state administrative law or adjudicatory process.

Commercial Financing Disclosure Laws

Eight states have enacted legislation requiring specific disclosures for commercial non-real estate secured financing transactions. This trend of state-level commercial financing disclosure laws is expected to continue throughout 2025, with more states passing similar laws after observing the effects of various disclosure models.

Regulatory Divergence and Compliance Challenges

The increasing state-level activity in commercial lending regulation creates significant compliance challenges for lenders operating across multiple jurisdictions. As noted by KPMG's report, "while deregulatory trends may ease compliance burdens at the federal level, increasing state-level activity and global regulatory divergence could intensify compliance challenges."

This regulatory divergence requires lenders to navigate an increasingly complex and potentially contradictory set of rules, a challenge that falls particularly hard on community banks and credit unions with limited compliance resources.

Technology, Data, and Compliance Challenges

The increasing integration of technology in commercial lending has created new regulatory focal points in 2025, particularly around artificial intelligence, cybersecurity, and data management. Despite the broader deregulatory trend, these areas continue to attract significant regulatory attention.

AI and Cybersecurity as Regulatory Priorities

Regardless of changes in administration or regulatory leadership, AI and cybersecurity continue to be high-priority areas for regulatory attention in 2025. According to KPMG's report, in 2025 we can expect "repeal of the current AI Executive Order and the establishment of a new AI Executive Order focused on prioritizing AI innovation and growth across all agencies."

For AI implementation, key priorities include:

Ensuring robust data privacy protections
Addressing risks like bias and conflicts of interest that could harm consumers
Implementing comprehensive risk management frameworks covering the design, use, and deployment of AI systems

In the cybersecurity domain, regulators expect:

Improved resilience to prevent disruptions in critical systems
Strengthened data management practices
Collaboration across cybersecurity, AML, and fraud functions to address emerging risks

Financial Crime Prevention

Focusing on financial crime regulation (including sanctions, anti-corruption, know-your-customer, anti-money laundering, beneficial ownership, etc.) is unlikely to abate in 2025. As noted in KPMG's report, we can anticipate "ongoing heightened supervision/enforcement against financial crime risks, including illicit and terrorist finance and sanctions compliance amidst rapidly evolving technology innovations and increasingly sophisticated financial crime patterns."

For community financial institutions, this means continued investment in:

AI-driven transaction monitoring systems
Enhanced customer due diligence processes
Beneficial ownership tracking
Staff training on evolving financial crime patterns

Digital Transformation in Compliance

The regulatory environment in 2025 also reflects the increasing digitization of compliance requirements. For example, the FDIC's final rule on digital signage, which took effect on May 1, 2025, requires banks to ensure they have proper FDIC signage on digital platforms, including websites, apps, digital payment platforms, and ATMs.

These digital transformation requirements fall particularly hard on community institutions that may lack the technology infrastructure and expertise to implement and maintain sophisticated digital compliance solutions.

Impact on Community Banks and Credit Unions

The evolving regulatory landscape creates unique challenges and opportunities for community banks and credit unions engaged in commercial lending.

Resource Constraints and Compliance Burden

Community financial institutions face significant resource constraints compared to larger competitors:

Limited compliance staff: Most community banks and credit unions operate with small compliance teams that must cover multiple regulatory domains.
Technology investment challenges: Many community institutions operate on legacy systems that require significant investment to upgrade for new digital compliance requirements.
Geographic complexity: Community institutions that serve multiple counties or states must navigate an increasingly complex patchwork of state regulations.

Competitive Pressure from Non-Traditional Lenders

Data from Crisil Coalition Greenwich research shows that nearly a quarter of middle-market companies and 16% of small businesses are planning to seek out funding from non-traditional lenders in 2025. This shift is partly due to frustration with traditional bank credit policies, as companies' ratings of their banks' willingness to lend have dropped steeply and steadily since 2021.

For community financial institutions, this competitive pressure creates a difficult balancing act between:

Maintaining prudent lending standards
Meeting customer expectations for speed and flexibility
Adapting to a more competitive lending environment
Complying with evolving regulations

Opportunities in the Changing Environment

Despite these challenges, the evolving regulatory landscape also creates opportunities for community banks and credit unions:

Local relationship advantage: Community institutions often have deeper local relationships and knowledge than larger competitors, allowing them to better assess risks and opportunities in their markets.
Niche market expertise: Many community institutions have specialized knowledge in certain industries or market segments that can be leveraged for targeted commercial lending growth.
Regulatory relief: The deregulatory environment at the federal level may provide greater flexibility for community institutions to expand their commercial lending activities.

To capitalize on these opportunities while managing the compliance challenges, community banks and credit unions need technology solutions that enhance their efficiency, strengthen their risk management capabilities, and provide comprehensive compliance support.

The Path Forward: Balancing Opportunity and Risk

For community banks and credit unions, navigating the 2025 regulatory environment requires a strategic approach that balances new lending opportunities with sound risk management practices.

Developing a Flexible Compliance Framework

Given the potential for continued regulatory shifts, community institutions should develop flexible compliance strategies that can adapt to various regulatory scenarios. This includes:

Ongoing regulatory monitoring: Establishing processes to track and analyze regulatory developments at both federal and state levels.
Risk-based approach: Focusing compliance resources on the highest-risk areas, such as cybersecurity, data privacy, and financial crime prevention.
Clear lines of accountability: Ensuring clear ownership of compliance responsibilities across the organization.

Investing in Technology and Digital Capabilities

Technology investment is crucial for community institutions seeking to enhance their commercial lending capabilities while managing compliance costs:

Digital transformation: Implementing digital loan origination and servicing platforms that can adapt to changing regulatory requirements.
Automated compliance processes: Leveraging automation to reduce the manual compliance burden and improve accuracy.
Data management capabilities: Enhancing data collection, storage, and reporting capabilities to meet regulatory requirements and support sound lending decisions.

Enhancing Risk Management Practices

Even as regulatory oversight potentially diminishes, sound risk management practices remain essential:

Enhanced due diligence: Maintaining rigorous processes for evaluating borrower creditworthiness and monitoring loan performance.
Stress testing: Conducting regular stress tests to ensure resilience against various economic scenarios.
Cybersecurity and data protection: Implementing robust controls to protect sensitive customer and transaction data.
Third-party oversight: Carefully managing relationships with technology vendors and other third-party service providers.

For many community institutions, partnering with a specialized technology provider like Finanta can be the most efficient and effective way to implement these strategies and navigate the evolving regulatory landscape.

How Finanta Can Help

Finanta's commercial lending platform is specifically designed to help community banks and credit unions thrive in the evolving regulatory environment of 2025, offering a comprehensive solution that addresses their unique challenges.

Comprehensive Compliance Support

Finanta simplifies compliance management for community institutions:

Section 1071 readiness: Structured workflows to capture required demographic and business information.
Audit-ready documentation: Comprehensive documentation of all lending processes, decisions, and disclosures to support regulatory examinations.

Enhanced Risk Management Capabilities

Finanta strengthens risk management practices through:

Portfolio monitoring: Tracking of loan performance with early warning indicators for potential problems.
Cybersecurity and data protection: SOC 2 compliant platform with robust security controls to protect sensitive information.

Operational Efficiency for Growth

As commercial lending grows in 2025, Finanta helps community institutions scale efficiently:

Streamlined loan origination: Automated workflows that reduce processing time by up to 60%, allowing community institutions to compete with larger lenders on speed and service.
Digital document management: Secure, paperless handling of loan documents, supporting remote work and improving efficiency.
Integration capabilities: Seamless connection with existing core banking systems and third-party services, providing a unified platform for commercial lending operations.

Competitive Advantage for Community Institutions

Finanta helps level the playing field with larger competitors:

Superior customer experience: Digital interfaces for borrowers that meet or exceed the offerings of larger institutions, addressing the expectations of businesses increasingly seeking funding from non-traditional lenders.
Decision support tools: Data analytics that help community lenders make informed credit decisions quickly, balancing growth opportunities with sound risk management.
Relationship banking enhancement: Tools that strengthen the relationship advantage of community institutions by providing deeper insights into customer needs and behaviors.

Implementation and Support Tailored to Community Institutions

Finanta understands the unique implementation challenges faced by community banks and credit unions:

Rapid deployment: Implementation process designed for institutions with limited IT resources, with typical go-live timelines of 4-6 weeks.
Comprehensive training: Personalized training for staff at all levels, ensuring smooth adoption and maximum value from the platform.
Ongoing support: Dedicated support team with experience serving community financial institutions, providing responsive assistance when needed.

By combining regulatory compliance support, enhanced risk management capabilities, and operational efficiency tools, Finanta provides community banks and credit unions with a comprehensive solution for navigating the complex and evolving regulatory environment of 2025.

Conclusion: Thriving in the New Landscape

The commercial lending regulatory environment in 2025 is characterized by significant transition and complexity. The Trump administration has implemented a deregulatory agenda at the federal level, while state-level activism has created new compliance requirements for lenders. Technology-driven risks around AI, cybersecurity, and data management continue to attract regulatory attention despite the broader deregulatory trend.

For community banks and credit unions, this shifting landscape presents both challenges and opportunities. While deregulation may reduce some compliance burdens and create new lending opportunities, these institutions must still navigate an increasingly complex patchwork of state regulations, maintain sound risk management practices, and compete with both larger banks and non-traditional lenders.

Finanta's commercial lending platform is specifically designed to help community institutions thrive in this environment by providing:

Comprehensive compliance support that adapts to the evolving regulatory landscape
Enhanced risk management capabilities that protect the institution's financial health
Operational efficiency tools that enable growth while controlling costs
Competitive advantages that leverage the unique strengths of community institutions

By partnering with Finanta, community banks and credit unions can navigate the complex regulatory terrain of 2025 with confidence, focusing their resources on what they do best—serving their communities and building strong relationships with local businesses.