The news: Consumer loan volume and credit risk are getting harder to gauge as lending moves away from banks—which report balance sheet data quarterly—and into alternative consumer lending. Much of this activity is now funded by private credit, including products distributed by fintechs. One estimate says that private funding for consumer lending fintechs could support almost $140 billion in global lending over several years.

Why it’s worth watching: Recent Federal Reserve data on consumer credit quality is mixed. Spending appears healthy as credit card balances rose to $1.233 trillion. But the share of card balances 30+ days delinquent ticked up YoY to 8.8%, nearing the recent peak of 9.05% last year.

And warning signs are flashing with student loans: Balances 30+ days past due jumped to 14.41%, the highest since the Fed’s tracking began in 2004. This loan stress is trickling down into credit score data. Federal student loan borrowers may be prioritizing student loan repayments over credit cards and personal loans, disrupting the traditional hierarchy of mortgages first, followed by auto and personal loans.

The bigger picture: A wide range of fintechs—including Affirm, SoFi, and UpStart—use nonbank financing. They can securitize and sell pools of loans, sell them directly to funds or insurers, and fund loans from their own balance sheets, which for private fintechs may be VC-supported. It’s difficult to judge the state of consumer credit quality based on these types of transactions, even when deals are publicly reported.

Many fintechs are founded on the premise that the traditional banking system underserves consumers with thin, poor, or nonexistent credit. FIs’ general disinterest in riskier borrowers means that they migrate to fintechs, which may retain the risk or shift it to banks and investors in ways that reveal little about borrowers on the hook for repayment. If the trend continues, widespread defaults could hit the financial system, and few will know exactly what to expect.