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Best 2020 Reviews closely monitors personal loan offers, debt reduction, and credit card consolidation offers sent through direct mail to consumers.
President Donald Trump has canceled hundreds of Obama-era regulations, some of which apply to bank policies that he thinks are too costly and overly burdensome. Enter Vice President Joe Biden, who wants those policies to make a return, providing credit support to consumers’ finances and bringing more accountability to depository institutions to prevent financial crisis.
No matter what side of the fence you’re on, this constant back and forth will have consequences on customers’ bottom line.
This is hardly anything new though, whenever the White House changes presidency – whether you’re going from Democrat to Republican or Republican to Democrat – regulated entities will have to adjust to the new regulatory environment.
It’s still too early to predict the election day results. The current poll trends show that Joe is leading Trump in most swing states, while also making grounds in deeply red states. But if the 2016 election results are anything to go by, the results could go either way.
Trump’s primary policy has been of deregulation. For instance, Trump signed an executive order in January 2017 requiring that for every new one regulation, two must be revoked. While many institutions weren’t required to follow these guidelines, it became the main talking point for Trump’s administration.
The banking sector in particular has largely benefited from Trump’s deregulation plans. In May 2018, Trump signed an executive order to ease rules on all but the largest US banks. The new measures, which received bipartisan support in Congress, raised the threshold under which banks are deemed too important to the financial system to fail from $50 billion to $250 billion. Such institutions, mostly small and medium-sized banks, are no longer required to go through stress tests or submit living wills, both of which are safety valves for the financial market.
In June, the Federal regulators rolled back the Volcker Rule, a complex set of regulations designed to prevent taxpayer-insured banks from risky trading. It was argued that the new measures made financial institutes safer. But the industry called the regulations too time-consuming and cumbersome and lobbied for years to roll back the changes.
With Trump revoking the Volcker Rule, banks with fewer assets than $10 billion could now invest in various types of funds, including venture capital.
While Wall Street lauded the new changes, many experts argue that rolling Obama’s policies could open the door to high-risk investments that brought about the Great Recession of 2007.
The current administration also has their eyes set on the Community Reinvestment Act (CRA), a law that makes it difficult for banks to discriminate against low-income communities. Trump proposed a new set of rules for qualifying loan offers that could increase CRA ratings, which allows lending to low-income consumers through personal loans and upaid credit card debt. The reforms also suggest that loans toward building hospitals and stadiums should be counted under community development.
If President Trump is reelected, we would expect these policies to continue. However, the Biden administration would see things very differently and seek to reverse some of the changes that Trump made.
Biden’s most likely stance is to stick to what worked best during Obama’s presidency. One of his main talking points in the campaign is to reinstate the Dodd-Frank era reforms, which are policies that he rallied behind during Barack Obama’s presidency.
Biden didn’t go into many details on what rules he would plan on restoring. His goal is to ‘strengthen and protect’ Dodd-Frank Act regulations to ensure America’s finances aren’t affected during a financial crisis due to negligent lending and investing.
Biden also plans on improving oversight of lending to consumers through credit cards and regulating interest rates that may discriminate against certain income backgrounds and demographics. Part of his campaign is to make borrowing costs more transparent to prevent deceptive or abusive lending practices.
Biden’s looking to change the CRA so that it also includes insurance and mortgage companies. But instead of easing regulatory rules for lending, Biden wants to cut down on loopholes that allow these firms to avoid investing in their communities.
He’s also hinted at introducing some very progressive banking regulations, including a banking service through the US Postal Service to include unbanked or underbanked people. The Democratic nominee is looking to create a public credit reporting agency and introducing real-time payments through the Federal Reserve. Biden also called on the Federal Reserve to play a bigger role in addressing racial wealth by offering more accounts to consumers.
While these proposed changes have been largely lauded by advocates of consumers, experts believe that some of these progressive changes could increase operational challenges. They also raise concerns about the practicality of postal banking, since the USPS has been struggling for many years. It is worth noting that some of Biden’s proposed changes probably won’t make it through Congress unless the balance of power in the US senate changes.
The biggest problem with regulation is the cost to consumers. Implementing regulatory changes is an added cost that is usually passed on to consumers. This is the case with the Trump administration, who have rolled back several rules.
Businesses have to change software, hire new staff, change disclosures, and more. The upfront costs of implementing these changes are burdensome for most financial systems.
According to research from CUNA, Trump’s regulatory measures have cost over $7 billion, going up from $6.1 billion in 2017 and $5.3 billion in 2015.
So what does it all mean for consumers?
For one, depositors would be forced to pay more fees to cover the growing costs of adjusting to the new regulations. Secondly, fewer firms would be able to introduce new products and services, while less money will be allocated towards updating technology.
It should be noted that a harsher regulatory environment would create a market for less-regulated non-bank financial institutions to fill in the gap. These firms won’t offer much scope for consumer protection and may operate outside of safety rules.
The best course of action, then, is to implement uniform regulations that equally affect banks and nonbanks. It is yet to be