Many Americans are unsure the extent of President Joe Biden’s power or influence when it comes to the credit card industry. Read on to learn more about where presidential power begins and ends with regard to credit cards.
Joe Biden has been sworn in as the 46th president of the United States, and he will soon be making good on his promises to confront big issues like the COVID-19 pandemic, climate change and health care, while trying to heal the divisions and trauma that currently exist within the country.
Lesser known is whether his policies will have any impact on credit cards. Many Americans still are unsure what even is the extent of his presidential power or influence when it comes to the credit card industry.
Read on to learn more about where presidential power begins and ends with regard to credit cards.
Not power, but influenceIf you’re worried about presidential mandates and overreach, know that the U.S. president does not have the power to directly affect the credit card industry.
“While he may apply pressure to the Federal Reserve through rhetoric, it was created by and is responsible to Congress, not the president,” says Paul Engel, founder of The Constitution Study.
The president can indirectly apply pressure to the Federal Reserve because he appoints the secretary of the Treasury, whose staff works in conjunction with the Fed to handle all financial and monetary matters in the country. Typically, as a presidential appointment, the secretary of the Treasury share the same political goals and alignment as the president.
“In addition, the president has the power to elect the members of the Federal Reserve Board of Governors, who have permanent voting positions on the rate-setting Federal Open Market Committee,” says Nick Swekosky, CEO of Market Metrics, a reporting and analytics automation platform for small businesses.
Presidential appointees to the Fed Board of Governors must be confirmed by the Senate, and each appointment serves 14 years. The terms start two years apart, so no single president can stack a majority on the board itself.
“This board determines the appropriate stance of monetary policy and assesses the risks to its long-term goals of price stability and sustainable economic growth. These can directly and indirectly affect the rates available to credit cards,” adds Swekosky.
That’s because credit card issuers base their own interest rates on the federal funds rate, so your APR on purchases, balance transfers and cash advances may be higher or lower as a result of what the Fed decides. But while the president has a limited ability to influence the Fed, their true influence can be felt on the credit card industry itself.
“The president has the power to sign or veto legislation that regulates the credit card industry. This legislation can affect interest rates, late fees and everything else associated with the industry,” says Chris Panteli, small business owner and author of the personal finance blog LifeUpswing.com.
How Biden may affect credit cards
Of course, any legislation must make it through the House and the Senate before it can be signed or vetoed by the president.
Legislation endorsed by Biden may have an easier time getting through both levels of government since Democrats won January’s two run-off elections in Georgia and effectively gained control of the Senate. There are some legislative initiatives Biden may try to push through that pertain to the credit card industry.
“You’re going to see a stronger influence from Biden in terms of looking at predatory lending,” said Brandon J. Kovach, an entrepreneur who previously spent 15 years as a lobbyist in Washington. “And you’re going to see an influence around loan companies using absolutely ridiculous interest rates or taking advantage of loopholes that allow them to do so. You’re also going to see restrictions on qualifications for lending.”
“I expect Joe Biden to be very similar to Barack Obama. I don’t expect a whole lot of change. It’s almost going to be a continuation of those previous polices, hopefully with a few addendums. I expect to see a similar philosophical base,” adds Kovach.
Given that the Biden presidency is forecasted to be much like Obama’s, Kovach predicts that the Consumer Financial Protection Bureau – an Obama-created agency meant to enforce and create rules around consumer protection in the financial sector – will be a top priority for Biden after being largely defunded by the Trump Administration. Biden has nominated Rohit Chopra, an ally of Sen. Elizabeth Warren (D-Mass.) who helped establish the CFPB, to lead the bureau.
“I think you’re going to see a lot of things coming from the Consumer Financial Protection Bureau about any credit card companies that aren’t operating above board or charging exorbitant interest rates or late fees,” says Kovach.
In addition to possibly more funding and more activity from the Consumer Financial Protection Bureau, James Lambridis, CEO and founder of DebtMD, a fintech platform that connects people with professional help to become debt-free, believes the Biden Administration will want to implement more regulation on the banks.
“A rule of thumb: any time you hear the term ‘regulation’, it means businesses will be faced with higher costs,” he says. “Biden, along with many Democrats, will most likely push for heightened regulation in the banking industry, which will increase costs for these same banks that offer credit cards. To make up for the higher costs, they may be forced to raise fees and interest rates on the credit cards they issue.”
Beware the Biden bubble
Interest rates are likely to stay low in the near term of Biden’s tenure, as the new president will likely encourage spending and stimulate the economy coming out of the COVID-19 pandemic.
“Interest rates are the traffic signals of a market economy. When the Fed lowers rates, interest rates on credit cards usually drop, too. When the Fed cuts rates, they are in effect turning the traffic signals all green, and thereby incentivizing consumers to spend money, rather than save,” says David Reischer, a New York business attorney specializing in finance and CEO of LegalAdvice.com.
Lower interest rates may help make your monthly credit card payment more affordable and make it easier to qualify for a mortgage or a loan, but Reischer fears that a lower interest rate combined with deficit spending could leave people on a trapeze without a net.
“Lower rates by the Fed coupled with deficit spending by a Democratic Biden administration will likely lead to an even bigger asset bubble in stocks, bonds and alternative investments than we have been experiencing under the Trump administration,” he said. “The benefits to the average person on the street from this policy is temporarily high asset prices (if they can time the sale) before the bubble eventually bursts from this reckless loose monetary policy – and then everybody will be badly hurt.”
However, the average American need not worry. Brandon Kovach points out that in the last two years of the Obama Administration – after leading America through a recession and while Biden was vice president – the deficit shrunk. It was the Trump Administration that increased the deficit 74% in four years, according to numbers from the Congressional Budget Office.
Rather than a reckless and loose monetary policy, Kovach thinks Biden will implement a staid economic policy that will include quantitative easing and loan forgiveness programs that will help, rather than hurt, the average American.
Of course, no one knows what’s really going to happen during the four years of Biden’s tenure. No one has a crystal ball.
But it’s clear that the president’s economic decisions and influence always have a trickle-down effect that could significantly impact your credit card and the credit card industry.