A Donald Trump presidency could drastically impact credit card regulation over the next four years, which could include a sharp rise in APRs and penalty fees.
President-Elect Donald Trump has stated his plans to dismantle the 2010 Dodd- Frank financial regulatory law along with nearly all financial reforms put in place by the current administration.
By his own admission, Trump wants to erase the Obama presidency to the greatest extent possible by immediately reversing any and all executive orders made in the past eight years along with most legislation he has signed into law.
Elimination of financial regulations put in place in the aftermath of the 2007-2009 financial crisis is likely to cause average APRs and penalty fees to rise, unrelated to any future rate increases by the Fed, with the return of the ability of banks to increase rates at any time for any reason without the 45 day opt-out period currently given to consumers.
From President Obama’s Wall Street reform law, the Consumer Financial Protection Bureau (CFPB) was created to supervise financial institutions and enforce consumer financial laws. One particular law that is enforced by the CFPB is the Credit CARD Act.
This law has two main purposes, which are to limit issuers’ ability to raise interest rates without notice and impose certain fees (like for late payments or being over the credit limit) and to make rates and fees on credit cards more transparent for consumers.
The unfettered capitalism overhaul Trump will usher could represent a decisive swing of the pendulum favoring business interests and away from the consumer protection, but ironically, could have at least one unintended effect.
Lack of regulation for prepaid debit cards, in particular, could actually increase cashless payment options for both legal and illegal immigrants by making the products more profitable for the issuers, further facilitating cross-border remittances among the unbanked immigrant population.
This could potentially encourage further immigration and end assisting a group that Trump based his campaign on opposing.
Trump has also made promises to decrease the corporate tax rate, which currently stands at 35 percent, down to 15 percent. This drop for both large and small businesses is a way to keep companies from moving overseas and provide incentives for hiring and investments. Though it’s still unclear if his plan would apply a flat 15 percent rate just to corporate income or to all business income, as Trump has previously suggested.
Under his presidency, all companies would potentially benefit from this kind of windfall, but in terms of the financial services, the large banks would significantly increase their profit margins as a result.
Theoretically they could then afford to cut interest rates on credit cards and other types of loans, though a more likely scenario is incremental profits would simply pass through to stock holders and senior executives, rather than to consumers.