What will Biden’s presidency mean for consumer lending in the US?

SAN DIEGO 4 FEBRUARY 2021

As 2020 brought about great change in the way everyday business is conducted due to the onset of a worldwide pandemic, 2021 is set to instill further change in the lives of Americans and beyond.

The newly appointed Biden administration will not only undo much of what the previous administration tried to accomplish, but also usher in a new era of much-needed stability in the middle of an international health crisis.

While the first thing on everyone’s mind will be the COVID-19 vaccine and desperately-needed support for businesses, there will also be clear ramifications for the economy and financial industry as a whole. I’ve put together just a few predictions of how the new presidency will affect the US lending market in 2021 and what we can expect to see in the next few months.

Priorities for the Biden administration

Whilst we are expecting major changes and U-turns on certain policies pushed by the previous administration, the priority for Joe Biden as President will be to steer the country through the rest of the pandemic.

This will include the rollout of 100 million vaccines in 100 days to help stop the spread of COVID, relief for renters and homeowners struggling to afford payments, stimulus checks to every single American and the abolishment of Tax Cuts that favored the wealthiest in the US.

Much of what the previous administration attempted to enforce, including building a border-wall between the US and Mexico, leaving the Paris Climate Agreement and scrapping the Travel Ban that restricts citizens of certain countries from entering the country, has already been rescinded.

But what changes will we see for the lending market and financial industry as a whole? There are several predictions we can make based on Joe Biden’s previous experience as VP in the Obama administration, as well as current financial trends that Biden has indicated he is in favor of supporting.

Lending market changes under Biden

Likewise with the Obama administration, Biden inherited an America in the midst of a crisis. As Vice President to Obama, Biden oversaw eight years in office characterised initially by the Great Recession of 2008, which brought about mass unemployment and the closure of several major financial institutions.

Whilst the priority during the first few months of Biden’s presidency will be containing and hopefully reducing the impact of the pandemic, there are already several sources reporting on potential lending market changes under the new administration.

Regulatory review

A possible first port of call for Biden will be to look over the current regulations of the CFPB (Consumer Financial Protection Bureau) and see if they are working given the current economic climate ushered in by the pandemic.

According to Fintech Business Weekly, the CFPB under Biden will look to enhance protection for citizens struggling financially. This will include issuing more fines and enforcement actions to recover money for consumers, as well as better access to financial data in the same way as Open Banking in the EU.

This will essentially be reinstating bank rules repealed by the previous administration in 2018, which could end up impacting smaller lenders in the market that have already struggled to gain a foothold during the pandemic. The exact details will remain to be seen, especially if the regulation changes occur later in the year when the pandemic has been, at the least, subdued by the rollout of a vaccine.

Innovation in personal banking

Part of the change in Consumer Finance Regulations will be better access to personal finance data, in the same way Open Banking has been rolled out in the UK and EU. These changes could mean better control over personal finance data, more accurate consumer finance products on offer and lenders benefitting from this data when creating new products.

The ability to view consumer data and have better control over personal finances is a positive step forward for the US lending market, especially when you look at the popularity of Open Banking in the UK and EU and how it has helped lenders understand borrowing trends in better detail.

The rise of fintech

There will undoubtedly be a rise in the number of Fintech’s entering the banking space, especially after IPOs from SoFiUpstart and Affirm, who went public on January 13th. 

A report from Banking Dive included a quote from Kara Ward, a Holland & Knight partner, who said that the Biden administration could usher in fintech’s “golden years”

However, whilst Biden is known to be pro-innovation and pro-competition, there is still a big question hanging over whether the OCC (Office of the Comptroller of the Currency) can move forward with a National Fintech Charter, which some say would erode the current banking system.

The only early indication we have on Biden’s stance on this can be found in the unity document released with Bernie Sanders during the Democratic nomination. This detailed plans for every American to have a free bank account and leveraging the Postal Service’s locations to build a branch network. Despite being strongly opposed by Banks and credit unions it does show Biden’s willingness to be innovative in this sector.

Interest rate stability in 2021

Current chair of the Federal Reserve was appointed in 2018 on a four-year term and the indication is that the Biden administration will not exert pressure on the current policy of low-interest rates, especially as it is in the best interest of US citizens during the pandemic.

This is good news for the time being for borrowers, especially those who have struggled directly due to the pandemic. In conjunction with stimulus checks, this will also provide a much needed support package for consumers who need financial support in 2021.

Brave new world

Whilst we may not see much in the way of change for the lending market in the first few months of the new administration, we can be sure that Joe Biden has already indicated his willingness to innovate when it comes to the growth of Fintechs in the US. 

Biden has also shown that when regulations are eventually changed, that it will be in the best interest of the consumer, meaning that we are likely to see better support, access to personal data and better protection for borrowers struggling to keep up with payments.

However, all of these predictions rest on how successful the rollout of the vaccine is and how quickly Biden can subdue the pandemic, protecting hundreds of millions of American citizens in the process.