Credit Cards

The 2012 Election & Your Credit Cards

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It has long been said that people vote with their wallets in presidential elections. The idea is that people will vote for the candidate who they believe has economic policies that will benefit them. Whether it is lowering their taxes, giving their business a subsidy or increasing funding for a federal program they use, voters tend to vote for the candidate who they think will be best for their bank account.

This idea is what shaped the messaging behind Bill Clinton’s 1992 campaign (It’s the Economy, Stupid) and Ronald Reagan’s 1980 campaign (Are you better off than you were four years ago?).

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But for voters who are already in hock to banks and credit companies, they may want to be more precise with their vote in this year’s election. What if someone wants to vote with their wallet, specifically the credit cards in their wallet, in 2012?

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Here is a scorecard for you to determine what the presidential election will mean for you and your credit cards:

In political campaigns, credit cards are usually talked about as a piece of a large financial regulation or reform. Candidates never zero in on credit cards and propose a law or an action that would address the problem of credit card debt in isolation. It is always part of some larger omnibus package that the candidates are either “for” or “against” in its entirety. 2012 will be no exception to this rule.

At issue in the 2012 election will be two pieces of legislation that affect your credit cards: the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Credit CARD Act of 2009.

A few months before President Obama signed the CARD Act into law, I appeared on CNN to talk about these changes and how credit card banks can still get around them. You can see that video here.

[Related Article: 7 Reasons to Hate & Love Your Credit Card]

The contrast is pretty clear. President Obama enacted both of these laws with the help of Democratic majorities in the House and Senate and he will proudly defend them in the upcoming campaign. The Republican candidates, specifically Mitt Romney and Newt Gingrich, oppose both of the laws and have vowed to repeal them if they are elected president.

President Obama and the Democrats argue that these new laws protect consumers from exploitation and the deceptive practices used by the credit card companies. They also claim the bills improve transparency and accountability in the credit card industry with new requirements for explaining their terms and conditions clearly. These provisions, along with increased oversight powers given to Congress, the Department of Justice and the newly-created Consumer Financial Protection Bureau, would seem to protect the average voting credit card customer.

As President Obama said in his State of the Union address last month:

 ”If you’re a big bank or financial institution, you are no longer allowed to make risky bets with your customers’ deposits. You’re required to write out a ‘living will’ that details exactly how you’ll pay the bills if you fail—because the rest of us aren’t bailing you out ever again. And if you’re a mortgage lender or a payday lender or a credit card company, the days of signing people up for products they can’t afford with confusing forms and deceptive practices are over.”

[Related Article: Strong Reactions to Obama's CFPB Appointment]

Not so fast. Republicans argue that while the intention of protecting customers is noble, these bills take the wrong approach. In September of last year, Mitt Romney lambasted the Credit CARD Act saying it “produced federal restrictions on credit card companies that have already led to higher interest rates, higher annual fees, and lower credit limits, especially for middle-class borrowers.”

To be fair, counter to Romney’s claims, several independent analyses have shown that the CARD Act has not led to higher interest rates and fees and in fact, according to the Federal Reserve, interest rates have dropped since February 2010 when the CARD Act went into effect. But most financial observers would concede that the banks and credit companies have been trying to find ways around the new regulations.

Romney is also highly critical of Dodd-Frank saying it “represents a massive overreach of the federal government into private markets…instead of streamlining and modernizing our financial infrastructure, Dodd-Frank layers mountains of incremental rules and constraints on the system that allocates capital—the lifeblood of our economy—to businesses of all sizes.”

While the new Consumer Financial Protection Bureau (CFPB) created by Dodd Frank will make life more difficult for credit companies, their powerful lobbyists have already begun rewriting the new rules.

President Obama’s claim that his administration ended the days of those “confusing forms” and “deceptive practices” of the credit card companies also warrants further scrutiny.  In fact, a sizeable share of the complaints about credit cards submitted to the Consumer Financial Protection Bureau between mid-July and mid-October of last year involved issues that were supposedly addressed by the CARD Act. This development raises the question: If the CARD Act rectified these problems, then why is the CFPB still getting complaints about them?

While the new Consumer Financial Protection Bureau (CFPB) created by Dodd-Frank will make life more difficult for credit companies, their powerful lobbyists have already begun rewriting the new rules.

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Romney and the Republicans are right in this sense. If you are a customer with good credit—you don’t miss a payment and always pay on time, you may have to pay for measures that protect people with bad credit whose late payments have exposed them to high credit card fees and interest rates. Credit card companies, like all businesses, pass along the cost of complying with new regulations to their customers. Whether the Credit CARD Act and Dodd-Frank restrictions on credit card companies are “good” for you depends heavily on what kind of customer you are.

If you want to vote with your credit card this November, you must first ask and answer one question for yourself: Do I support the Credit CARD Act and Dodd-Frank? If the answer is yes, then your candidate would appear to be President Obama. But if the answer is no, then you will most likely vote for the Republican.

These are difficult and complicated regulatory problems with difficult and complicated solutions. Whoever wins the election in November will have their work cut out for them in improving government oversight of credit cards. You can take that to the bank.

Image: joebeone, via Flickr.com

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