Now that the election is over, one of the things on consumers’ minds is what another term for President Obama could mean for their wallets.
Before we try to answer this question, first we need to understand where President Obama stands on five important issues — the Dodd-Frank Act, the Credit Card Accountability, Responsibility and Disclosure Act, the Consumer Financial Protection Bureau, plus the Bush-era tax cuts and emergency unemployment benefits, which are both set to expire Dec. 31.
Keep reading to see why these issues should matter to you, and how financial experts predict Obama and Congress will handle them during the next four years.
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Though hugely unpopular on Wall Street, the Dodd-Frank Act that Obama signed into law to regulate banks and protect consumers from abusive practices during the height of the recession seems likely here to stay.
“Obama’s very big on regulation, so we’re going to see that implemented even more,” said Nicholas Olesen, a CFP based in Philadelphia, who sees Obama ratcheting up regulations even more this time around. “I think we’ll be surprised by him.”
The market seems to agree, as stocks dipped for JPMorgan Chase, Bank of America and Goldman Sachs on Wednesday. However, some analysts like Gary DeWaal, special adviser to futures broker Newedge, told The Wall Street Journal‘s Scott Patterson this week that “a lot of the momentum that was driving the Commodity Futures Trading Commission” and other industry regulators “was precipitated by a fear that the administration was going to change.” Now that they know a Republican won’t be in office, these regulators don’t feel as pressured to push through their changes and may even become more “flexible and open to feedback,” he said.
For consumers, that could mean any new changes might be slow-going, but the sweeping reform to the derivatives and consumer financial industries will stick around.
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If Dodd-Frank is staying, then the Consumer Financial Protection Bureau, which was created under the act, won’t be going anywhere either. The consumer watchdog has made a name for itself in policing the mortgage, credit card and student loan industries.
In her article, “With Obama Win, Wall Street Cop Stays On the Beat,” Time’s Martha White noted:
This week’s election was a cliffhanger for many people, but the stakes were higher than most for the director and staff of the Consumer Financial Protection Bureau. The agency, which opened its doors in July 2011, was a lightning rod for Republican criticism of how the Obama Administration and a Democratic-led Congress responded to the financial crisis. During the campaign, Mitt Romney had promised that, if elected, he would repeal the Dodd-Frank financial reform legislation that called for the CFPB’s creation.
Given the Obama victory, the CFPB’s mission and leadership is arguably more secure, and the group may broaden its reach in the coming four years. The fact that the person who conceived of and put together the CFPB, Elizabeth Warren, was elected to the Senate on Tuesday, means that it will have a new and passionate defender in Congress.
Added Steve Ely, CEO of eCredable.com and a Credit.com contributor, “With the election behind us, the CFPB can continue to build on the great work they have already started. There are many situations where the CFPB has created more transparency for consumers who use financial services. This great work can continue without any interruption or distraction.”
Not everyone shares that sentiment, however. In an article titled, “Banking’s ‘Worst Nightmare’ Takes Her Fight to Senate,” The Wall Street Journal’s Victoria McGran and Maya Jackson Randall wrote:
Many observers assume [Warren] will take a seat on the Senate Banking Committee given her expertise in financial issues, though her assignments are up to Democratic leadership and won’t be officially settled until next year. Her Tuesday night victory speech sounded “like she was accusing the banks of high crimes and misdemeanors and they should all be jailed,” said Richard Gottlieb, a financial-industry attorney at law firm Dykema. “I think that what’s going to happen is that Liz Warren will be a powerful voice on the Banking Committee, and she will be the banks’ worst nightmare.”
The Card Act
Obama signed the CARD Act, which was created to protect consumers from unfair credit card billing practices, so it’s hard to imagine that he’ll want to do away with it. That said, don’t expect to see any landmark additions to it, at least in the short term.
Said Luke Landes, founder of the personal finance blog Consumerism Commentary: “I think the problem right now is the Congress and it’s just as polarized as it has been the last few years, so whether they restrict or expand any regulation is going to be difficult either way … Congress will be almost as divided as it was before, it’s going to be just as difficult unless the executive branch takes a new direction in their approach.”
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Bush-Era Tax Cuts
In all likelihood, some consumers will pay more in taxes next year, thanks to Obama’s re-election. This should come as no surprise given how hot the topic was during campaign season. Romney assured voters that he would cut tax rates by 20% if he were elected, while Obama supported extending the tax cuts only for households earning less than $250,000 a year and replacing the Alternative Minimum Tax (AMT) with a mandate that would raise tax rates for millionaires.
Only time will tell if either of these changes are implemented, but for now at least, Olesen, the CFP, predicts that income, estate and capital gains taxes will all go up, up, and up under Obama.
“Both sides have alluded that capital gains is an easy tax that they’re willing to let it increase,” he said. “I think it’s a compromise—Republicans want it to stay at 15% to 20%, and Dems want it to be somewhere between 20% and 30%. It’ll help reduce the deficit, so they’re going to start with that.”
And with Obama bent on reducing the deficit, he’ll be willing do whatever it takes, even if it means letting income taxes go up, too. Meanwhile, the threshold to qualify for estate taxes will only come down, Olesen predicts.
“People might want to consider gifting assets away like stock and investments to beneficiaries so it’s out of your estate,” he advised.
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Emergency Unemployment Benefits
Right now, the unemployment rate stands at 7.9%, and that’s not including the discouraged Americans who gave up looking for work when their benefits ran out. With Obama in office they can rest assured he’ll do everything he can to get them back on their feet, something Romney intended to do by cutting the federal workforce by as much as 10%.
“They’re going to extend [unemployment benefits] for as long as they can,” says Olesen, because “the talk out of the Fed, White House and everybody is you need unemployment down. Based on the language and what Obama is wanting for America and for everybody is he wants everybody to be looking for a job or to have a job, and in order to do that you’ve got to keep them on unemployment.”
Image: borman818, via Flickr