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President-elect Joe Biden won't take office until January, but financial experts and consumer advocates are already speculating what his administration could mean for everyday Americans' credit.
According to Ryan Donovan, chief advocacy officer at the Credit Union National Association (CUNA), there are two macro questions that need to be answered first. One, we need to know who will be controlling the Senate, and two, who will be leading the Consumer Financial Protection Bureau (CFPB), a governmental agency created to protect consumers from banks' unethical financial practices (like predatory lending, for instance).
"If Democrats win, it becomes a much easier road for Biden to get a candidate that he strongly prefers in at the CFPB," Donovan tells CNBC Select. But it could be a while until we know anything, since we have to wait for the outcome of the runoff elections in Georgia in January to see if the Democrats take back control of the Senate.
While there are still many unknowns, Biden has shared some of his goals during his campaign, and the Democrats, in general, have a history of favoring regulation and consumer advocacy (after all, the CFPB was created by the Obama administration in response to the 2008 financial crisis).
We spoke to four experts about what we can expect from the new administration. Here's what they had to say:
Biden is expected to replace current CFPB Director Kathy Kraninger, a Trump appointee, once he enters office. The Supreme Court ruled in June that a president can fire the director of the CFPB at will, which enables Biden to select a new head of the consumer agency. But Biden will have to get Senate approval for his pick, which could influence his choice.
"That position holds considerable power," Donovan says. "Whoever is in that position makes a world of a difference."
Donovan says that if there's a Democratic-controlled Senate, he believes the CFPB, under Biden's new appointee, "would take a very keen eye toward the regulations around credit cards and lending in general."
It's safe to assume that a Biden/Democratic administration would have greater oversight of consumer lending and likely impose tougher regulations on banks and financial institutions that would ideally lead to broadening Americans' access to credit.
These regulations could include interest rate caps, increased scrutiny of credit cards targeted to students and service members, enhanced credit card rules, updated disclosure requirements and transparency on rates, as well as close supervision and monitoring of debt collectors and credit reporting agencies.
According to some consumer advocates, a harsher regulatory environment could better protect borrowers and provide more people with access to affordable credit. The hope is that tougher rules on banks would strengthen their ability to make fair loans to borrowers who have the ability to repay.
"If loans are so tight that eligible borrowers go elsewhere, consumers may get loans, but often at higher costs or less advantageous terms since market competition has dropped," Karen Petrou, managing partner of Federal Financial Analytics, Inc., tells CNBC Select.
"Conversely, if bank rules are too lax, then borrowers who can't afford loans get them anyway," she says. "This might seem like a good idea, but too much debt is bad for borrowers, banks and everyone else. As we saw in the 2008 crisis, this puts borrowers and the financial system at great risk along with the economy as a whole."
But there's speculation on both sides of the aisle as to what tougher regulations could mean. Some experts argue that strict regulations make it less likely that banks will lend to consumers who need it most.
"If you make it more difficult or more expensive for the lender, it becomes that for the consumer," Donovan says. "Lenders will reduce availability of credit, which tends to hurt borrowers on the lower end of the scale."
Credit experts seem to agree with Donovan.
"To the extent certain terms of credit are restricted by regulatory actions, like interest rates for example, you could see certain products eliminated and fewer options for people who don't have pristine credit," financial expert John Ulzheimer, formerly of FICO and Equifax, tells CNBC Select.
Biden has campaigned on the platform that to expand access to affordable credit and protect consumers from discriminatory credit reporting. His task force has outlined a policy roadmap that includes enforcing fair credit reporting laws and creating a new, federally-backed credit bureau.
A public credit reporting agency within the CFPB would create equal opportunity for people of all backgrounds and "provide consumers with a government option that seeks to minimize racial disparities," the policy proposal states.
Biden's plan also aims to include non-traditional sources of credit data, like rental history and utility bills, in calculating credit score algorithms.
"The incoming Biden administration supports policies that bring more kinds of information into the credit reporting system, and we support that," Francis Creighton, president and CEO of the Consumer Data Industry Association (CDIA), tells CNBC Select, noting mainly rent and utility payments. "We have advocated adding new sources of data for years to help more Americans gain access to the traditional credit system."
Here's a way your bill pay payments can instantly raise your credit score today: Experian Boost™ is a free feature that lets you add your on-time phone, internet, cable, utility (gas, electricity, water) and streaming payments like Netflix®, HBO™, Hulu™ and Disney+™ to your Experian credit report. According to its website, average users receiving a boost reported a 10-plus-point increase in their FICO Score.
A new administration will inevitably impact the daily finances of most Americans, in big part because we're living through such an unstable economic period. The big question is how much will Biden be able to do and that largely depends on who takes control of the Senate and the CFPB.
In the meantime, focus on doing what you can to pay your bills on time and maintain a healthy credit score. This way, if and when things change, you'll be already on the path to having good credit.
The CFPB did not respond to CNBC Select's request for comment on the likelihood that Kraninger would be replaced under a Biden administration.
The Biden-Harris transition team did not respond to CNBC Select's request for comment on the policy proposal for a federally-backed credit bureau.