The deregulation that's expected to accompany a Trump presidency will have a profound impact on consumers' relationship to credit cards, particularly among young borrowers.
In this environment, the millennials who have largely chosen credit card alternatives such as P-to-P apps and social payment tools will have an easier time getting credit cards, potentially giving banks an added tool to compete with apps like Venmo.
"Financial institutions will see a surge in credit card income while consumers lose by incurring more debt and debt service expenses," said Madeline Aufseeser, CEO at card security company Tender Armor and a veteran financial services analyst who has prepared a wide ranging analysis of Trump's potential impact on card issuance and consumer usage.
Before Trump's election, Congressional Republicans were already pushing to repeal the Durbin Amendment, a move that's more likely than not early next year. The ramifications of this would be a reversal of the government-imposed price caps on debit card interchange for banks over $10 billion in assets, which would boost issuer revenues by as much as $8 billion, Aufseeser estimates.
Regulation reduction eases credit tightening, reduces lending loss reserve requirements and eliminates some limitation on fee assessments, producing more fee and interest income potential, Aufseeser said. That would result in a broader credit card market by age and would lead issuers to dip into the subprime market for new cardholders, Aufseeser said.
"If millennials chose to embrace cards we could see debt proliferate among the younger set that are having trouble making student loan payments or ends meet even if they find the jobs Trump promises to create," Aufseeser said. "Overall FIs will be able to set higher interest rates and charge more fees across the board."
Credit card portfolio cardholder revolving rates could move back to 1990’s era 65+% ratios, generating increased interest income, Aufseeser said. "The only offset will be slower cardholder adoption in niche markets as debit cards once again become profitable when interchange price caps go away."
A more positive consumer impact of Trump's policies could be more innovation among issuers and expansion into underserved markets, according to Eric Grover, a principal at Intrepid Ventures.
"Credit cards are retail banks most profitable business line," Grover said. "Loosening the regulatory straitjacket would cause general purpose and proprietary card businesses to pursue more aggressive growth and experiment and develop new products, resulting in greater credit card availability and use by younger, riskier and underserved consumers."
Smaller issuers could also benefit, Grover said.
"Smaller banks and credit card issuers have been ceding share to the giants for decades," Grover said. "Still it would be easier for small banks to specialize and to develop and launch niche products."
"[These institutions] don't have and can't afford an army of lawyers, lobbyists and compliance personnel to cope with Dodd-Frank's tsunami of smothering regulation," Grover said, adding a repeal of the Durbin Amendment would enable large retail banks to reduce or eliminate fees and increase debit rewards, thereby narrowing the value gap between debit and credit cards—making debit cards less unattractive for consumers.
But any issuer deregulation, such as repealing Durbin, could draw the ire of merchants, hurting a relationship already strained over years of interchange litigation.
Retailers are adamantly opposed to repeal of the Durbin Amendment as part of the Choice Act or through any other means, according to Mallory Duncan, general counsel of the National Retail Federation and president of the Merchants Payments Coalition, which works for more competition in the payments market.
"As long as Durbin repeal remains part of the Choice Act, it amounts to a poison pill that will force merchants to do all they can to defeat the measure," Duncan said.
Merchants will fight all-out to preserve the free-market reforms Durbin has brought to the debit-card swipe-fee market over the past five years, Duncan said. "There simply will not be enough votes in the House and Senate to reinstate rigged, anticompetitive swipe-fee rules that drive up costs for Main Street businesses and the prices their customers pay."