Joe Biden is the projected winner of the presidential election; control of the Senate will be won by a slim margin following runoff elections for Georgia’s two seats in January. What does a divided government mean for the middle market? RSM is looking at the policy implications and key issues for various industries. This is one in our series of industry-focused outlooks for a Biden administration.

According to Joe Biden’s plan:

With the White House under Democratic control, middle market consumer loan companies and loan servicers will most likely face a dramatically different regulatory environment. The monitoring and enforcement roles of the Consumer Financial Protection Bureau (CFPB) are likely to increase. Other measures tightening the regulatory framework achievable through executive orders are expected. But measures requiring legislative approval will be tempered or put on hold if Republicans retain control of the Senate. Two examples are legislation to impose a federal interest rate cap on certain consumer loans or the creation of a public credit reporting agency, which are priorities of a Democratic-controlled Senate.

What a closely divided Senate means for specialty finance:

As a result of a recent Supreme Court ruling, the president may replace the CFPB director upon taking office, and with a change in leadership comes a shift in focus. The CFPB is expected to more aggressively pursue enforcement actions: Existing regulations and disclosure requirements could be tightened, and enforcement activities could increase to levels seen during the Obama administration. One likely short-term action is a temporary suspension of negative credit reporting as part of any coronavirus relief legislation. Other, more significant changes to the regulatory environment are unlikely to be an immediate priority of the new administration.

What room for growth or evolution exists in specialty finance?

Even in a changing regulatory environment, consumer finance companies have the potential to evolve product offerings or processes to meet regulatory requirements, redefine the credit profiles of target consumers and explore various channels for connecting with consumers. In a time where consumers value providers that can offer a full range of financial service products across multiple platforms, companies that prioritize innovation and digitally transform their business will reap the greatest benefits.

Questions that frame the path forward:

• How aggressive will the CFPB become?
• How can specialty finance companies prepare for the possibility of significantly tighter regulations?
• How can specialty finance companies adapt to the changing demands of consumers?