Consumer debt is quickly becoming one of the biggest issues in the 2012 presidential election. While standard concerns such as national defense, immigration and abortion continue to get their fair share of attention, worries over the economy and jobs situation are at the top of most issue polls this year.
Consumer debt, particularly home mortgages and student loans, have begun to get a fair share of the mainstream attention leading up to the general election.
Overall consumer indebtedness actually decreased by 0.9 percent in the first quarter of 2012. Economists and pundits have varied opinions on the meaning in the drop of overall consumer indebtedness.
Some feel that it reflects consumers making smart but difficult choices in the face of hard economic times. Others feel that it is a reflection of tightening credit restrictions by banks, and wiping foreclosures off the books. Those economists point to the fact that average American savings are decreasing as well, which could mean that more people are getting by with less, or simply living just within their means.
Politically, President Obama is casting himself as a champion for consumer protection. His flagship achievement in this area is the creation of the Consumer Financial Protection Bureau to make sure that credit card companies, payday lenders and mortgage companies follow the rules.
Republican challenger Mitt Romney focuses less on the consumer aspect, and more on tackling the national debt and cutting spending. Presumably, this philosophy translates into wanting consumers to follow his public policy example by practicing sound fiscal policy in their own lives. The idea is that strengthening the financial system will strengthen the credit market and allow consumers to improve their lot in life, free of government intervention.
Student Loans and the Election
According to the Federal Reserve Bank of New York, student loan debt grew to a staggering $904 billion in the first quarter of 2012, an increase of $30 billion since the previous quarter. Some agencies, such as the Consumer Financial Protection Bureau, believe total student debt is even larger, and has surpassed the $1 trillion mark.
The Obama campaign is positioning itself as a champion for student loan reform. The recession has encouraged many consumers to change their financial patterns. In fact, U.S. consumer debt fell in the first three months of 2012 in every area but student loans. With slow hiring, many young adults have decided to go back to school, or continue straight into graduate programs after completing college. The vast majority of these students are paying their way with student loans.
Many strategists conclude that the Obama campaign hopes to use student loan reform as an issue to re-energize the young adult voting bloc that was crucial to his success in the 2008 primary and general elections. By positioning himself as a champion for reform, President Obama is hoping to create a powerful contrast between himself and former financier Mitt Romney in the eyes of young voters. Student loan reform was one of the few specific ideas repeatedly mentioned by last year’s Occupy Movement, and energizing that bloc of voters could be crucial in swing states.
As the fiscal year ended in June 2012, Democrats embraced the issue of taking action to stop scheduled student loan interest rate increases. Eventually, both congressional chambers voted to keep student interest rates from rising for a year, and President Obama publicly signed the legislation into law. Both Mitt Romney and President Obama have commented on the issue numerous times, raising its profile in the media.
Mortgages and the Election
Amid record-high foreclosures, the American housing market continues its painfully slow crawl toward recovery. The general consensus is that consumer debt in the form of mortgages was responsible for this crisis. The partisan squabbling arises when trying to figure out where to place the blame — on the homeowner in over his head, on the banker who loaned money irresponsibly, or on the financiers and institutions that mishandled the mortgages once they were issued.
The Dodd-Frank financial reform bill, signed by President Obama in 2010, is a lightning rod of contention in many political circles. Conservatives fault the legislation for being overly broad and putting too many regulations on private enterprise, while liberals fault it for failing to hold executives accountable for what many of them feel is criminal behavior. Almost everyone agrees that it has done little to change the consumer debt situation.
From Credit Cards to Payday Loans
One of the bright spots for consumers in recent years has been the decrease in credit card debt, which had been a sign of bad consumer fiscal behavior for years. However, in its place has come the rise of payday loans and title-based loans where consumers pay big fees or give up titles to property (usually a car) in exchange for small amounts of money meant to get them through a rough spot. In the case of title loans, failure to repay the small amount could lead in forfeiture of the entire collateral property. This largely unregulated industry has captured the attention of state legislatures across the country and could potentially spill into the presidential election this fall.
It is undisputed that we are in the midst of the largest financial crisis in recent times. This has affected everything from foreign policy to consumer behavior. Voters’ unease has made them aware of fiscal policy at a level that hasn’t recently been seen. Both candidates are aware of this, and consumer fiscal issues will likely get a good amount of attention between now and November.