If borrowers make intelligent decisions, they can move their business away from high-interest credit cards to low-interest cards. As a result, those banks with excessive rates would suffer financially. Of course, choices would be limited for borrowers with bad credit, but whose fault is that? The borrowers obviously, but I suspect that you won’t see many people on Capitol Hill hold individuals responsible for their decisions. After all, many voters don’t want to hear the truth.

By the way, I find the potential effectiveness of this bill questionable. Since banks want to maximize their profits and those profits will be reduced by having to lower high rates, what will they do to make up for the loss in revenue? My guess is they will raise the interest rates of those who are paying below 16%. These people are also known as borrowers with good credit who actually pay their bills on time. So, if you have poor credit, you’ll pay 16%. If you have good credit, you’ll pay 16%. Responsible borrowers can subsidize the porr decisions of the rest. That’s fair, right?

Interest rates are determined by several factors, which equate to the borrowers risk profile. Those with excellent credit pay less than those with poor credit. It’s a fair system, since those with poor credit are more likely to default. For example, someone with excellent credit might pay 12%, while someone with poor credit would pay 20%. The difference might not seem fair at first, but let’s not forget that based on their payment histories, each deserves the rate they received.

Now, let’s take a look at what will happen if a 16% cap is placed on credit card rates. That person who is paying 20% will likely have their rate dropped down to the 16% cap. That is expected, but what is unknown is how the person paying 12% will be treated. Will the banks leave their rate alone, or will they raise it a few percentage points to make up for the lost revenue on the low-end portion of their credit portfolio? We’re talking about banks, so my guess is that we will see rates increased for everyone. By the way, don’t think fees would be left alone. The credit card companies will do everything in their power to maximize their profit and make up for lost revenue.

This bill treats interest rates as some irrational, arbitrary number that is out of individual control. If a consumer makes timely payments and uses credit wisely, they will receive a low rate. It’s as simple as that. Of course, we are living during the administration of Barack Hussein Obama, where government needs to inject itself into every aspect of our lives and make things better (by their standards). Sure, it will result in responsible borrowers subsidizing irresponsible borrowers, but that’s ok. Like Barack said, we need to spread the wealth around.