Consumers in California seeking personal loans have fewer banks to tur

Hope this helps.

Answer : A
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The biggest fallacy in this argument is it is causal. X -> Y shortage of competition (X) leads to higher (Y) interest rates on personal loans. If there is a reverse trend. i.e. X leads to Negative (Y) then the argument goes for a toss.

The interest rates in CA is not higher than other regions of the US because ......

Perhaps the depositors get lower interest rates since there is lack of competition. The trend reverses and weakens the argument substantially. E is correct.

Hi nusmavrik..
I am somehow not be able to understand this ..pls explain it again ...regards

My bad . Sorry.

The passage uses a single premise to base the judgement that CA banks have a higher interest rates than those of the banks in most parts of US.
Premise: Lack of competition.
Conclusion : X leads to Y. Lack of competition (X) leads to higher (Y) interest rates on personal loans.

E says there is lack of competition to attract the customers in CA hence interest rates paid by banks to depositors are lower than by banks in other parts of US. Argument is about interest rates on personal loans NOT savings account. Irrelevant.

A says that since the wages of qualified customers in CA are high the banks charge more fee. A is an alternate explanation to Y (high interest rates on personal loans). Z -> Y. This weakens the main conclusion.

Answer should be A.

A for me
CDE are just out of scope or they strengthen the argument, but the tricky part is choose between A and B
The conclusion of the argument states that Shortage of banks ---> higher interest rates. This is cause and effect

A says that there is another cause for the higher interest; They have to pay higher wages in California -----> higher interest rates (so it shows another cause for the issue, and that's what we want)

B says personal loans are riskier...so what? B at the least strengthen the argument, because it says other things constant the interest rates are still higher in California compared to interest rates in any other state.
A is the best

I don't understand the OA. What's the relationship between high depository fee and high interest rate on personal loans? I cannot see any positive correlation here. Please help explain. Tks

We need to weaken the conclusion in the question. What is the conclusion?
- Interest rates on personal loans in California are higher than in any other region of the US because of shortage of competition.

Option (A) says that California banks pay higher wages than others to attract qualified workers. So they charge depositors more than other banks. Could it also be the reason why interest rates on personal loans are higher? If banks have to pay higher wages, their expense is more and hence, they may be charging more from their customers. So shortage of competition may not be the reason of higher interest rates. Remember, I only need to weaken my conclusion. I don't need to prove it invalid. This information has weakened my conclusion.

Option (B) personal loans are riskier for all banks. Why then do California banks charge higher interest? The reason could very well be lack of competition. So it does not weaken my conclusion.

IMO A,

I guess we are pretty certain why B and C are wrong. Lets take the other options

D: The proportion of consumers who default on their personal loans is lower in California than in any other region of the United States
This option simply suggests that this is one of the reasons why banks should not charge higher rate of interests on personal loans, since their debtors or defaulters are much less (in proportion) as compared to other regions in the country. Even though this may be luring, this is NOT WEAKENING the conclusion at all. It just points one reason why banks should not over charge customers.

E: Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors
This option is actually out of context for current argument. The argument talks about interest rates on personal loans and NOT ON DEPOSITS made in the bank. Even if we try to relate it somehow to the argument, to my understanding this is in fact strengthening the argument by demonstrating a separate event with same reasoning or trend.

A: Because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of me services they offer
Now, 'A' suggests that operating cost of banks in California is higher than elsewhere because they must pay to attract qualified workers. Since the operating cost is higher, to make profits, they may need to charge higher interest rates to customers. 'A' clearly gives an alternate reason why banks are charging higher interest rates to customers.

Hope this helps.

The argument states that the banks in California charge a higher rate of interest to consumers because of a dearth of banks in California. Hence the reason stated is the lack of competition among banks. Answer choice stating any other factor for the same can be the answer."A" states a different reason altogether. The reason is the higher wages banks need to pay qualified workers which is completely different from the reason stated in the argument. Hence "A" is the answer.
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The answer is A

Explanation :- As I have said again and again in all my critical reasoning post. The success to critical reasoning depends on isolating the premise and conclusion. Depending on what the question is asking, we then evaluate the options, based solely upon premise or conclusion.
This is a weaken question and we will evaluate the answer choices based only on the Conclusion of the argument.

Lets quickly identify and isolate the premise and conclusion
Premise 1) Only a small number of banks in California gives personal loans to people.
Premise 2) Because of small number of banks there is no competition among these banks.
Conclusion) Since there is no competition the bank charge higher interest rate.


So as we can see according to the reasoning of the argument:- Higher interest rate are because of lack of competition in California.. Now if we want to weaken this argument then we will have to show that higher interest rate are not because of lack of competition but higher interest rate are because of some other reason.

The answer choice that will show another reason for higher interest rate will be correct


Consumers in California seeking personal loans have fewer banks to turn to than do consumers elsewhere in the United States. This shortage of competition among banks explains why interest rates on personal loans in California are higher than in any other region of the United States.
Which of the following, if true, most substantially weakens the conclusion above?

(A) Because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of me services they offer
HOLD IT .. SOUNDS VAGUE BUT RELATED TO OUR OBJECTIVE (OUR OBJECTIVE IS TO SHOW THAT THERE IS ANOTHER REASON FOR HIGH INTEREST)

(B) Personal loans are riskier than other types of loans, such as home mortgage loans, that banks make.
WRONG:- This is just telling us that some loans are riskier than other. It is not mentioning competition or high interest rate. DISCARD THIS OPTION

(C) Since bank deposits in California are covered by the same type of insurance that guarantees bank deposits in other parts of the United States, they are no less secure than deposits elsewhere.
WRONG:- This is strengthening the argument. If all back have same security , then all bank should follow similar banking practise. It is not showing why the interest rate is higher. DISCARD THIS OPTION

(D) The proportion of consumers who default on their personal loans is lower in California than in any other region of the United States.
WRONG:-Some guys may chose it as a correct answer but remember this is out of scope. It does not talk about how competition or lack of it affects interest rates. It is not addressing our conclusion. DISCARD THIS OPTION

(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors
WRONG:- This is contradicting the premise and conclusion both by saying interest rate are lower and competition is less DISCARD THIS OPTION

so we are left with option A
Now lets recheck it quickly
(A) Because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of me services they offer
RIGHT :- Now we can see why this choice is right. This options tells us that because California bank pay more to their employee, they charge their customers more for everything; not only personal loans but for every service. California bank charge more for locker, more for saving account, more for credit card annual fees, more for car loans, more for education loans. AND THIS OPTION ALSO TELL US THAT CALIFORNIA BACK CHARGE MORE NOT BECAUSE OF LACK OF COMPETITION BUT BECAUSE ITS EMPLOYEES ARE THE BEST IN BUSINESS AND THEY BANK HAD TO PAY THEM MORE MONEY THAN BANKS IN OTHER AMERICAN CITIES.

Essentially this option destroys the conclusion by telling not only personal loans but all baking services charge more and that the reason for it is not the lack of competition

My ans. A , below is the explanation :

What to weaken : Shortage of competition among banks explains why interest rates on personal loans in California are higher than in any other region of the United States.

Lets check whcih option fails to weak this conclusion

(A) Because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of me services they offer
seems reasonable why banks in california charge more depositors for many of their services . Lets keep this option

(B) Personal loans are riskier than other types of loans, such as home mortgage loans, that banks make.

General and Out Of Scope . Doesn't expalin any reason why specifically bank in california charges more interset for Personal loans. eliminate this

(C) Since bank deposits in California are covered by the same type of insurance that guarantees bank deposits in other parts of the United States, they are no less secure than deposits elsewhere.
This doesn't expalin the difference between charges of banks in US or california. eliminate this

(D) The proportion of consumers who default on their personal loans is lower in California than in any other region of the United States.

This strengthen the conclusion and doesn't weaken . eliminate this

(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

It doesn't explain the situation in hand ( why California bank charges more interset on personal loans). It explains the out of scope situation that why califonia banks providing less interest to depositors. eliminate this

Hence answer is A

VeritasPrepKarishma
keeping in mind the conclusion, shortage of competition for me B looked out of scope
am I right?

Yes, it is out of scope. It is something that affects all banks. So it does nothing to differentiate between California banks and other banks.

Consumers in California seeking personal loans have fewer banks to turn than do consumers elsewhere in the US. This shortage of competition among banks explains why interest rates on personal loans in California are higher than in any other region of the US.
Which of the following, if true, most substantially weakens the conclusion above?

(A) Because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of the services they offer.
(B) Personal loans are riskier than other types of loans, such as home mortgage loans, that banks make.
(C) Since bank deposits in California are covered by the same type of insurance that guarantees bank deposits in other parts of the United States, they are no less secure than deposits elsewhere.
(D) The proportion of consumers who default on their personal loans is lower in California than in any other region of the United States.
(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

Can some one explain option b's accuracy?

Hi Ravindra.here,

For this question, you do not need to worry about (B)'s accuracy because it just says that everyone getting a personal loan is riskier than those getting home mortgages. But the question never compares the two, so it is out of scope and cannot be the answer. To answer any GMAT question, you shouldn't bring in any outside information. For example, if the paragraph says the sky is pink, we now know for that question the sky is pink. It is not blue in that case.

Does this help?
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Can anyone please explain why in A the answer is strictly limited to depositers, why not all people in general? I didn't select A because the answer choice uses "California banks charge depositors more ...". Why are we to assume that they are only offering personal loans to depositors and not all people in general? If someone can please elaborate. GMATNinja.

Good point! But remember that we are just looking for something that weakens the conclusion.

If (A) is true, then it makes us think, "Oh, maybe California banks have high interest rates on personal loans for the same reason."

So even though choice (A) only mentions depositors, it gives us reason to believe that the high interest rates on personal loans might also be a result of the high wages, NOT the shortage of competition.

This does not DISPROVE the conclusion, but it does WEAKEN the conclusion by suggesting an alternative explanation. And that's enough.

I hope that helps!
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KarishmaB Ma'am,

In option B, it states that personal loans are riskier than other types of loans. So couldn't this be a reason for charging a high rate of interest. The loans are risky and the bank does not want to take a chance of any sort. Hence, charging a higher rate of interest. So it is not the competition, but the risk factor that is involved.

Please evaluate the above argument.

What do we have to explain?
- why interest rates on personal loans in California are higher than in any other region of the US.

So if IR on personal loans in other areas is say 5%, in Cal it is 7%. Why? The argument says that it is because there is less competition in Cal. But we want to weaken this reasoning. Then we should give another reason why banks in Cal charge higher IR for personal loans.

Option (A) says that banks in Cal have higher expenses (higher wages to people for same work) thank banks in other areas and that is why they charge higher IR. This could explain the higher interest rates in Cal and hence it weakens our argument.

Option (B) says that personal loans are riskier than other loans. This means the IR charged on personal loans is likely to be higher than that charged on other loans. So in all banks personal loans will have IR higher than other loans. But it doesn't say why banks in Cal charge IR higher on personal loans than banks in other areas. The distinction is between Cal and other areas, not between personal and other loans.

Hence (B) is not the answer. Answer (A)