Credit Card Spokesperson: "It is to the benefit of all credit customer

Question

Credit Card Spokesperson: "It is to the benefit of all credit customers that we increase the interest rates of those cardholders who present a high risk of defaulting on their obligations. A way to offset the costs of these customers' defaults is to increase the interest rates of all customers, including those who are at almost no risk of defaulting on their lines of credit."

Which of the following, if true, most strongly indicates that the logic of the credit card spokesperson is flawed?

A. Credit card companies could offset the costs of defaults by raising the fees they charge to merchants who accept credit cards.

B. Increasing the interest rates on high-risk cardholders is more likely to result in these cardholders defaulting.

C. Many credit card customers pay their bills in full each month, avoiding interest charges.

D. Increasing interest rates would not result in a higher monthly payment for high-risk cardholders.

E. Credit card companies have historically offered cards to high-risk customers at higher interest rates than those given to low-risk customers.

yashikaaggarwal · Answer

A way to offset the costs of these customers' defaults is to increase the interest rates of all customers, including those who are at almost no risk of defaulting on their lines of credit."
The concluding statement infer that the plan of increasing the interest rates of all customers, will lead to less default made by customers. The conclusion is flawed because:

A. Credit card companies could offset the costs of defaults by raising the fees they charge to merchants who accept credit cards.  (Merchants are not specifically mentioned as one of the customer of the bank, it might broaden the existing scope or is a subpart of one, though irrelevant irrespective anything) (Incorrect)

B. Increasing the interest rates on high-risk cardholders is more likely to result in these cardholders defaulting.   (Yes, if the customers default rate will increase the motive behind the whole plan will go in vain or completely opposite of expected results) (CORRECT)

C. Many credit card customers pay their bills in full each month, avoiding interest charges.   (If majority of customer pay their bills on time, there wouldn't have any need of the plan from starting, but since they are defaulting payments the action is been considered)(Incorrect)

D. Increasing interest rates would not result in a higher monthly payment for high-risk cardholders.  (Increasing interest rate will eventually make people pay up mount in order to pileup wholesome interest amount, so we can't exactly say there won't be any increase in monthly payment) (Out of scope)

E. Credit card companies have historically offered cards to high-risk customers at higher interest rates than those given to low-risk customers.   (This statement infer the past but doesn't states out the result followed after the action has been taken place.) (Half Information)

Answer is B

SonamRa · Answer

Those customers who don't pay back or are defaulters, once the amount to payback increase with higher interest rate they are more likely to default.
So answer is B.

Sandeep2742 · Answer

the credit card companies want to offset the costs of the defaulting customers by increasing the interest rates of all customers. However, if other customers are paying their dues in time with no interest then how will companies offset the cost?

Paras96 · Answer

Option (B)  is the correct answer because it directly challenges the logic of the credit card spokesperson's argument. The spokesperson argues that increasing the interest rates of high-risk cardholders will help offset the costs of their defaults.  Option (B)  tells us that " increasing the interest rates on high-risk cardholders is more likely to result in these cardholders defaulting ."

This information indicates that the spokesperson's proposed solution may actually make the problem worse. If raising the interest rates for high-risk cardholders increases the likelihood of them defaulting, then it's counterproductive to the stated goal of offsetting costs through increased interest rates. In fact, it suggests that raising interest rates on high-risk cardholders might lead to more defaults and financial instability, rather than solving the problem.

So,  option (B)  highlights a fundamental flaw in the logic of the spokesperson's argument by showing that the proposed solution could have unintended negative consequences and may not achieve its intended purpose.

Isha2701 · Answer

KarishmaB   Bunuel  - can you please help explaining the argument and why C is wrong?

guddo · Answer

Credit Card Spokesperson: "It is to the benefit of all credit customers that we increase the interest rates of those cardholders who present a high risk of defaulting on their obligations. A way to offset the costs of these customers' defaults is to increase the interest rates of all customers, including those who are at almost no risk of defaulting on their lines of credit." 
 
Which of the following, if true, most strongly indicates that the logic of the credit card spokesperson is flawed?

The spokesperson says raising rates on high-risk customers benefits everyone, because defaults create costs that must be offset. But the flaw is that the proposed solution may actually make the default problem  worse  rather than better. If higher rates make risky customers even more likely to default, then the policy undercuts itself.

(A) Credit card companies could offset the costs of defaults by raising the fees they charge to merchants who accept credit cards.

This gives another possible way to offset costs, but it does not show that the spokesperson’s logic is flawed. The proposed policy could still work even if alternatives exist.

(B) Increasing the interest rates on high-risk cardholders is more likely to result in these cardholders defaulting.

This is the best answer.  It directly attacks the logic of the argument.  If raising rates on high-risk customers makes them even more likely to default, then the policy may increase the very costs it is supposed to offset.

(C) Many credit card customers pay their bills in full each month, avoiding interest charges.

This is not the key flaw. It shows some customers would not be affected much by higher rates, but it does not undermine the logic of the spokesperson’s proposal.

(D) Increasing interest rates would not result in a higher monthly payment for high-risk cardholders.

This weakens the practical effect of the policy a bit, but it does not expose the main logical problem as strongly as B does.

(E) Credit card companies have historically offered cards to high-risk customers at higher interest rates than those given to low-risk customers.

This does not show any flaw. If anything, it suggests such differential pricing is already common.

Answer: (B)

Tinytrotter · Answer

B is correct in the sense it directly attacks the suggestion of the spokesperson regarding charging higher interest rate. I was confused between B and C because C attacks the rationalization which the spokesperson provides which is that if higher interest rates are not charged for higher at risk customers then everyone will face higher interest charges. But if majority people are paying their bills without default, a relatively higher or lower interest rate charged on a blanket basis would not make any difference.

But I guess, I overthought on this. Better to go with something which is direct and more strong.

But I guess, I overthought on this. Better to go with something which is direct and more strong.

Credit Card Spokesperson: "It is to the benefit of all credit customer

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Credit Card Spokesperson: "It is to the benefit of all credit customer

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