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# Many banks charge high penalty fees on interest-bearing accounts for

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Manager
Joined: 04 Jun 2015
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Many banks charge high penalty fees on interest-bearing accounts for  [#permalink]

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14 Nov 2016, 11:34
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25% (medium)

Question Stats:

78% (02:00) correct 22% (02:23) wrong based on 926 sessions

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Many banks charge high penalty fees on interest-bearing accounts for relatively small violations of policies that are often confusingly presented to customers. These fees do not merely compensate the banks for the trivial cost and inconvenience of these violations; the fees provide enough income to allow the banks to offer free checking accounts, which do not generate interest. If checking accounts were charged a nominal annual fee, high penalty fees would be eliminated.

Which of the following would most strengthen the argument above?

A) A recent study has shown that fewer than 1% of bank customers read all the fine print on the information with which they are presented when they open an account.

B) There is widespread perception among the general public that penalty fees on interest-bearing accounts and lines of credit are unfairly high.

C) Bank customers will not close their checking accounts if a nominal annual fee is charged to the account.

D) The cost to banks of maintaining checking accounts is expected to rise considerably because of added security expenses.

E) Consumers would not pay most of their bills through online services rather than using their existing checking accounts.

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Re: Many banks charge high penalty fees on interest-bearing accounts for  [#permalink]

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14 Nov 2016, 23:14
We have to strengthen the idea that charging checking accounts would eliminate high penalty fees.

A) A recent study has shown that fewer than 1% of bank customers read all the fine print on the information with which they are presented when they open an account. - Incorrect. Irrelevant.

B) There is widespread perception among the general public that penalty fees on interest-bearing accounts and lines of credit are unfairly high. - Incorrect. Does not affect the argument.

C) Bank customers will not close their checking accounts if a nominal annual fee is charged to the account. - Correct. Supports the argument. If checking accounts are not closed enough revenue would flow into the bank and penal fee can be eliminated.

D) The cost to banks of maintaining checking accounts is expected to rise considerably because of added security expenses. - Incorrect. Opposite.

E) Consumers would not pay most of their bills through online services rather than using their existing checking accounts. - Incorrect. The relationship between online services and checking accounts is not stated in the argument and hence we cannot arrive at a definitive conclusion. Out of scope.

Manager
Joined: 04 Jun 2015
Posts: 79
Re: Many banks charge high penalty fees on interest-bearing accounts for  [#permalink]

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15 Nov 2016, 02:17
Vyshak wrote:
We have to strengthen the idea that charging checking accounts would eliminate high penalty fees.

A) A recent study has shown that fewer than 1% of bank customers read all the fine print on the information with which they are presented when they open an account. - Incorrect. Irrelevant.

B) There is widespread perception among the general public that penalty fees on interest-bearing accounts and lines of credit are unfairly high. - Incorrect. Does not affect the argument.

C) Bank customers will not close their checking accounts if a nominal annual fee is charged to the account. - Correct. Supports the argument. If checking accounts are not closed enough revenue would flow into the bank and penal fee can be eliminated.
D) The cost to banks of maintaining checking accounts is expected to rise considerably because of added security expenses. - Incorrect. Opposite.

E) Consumers would not pay most of their bills through online services rather than using their existing checking accounts. - Incorrect. The relationship between online services and checking accounts is not stated in the argument and hence we cannot arrive at a definitive conclusion. Out of scope.

The argument says "the fees provide enough income to allow the banks to offer free checking accounts, which do not generate interest". Per your reasoning if checking accounts are not closed how will the revenue flow since checking accounts would not generate any interest. Furthermore, if nominal fee is charged charging account how will this have a direct impact on the elimination?

Please correct me if Im wrong!
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Re: Many banks charge high penalty fees on interest-bearing accounts for  [#permalink]

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15 Nov 2016, 02:42
Sash143 wrote:
Vyshak wrote:
We have to strengthen the idea that charging checking accounts would eliminate high penalty fees.

A) A recent study has shown that fewer than 1% of bank customers read all the fine print on the information with which they are presented when they open an account. - Incorrect. Irrelevant.

B) There is widespread perception among the general public that penalty fees on interest-bearing accounts and lines of credit are unfairly high. - Incorrect. Does not affect the argument.

C) Bank customers will not close their checking accounts if a nominal annual fee is charged to the account. - Correct. Supports the argument. If checking accounts are not closed enough revenue would flow into the bank and penal fee can be eliminated.
D) The cost to banks of maintaining checking accounts is expected to rise considerably because of added security expenses. - Incorrect. Opposite.

E) Consumers would not pay most of their bills through online services rather than using their existing checking accounts. - Incorrect. The relationship between online services and checking accounts is not stated in the argument and hence we cannot arrive at a definitive conclusion. Out of scope.

The argument says "the fees provide enough income to allow the banks to offer free checking accounts, which do not generate interest". Per your reasoning if checking accounts are not closed how will the revenue flow since checking accounts would not generate any interest. Furthermore, if nominal fee is charged charging account how will this have a direct impact on the elimination?

Please correct me if Im wrong!

Hi,

Here the revenue is through annual fee that is imposed on every checking account. Moreover the interest earned goes to the customer and not to the bank. Interest free accounts put the bank at an advantage.

The argument states that nominal fee is helpful to eliminate the penal fee. You are supposed to strengthen the argument rather than to find out how it will eliminate the penalty fee.
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Re: Many banks charge high penalty fees on interest-bearing accounts for  [#permalink]

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15 Nov 2016, 03:16
2
Sash143 wrote:
Many banks charge high penalty fees on interest-bearing accounts for relatively small violations of policies that are often confusingly presented to customers. These fees do not merely compensate the banks for the trivial cost and inconvenience of these violations; the fees provide enough income to allow the banks to offer free checking accounts, which do not generate interest. If checking accounts were charged a nominal annual fee, high penalty fees would be eliminated.

Which of the following would most strengthen the argument above?

A) A recent study has shown that fewer than 1% of bank customers read all the fine print on the information with which they are presented when they open an account.
Out of scope. This information does not provide any information support or against the argument. Eliminated

B) There is widespread perception among the general public that penalty fees on interest-bearing accounts and lines of credit are unfairly high.
Yes, the fees are so high, so what? Eliminated

C) Bank customers will not close their checking accounts if a nominal annual fee is charged to the account.
If the bank apply checking account fee on bank customers, bank customers will not close their checking accounts, so the bank will not lose their customers. Also, this annual fee is high enough to cover the checking account cost, so the bank could eliminate the high penalty fees. Hence, this choice clearly support the argument.

D) The cost to banks of maintaining checking accounts is expected to rise considerably because of added security expenses.
Yes, this cost is expected to rise, so what? Eliminated

E) Consumers would not pay most of their bills through online services rather than using their existing checking accounts.
Eliminated, since this choice isnot relevent to the argument
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Manager
Joined: 04 Jun 2015
Posts: 79
Re: Many banks charge high penalty fees on interest-bearing accounts for  [#permalink]

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15 Nov 2016, 04:17
Vyshak wrote:
Sash143 wrote:
Vyshak wrote:
We have to strengthen the idea that charging checking accounts would eliminate high penalty fees.

A) A recent study has shown that fewer than 1% of bank customers read all the fine print on the information with which they are presented when they open an account. - Incorrect. Irrelevant.

B) There is widespread perception among the general public that penalty fees on interest-bearing accounts and lines of credit are unfairly high. - Incorrect. Does not affect the argument.

C) Bank customers will not close their checking accounts if a nominal annual fee is charged to the account. - Correct. Supports the argument. If checking accounts are not closed enough revenue would flow into the bank and penal fee can be eliminated.
D) The cost to banks of maintaining checking accounts is expected to rise considerably because of added security expenses. - Incorrect. Opposite.

E) Consumers would not pay most of their bills through online services rather than using their existing checking accounts. - Incorrect. The relationship between online services and checking accounts is not stated in the argument and hence we cannot arrive at a definitive conclusion. Out of scope.

The argument says "the fees provide enough income to allow the banks to offer free checking accounts, which do not generate interest". Per your reasoning if checking accounts are not closed how will the revenue flow since checking accounts would not generate any interest. Furthermore, if nominal fee is charged charging account how will this have a direct impact on the elimination?

Please correct me if Im wrong!

Hi,

Here the revenue is through annual fee that is imposed on every checking account. Moreover the interest earned goes to the customer and not to the bank. Interest free accounts put the bank at an advantage.

The argument states that nominal fee is helpful to eliminate the penal fee. You are supposed to strengthen the argument rather than to find out how it will eliminate the penalty fee.

Thanks for that explanation! Crystal clear
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Re: Many banks charge high penalty fees on interest-bearing accounts for  [#permalink]

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03 Dec 2016, 03:22
Premise: Many banks charge high penalty fees on interest-bearing accounts for relatively small violations of policies that are often confusingly presented to customers.
Premise: These fees do not merely compensate the banks for the trivial cost and inconvenience of these violations; the fees provide enough income to allow the banks to offer free checking accounts, which do not generate interest.

Conclusion: If checking accounts were charged a nominal annual fee, high penalty fees would be eliminated.

If it happens what is stated in the conclusion then the author assumes that customers who use checking accounts would use them even after the implementation.

Choice C exactly states this. Therefore CORRECT.
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Manager
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Many banks charge high penalty fees on interest-bearing accounts for  [#permalink]

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21 Dec 2018, 07:45
Sash143 wrote:
Many banks charge high penalty fees on interest-bearing accounts for relatively small violations of policies that are often confusingly presented to customers. These fees do not merely compensate the banks for the trivial cost and inconvenience of these violations; the fees provide enough income to allow the banks to offer free checking accounts, which do not generate interest. If checking accounts were charged a nominal annual fee, high penalty fees would be eliminated.

Which of the following would most strengthen the argument above?

A) A recent study has shown that fewer than 1% of bank customers read all the fine print on the information with which they are presented when they open an account.

B) There is widespread perception among the general public that penalty fees on interest-bearing accounts and lines of credit are unfairly high.

C) Bank customers will not close their checking accounts if a nominal annual fee is charged to the account.

D) The cost to banks of maintaining checking accounts is expected to rise considerably because of added security expenses.

E) Consumers would not pay most of their bills through online services rather than using their existing checking accounts.

Veritas Prep OFFICIAL EXPLANATION

Explanation: The conclusion is that high penalty fees would be eliminated when banks start charging annual fees for checking accounts. If, however, customers closed their checking accounts, the banks would lose that income, giving them no incentive to discontinue charging high penalty fees. Choice C, by stating that this would NOT happen, strengthens the conclusion. You can use the Assumption Negation Technique here. The negation of this choice is “Bank customers will close their checking accounts if a nominal annual fee is charged to the account.” Well if they DO close their checking accounts, this hurts the conclusion, since the banks would not be collecting enough annual fees from checking accounts to eliminate high penalty fees.

(A) We were already told that information about penalty fees is presented confusingly. It does not strengthen the argument to say that most people don’t read the fine print.

(B) This perception does not matter. What matters is whether the fees will be eliminated. This choice is out of the scope.

(D) This actually weakens the argument, since banks will be less inclined to drop the penalty fees if their costs rise considerably.

(E) This choice might seem to strengthen the argument by saying that people will not abandon their checking accounts in favor of online services, but you can use the Assumption Negation Technique to rule this choice out. Even if people DO pay most of their bills through online services rather than using their existing checking accounts, they would still be paying the annual fees on checking accounts, thus giving the banks a reason to eliminate penalty fees. The conclusion is not harmed by denying this choice, so the choice is not an assumption.
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Many banks charge high penalty fees on interest-bearing accounts for   [#permalink] 21 Dec 2018, 07:45
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