Most banks that issue credit cards charge interest rates on credit car

Argument Evaluation

Situation

Banks that issue credit cards tend to charge interest rates on the associated debt that are ten percentage points higher than the rates associated with “ordinary” consumer loans (consumer loans that are not associated with credit cards). Representatives of these banks have offered a justification of this practice, based on a claim that this difference in interest rates “simply covers the difference” in costs, to the banks, associated with these respective types of loans (loans associated with credit cards and consumer loans that are not associated with credit cards).

Reasoning

What additional facts would indicate a flaw in the bank representatives’ argument? Given the description of the bank representatives’ argument, we may assume that, by their estimation, the costs to banks associated with credit card debt are greater than the costs associated with other consumer loans. The representatives’ argument, that the difference in interest rates “simply covers” this difference in costs, may then be seen as an argument that all of the extra money that the banks collect from the higher interest rates is necessary if the banks are to cover this difference in costs. If we can find a fact whereby the ten percentage point difference is not necessary to cover the difference in costs, then we may be able to “call into question” the bank representatives’ argument.

A. The point of this response to the bank representatives’ argument would seem to be that the relatively high interest rates on credit debt may be justified because certain other businesses charge even higher interest rates on consumer loans. Regardless of the merits of this response, it appears intended to support the argument of the representatives, whereas our task is to identify a fact that could be used to criticize the argument.

B. This purported fact does not address the argument concerning the interest rates on credit-card debt.

C. Correct. If two to three percent of the value of purchases made on credit cards goes to the issuing banks, then this money could be used to cover some of the difference in costs described by the bank representatives. The interest rates on credit cards could therefore be somewhat lower than they actually are, with the difference in costs nevertheless still fully covered. The difference in interest rates of ten percentage points may therefore not be necessary.

D. This point might be used in support of an argument that consumers have a genuine choice as to whether to use credit cards, and that they are therefore responsible for the higher rates of interest that they pay for credit-card debt. Such an argument would seem to support the position of bank representatives.

E. As with the point in option D, this point might seem to suggest that consumers bear some of the responsibility for the higher interest rates they pay, thus perhaps mitigating the responsibility of the banks. The point might thus seem to support the position of the banks’ representatives.

The correct answer is C.