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Most banks that issue credit cards charge interest rates on credit card debt that are ten percentage points higher than the rates those banks charge for ordinary consumer loans. These banks' representatives claim the difference is fully justified, since it simply covers the difference between the costs to these banks associated with credit card debt and those associated with consumer loans.
Which of the following, if true, most seriously calls into question the reasoning offered by the banks' representatives?
| Text from Passage | Analysis |
| Most banks that issue credit cards charge interest rates on credit card debt that are ten percentage points higher than the rates those banks charge for ordinary consumer loans. |
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| These banks' representatives claim the difference is fully justified, since it simply covers the difference between the costs to these banks associated with credit card debt and those associated with consumer loans. |
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The passage presents a factual situation (credit card rates are \(10\%\) higher) and then gives us the banks' explanation for this difference (higher costs justify higher rates).
There isn't really a main conclusion in this passage - it's setting up the banks' reasoning that we'll need to evaluate in the question.
This is more of a setup than a complete argument. The banks are making a simple cost-justification claim: 'We charge more because our costs are higher.' The question will ask us to find what weakens this reasoning.
Weaken - We need to find information that reduces belief in the banks' claim that the 10 percentage point interest rate difference is fully justified by covering their extra costs
The banks make a very specific claim - that the rate difference 'simply covers' and is 'fully justified' by cost differences. This means they're claiming the extra \(10\%\) perfectly matches their extra costs, no more, no less
To weaken this argument, we need to show that the 10 percentage point difference doesn't actually match the cost difference. We can do this by showing either:
This tells us about non-bank lenders charging even higher rates than banks charge on credit cards. However, this doesn't help us evaluate whether banks' credit card rates are justified by their costs. What other lenders charge is irrelevant to whether our specific banks' reasoning about covering their cost differences is sound.
The fact that car rental companies require credit cards or deposits doesn't tell us anything about the cost structure behind credit card operations versus regular loans. This is completely unrelated to the banks' cost-justification argument.
This is the correct answer. If banks receive \(\mathrm{2-3\%}\) of every credit card purchase as revenue from merchants, this represents a major income source that doesn't exist with regular consumer loans. The banks' claim is that the \(\mathrm{10}\) percentage point rate difference 'simply covers' and is 'fully justified' by their extra costs. But if they're earning significant merchant fees on top of the higher interest rates, then they're making extra profit beyond just covering costs. This directly undermines their reasoning.
Whether people need to use credit cards or could use cash/checks instead doesn't address the banks' cost justification. The banks aren't arguing about necessity - they're arguing about cost coverage. This choice doesn't challenge their claim about costs.
The fact that some people pay no interest (those who pay in full monthly) doesn't weaken the banks' reasoning about why they charge higher rates to those who do pay interest. The banks could still argue their costs justify the rate difference for the debt that does carry interest.