Logical Reasoning

PT103 · S3 · Q25 Credit card companies justify charging

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Credit card companies justify charging cardholders additional fees for late payments by asserting the principle that those who expose other individuals, companies, or institutions to financial risk should pay for that risk, and by pointing out that late-paying cardholders present a greater risk of default than other cardholders.

Companies' Conclusion

We should charge individual cardholders a late payment fee when they're late on their payments, rather than increasing the cost of all cardholders' policies.

Evidence / Principle

If ... Then ... you expose others you should pay to financial risk for that risk

And cardholders who pay late present a greater risk of default than other cardholders.

Evaluate

Credit card companies lend out money. If they don't get paid back, if the lender defaults on that loan, what happens to the credit card company?

They are probably paying for some sort of insurance, so that they wouldn't be totally on the hook for the unpaid debts. Hence, that's increasing their costs. Should they raise the cost of using their card for all customers in order to offset that increased cost?

No, they argue, the extra cost should be paid by the offending parties, not the innocent ones.

Goal

It's hard to say what level of coarse / fine grained similarities we'll see, but roughly I'd be looking for 1. A subset of a group is causing a certain thing to occur 2. So, we're going to assess a special treatment (probably negative) on them, and not the others

25.

The principle invoked by the credit card companies would, if established, be most usefully invoked in which one of the following arguments?

  1. School authorities should use student

    Opposite

    This is a case where just a small subset of a population (the vandalizing students) are causing a problem, but instead of just giving them special treatment, the school is "punishing" everyone, by just finding that money in student activity funds that everyone pays.

    2% picked this

  2. Correct

    Insurance companies should demand higher

    Why this is right

    This has a subset of a population (drivers of sports cars are a subset of all insured drivers) and we're giving them special (negative) treatment, by charging them higher rates.

    Skill tested: Principle-Conform · how this choice captures the argument's function is the move to repeat next time.

    61% picked this

  3. Libraries should charge high fines

    Weak Trigger Match

    This is tempting, since it's essentially charging a late fee, just like the credit card companies were on late payments. But the why part of it doesn't match. Why do credit card companies charge a late fee? Because late-payers expose the companies to more financial risk, and thus they should be the ones who have to pay for it. Why do insurance companies charge higher policy rates for drivers of sports cars? Because drivers of sports cars are more likely to cause accidents and force the insurance company to pay out money (i.e. they increase the financial risk for the insurance companies, so they should be the ones who have to pay for it.) Why do libraries charge a late fee? In order to prevent inconveniencing other potential borrowers. (there's no sense in which the overdue book-holder is exposing the library to more financial risk) When we consider that with credit card and insurance companies, they have the choice to charge all their customers higher-but-similarly, or to charge the offending customers higher than the non-offending customers. That layer doesn't work with the library, since most libraries are free, so no customers are being charged anything (unless they keep a book for too long).

    35% picked this

  4. Cities should impose high fines

    Bad Trigger Match

    This is giving special (negative) treatment to the offenders, but it's not because they are exposing someone or something to higher financial risk. Similar to (C), the reason for punishing the rule-breakers is more about deterring that sort of behavior, not about locating the extra financial burden with the principal cause of the extra financial burden.

    1% picked this

  5. Municipalities should use tax money

    Opposite

    This argument involves charging everyone the same, regardless of which parties are more or less responsible for the cost of doing business. If municipalities were following the credit card companies' principle, they would charge higher taxes for the residents whose access roads cost more to maintain.

    1% picked this

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