PrepTest 103, Section 3, Question 25
Credit card companies justify charging cardholders additional fees(59 more words not shown)
The principle invoked by the(17 more words not shown)
- ASchool authorities should(34 more words not shown)
- BInsurance companies should(38 more words not shown)
- CLibraries should charge(32 more words not shown)
- DCities should impose(32 more words not shown)
- EMunicipalities should use(30 more words not shown)
Reading the argument
Why should on-time customers cover the extra risk created by late-paying customers?
That's the credit card companies' defense of the fee. Late payers create a greater chance that the companies won't get their money back. The companies want those customers to bear the cost of that risk instead of spreading it across everyone.
My first reaction is that the companies could simply point to a missed payment agreement. I might also question whether customers would stay if a company tried to charge everyone an extra risk fee. But neither reaction identifies the principle the companies actually invoke. Their stated reason is about making the people who create financial risk pay for it.
What we’re looking for
The question asks where that same principle would be useful. Think of a house in a place with an unusually high risk of storm damage: the insurer might charge more to cover that added financial exposure. We're looking for that relationship—an identifiable source of greater financial risk being charged for the risk it creates.
Working the answers
- A
Using student activity funds spreads the expense across the fund, even though only a few students caused significant damage. The inability to identify those students might be a practical reason to do that. But it doesn't apply the principle of making the risk-creators themselves pay. The problem isn't that school authorities physically administer the payment; it's that the shared funding doesn't target the responsible students.
- BCorrect
The sports-car drivers correspond to the late-paying cardholders. Under the answer's facts, they create a greater risk of financial loss for the insurer because accidents are more likely to generate claims. The higher insurance rate makes the group creating that added risk pay for it.
That uses the same stated principle as the late fee. We don't need to establish any real-world claim about all sports-car drivers; we apply the risk comparison the answer gives us.
- C
This is tempting because overdue books resemble overdue payments. But the reason offered is inconvenience to other borrowers, not financial risk. The fine is supposed to keep people from holding books indefinitely. We shouldn't invent a monetary loss to make the library example fit a principle the answer itself doesn't use.
- D
This argues for a high fine because litterers are unlikely to be caught. Its purpose is deterrence: make the occasional penalty large enough to discourage the behavior. It doesn't argue that a group exposing others to greater financial risk should pay for that exposure. Possible cleanup costs aren't the reason D offers.
- E
This defends shared tax funding because paying only for roads one uses would leave some important roads underfunded. That is a reason to spread costs across the public. It doesn't identify a group creating extra financial risk and assign that risk's cost to the group. Its justification differs from the companies' stated principle.
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