Not All Companies Are Viewed as Equal – BUS 309 Assignment
In the land of free trade, the public does not view all industries as equal. Do you believe that is ethical? Do you believe that some industries are unfairly targeted? Should it be consumers’ choice to partake in products that are not healthy for them, or do those companies have an ethical obligation to protect people? In this assignment, you will choose one (1) industry to write about. Possible industries to research could be tobacco, soda, alcohol, casinos, or candy companies, just to name a few.
Write a paper in which you:
- Become an advocate for either the consumer or the industry. Prepare an argument explaining the major reasons why you support either the consumer or the industry.
- Explain the role capitalism plays in corporate decision making.
- Discuss if you believe it is possible for a company to cater to both its best interest and that of the consumer conjointly or if one always has to prevail. Justify your response.
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Is the Payday Loan Industry unfairly Targeted – Not All Companies Are Viewed as Equal
The payday loan industry is an industry characterized by small high-interest rate short-term loans that become due in the next paycheck time for the borrower. This is a popular form of borrowing for low-income earners in the United States. The loans range from 500 U.S dollars and below and mostly have an annual interest rate of approximately 400%. This is over ten times higher compared to the standard lending in the country. Unlike other financial loans that need collateral of specific credit score, payday loans only need income proof and an existing banking account (Poverty-action.org, 3). The payday loans thus offer credit to people who otherwise could not have received it in other financial institutions, trapping them into expensive debt that results in chains and chains of debts in their life. Although the industry may argue that it supports low-income earners to access credit, it is clear that its motive is to exploit economically vulnerable individuals by making them more vulnerable, indebted, and intensely dependent on those lenders for survival. In this regard, consumer advocate needs to work aggressively to protect the targeted individuals from falling into this debt trap.
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Several reasons make me support the consumer in this particular industry. One reason is that the payday loan charges a very high interest to its borrowers, making it very expensive in terms of interest payment and unmanageable for the consumer. Based on the fact that the industry targets low-income earners, such high interests are likely to sway the borrowers off financial balance forever, since they account for a large part of their monthly income. This pushes borrowers into more debts as they are forced to get another loan to be able to cater for the first one. This ends up being a life chain where such individuals are always engaged in high-interest rate debts that they will never be able to pay completely. While the industry leaps greatly from this arrangement, borrowers continue sinking into debts, increasing their poverty level and risk to psychological distress.
Another reason that I support consumer is that the amount borrowed is very little for investment. Normally, the industry targets low-income earners, and hence they only give what they can manage to pay with their end month paycheck. This means that borrowers are given money for personal use at a very high-interest rate. The lender is sure that none of the lenders is borrowing for investment. This means no one intends to earn any income from the borrowed money that would aid in paying the money. This brings in the question of the industry’s intention towards the borrowers. Based on the analysis, it is clear that the industry operates to increase the wealth gap in the country. By increasing borrowers spending temporally for one month the lender manages to trap the borrower in future borrowing cycles to cater to the initial cost of borrowing. This is economically unhealthy and highly unethical and hence it needs to be regulated or controlled (Payne, 2).
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Another reason that I support consumer is that the industry does not offer any financial education or guideline to borrowers. In most cases, borrowers take the loans without enough knowledge on how the high-interest rate can impact their financial stability in the future if unable to pay. It is unreasonable to expect one to pay the loan amount equivalent to paycheck within one to three months period. The industry fails to consider individual ability to cater for basic needs while repaying the loan. This increases the chances of payment failure. This lack of adequate knowledge is a strategy the industry uses to take advantage of the targeted population and make them their financial slaves. According to Lee, Park and Heo (1) interest and fees payment can be astronomical in case borrowers cannot pay the debt on time. Based on the research about 75% of payday loan customers are reported to paying off the initial debt for over 10 years, after failing to repay the debt within the required short time.
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In my opinion, the industry can create a balance between its interest and interest of its targeted consumers. One way to do this is by reducing their interest rate to ensure that the borrower can manage to pay within a short time without being overwhelmed by fees and interest rates. The industry will always earn as long as there is a small percentage of the interest rate. This will also benefit the borrower by helping them solve their emergencies and manage to pay the money in the future without defaulting or getting into a debt cycle. Another way to create a balance is by increasing the payment period. It is unreasonable to lend a person amount of money equivalent to his entire paycheck and expect to be paid within a short period such as one month. This is likely to leave the borrower with nothing to manage his or her bills, and hence forcing the borrower to re-borrow to survive and the cycle continues. Increasing payment period would assist borrowers to pay in installment and to avoid other loans for a while. It also ensures the industry survive without making extraordinary profits at the expense of the borrowers.
The industry can also strike a balance by always ensuring that it does not give more than a third of individual paycheck amount. Regulating the amount borrowed will ensure that no borrower is at risk of being unable to pay the money due to a lack of enough money for survival. This will also force the low-income earners to focus on living within their means, without being excited of one-time borrowing to temporarily increase their purchase power. Control will protect a lot of people from getting into debt cycles and hence reduce their risk of experiencing severe mental distress due to financial problems. The industry needs to lower its greed level and focus on doing ethical business that considers other stakeholders in the industry especially its targeted customers (Payne, 2).
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