Ethics, Social Responsibility & Sustainability in Payday Loan Industry

This article discusses the fundamentals of capitalism, stakeholders affected by payday loan industry, social, economic and ethical implications, and whether one should take a job in this industry.

Running Head: ETHICS, SOCIAL RESPONSIBILITY & SUSTAINABILITY
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Ethics, Social Responsibility & Sustainability
6/20/2018

ETHICS, SOCIAL RESPONSIBILITY & SUSTAINABILITY 1
1) Capitalism fundamentals which are significant to this case are :
The essentials of capitalism important to this case are profit and the customer
dominance. For every company, profit is the foremost important aspect which needed to be
achieved before going for any other objective. The payday loan companies add up to
$2billion across 1400 stores with around two million customer base in the market of Canada
and so this proves that these companies are earning huge profits over small loans funding.
Payday loans are a favourable and short-term option for people whose requirements
are the small loan and when they are restricted to mainstream credit (Bhutta, Skiba &
Tobacman, 2015). But this industry wants to turn these short-term loans into long-term debt
for the earning of more profits. The second fundamental of capitalism which is related to this
case is the consumer dominancy which implies that consumers can influence these
corporations with their decisions as there are numerous numbers of money lending industries
are present in the economy and these serve as alternatives as well as competitors.
2) List of those stakeholders which are benefitted as well as harmed
by the payday loan industry :
From payday loan industry, various stakeholders will be benefited and these
beneficiaries include investors and borrowers (Letterman, 2016). Here the borrowers get the
benefits in the form of prior payment which helps them in various ways like paying their bills
on time, make any necessary purchases before they actually receive a paycheque. This will
eliminate the panic of harrowing over meeting charge due dates and thus leads to saving
various costs. Also for the investors, payday loans are a money-making source in the banking
industry and many investors are always ready to grab that opportunity to earn more and thus
it is very beneficial to them as more high the interest charge on customers, more profits will
be there for the investors.
Some stakeholders like banks and government are harm by this payday loan industry
(Cohen, 2018). As customers are easily able to get payday loans without doing much
formality and documentation and also there are no collateral rights over the property from the
side of lender whereas, in commercial banks, it is vice-versa and this effect on other products
of banks also like insurance, mortgage etc. Also in near future, there are various more
products to be added like foreign exchange, insurance, mortgage referrals etc. and this will
benefit to the borrower only. The other stakeholder which also gets harm from payday loan
bank is the government as they have to implement more control on the industry regarding
plans and policies so as to safeguard the borrowers from the lenders and this will also treat as
a cost to the government.

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3) Social, Economic and Ethical Implications –
The implications in payday loan industry comprise various social issues where people
take various virulent debts and become insolvent to repay these debts. So this implies they are
not able to manage their finances effectively. (Packman, 2014). This makes personal finance
to be perceived as a negative option and thus promotes adverse impact on the society. Since
people are able to get payday loan feasibly for the purpose of borrowing the money, they are
also becoming less suspicious relating to where to spend and where not? and the ability to
cover their expenses and so payday loans works as an “additional” money to the borrower
and due to unmanaged spending, later on, the borrowers have to pay a high rate of interest on
the borrowed meaning and this will create a worse financial situation for the borrower. So,
payday lending is a sign of broader social problems including prolonged debt, poverty etc.
Payday lending has various economic implications also like it has a high-cycle risk as
if individual cash flow is really tight then he have to need another loan to repay the original
loan payment and this leads in a common and painful debt trap. Some practices of payday
lending can be ethical but the concern is that most of them are voracious and so the industry
makes gains over the poor and illiterate in financial distress (Payne, 2013). Charging high-
interest rates on payday loans are not always incorrect as they are tied with credit risk
(Knight, 2012). Other ethical issues can be like – some financial lenders order their sales staff
to use aggressive sale tactics by encouraging customers to sell loans that are larger than the
customers requires or to sell to those customers who do not need of any loan.
4) Should Matthew do the job?
In payday loan industry, the market is constantly evolving and growing and this can
help Matthew to gain and understand financial sector from different dimensions and help in
gaining new opportunities and experiences with fast career development from management
trainee to the branch manager or division manager within a very short time-span
(Buckland,2018). Also, the company is expanding rapidly by adding of various more
financial services like mortgage referrals, insurance, preparation of taxes etc. and this will
leads to getting more alternatives to Matthew if in future he needs to change his job role
(Chen, 2018). So a job which there is an opportunity of high pay with the career development
in future, Matthew should definitely join the company by accepting the job offer and it will
also help him to be independent Later on, if he found any unethical or immoral activity going
on in the company, he can change with another position or he can try for different company
or industry.

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References-
Bhutta, N., Skiba, P. M., & Tobacman, J. (2015). Payday Loan Choices and Consequences.
Journal of Money, Credit and Banking, 47(2-3), 223-260
Buckland, J. (2018). Payday Lending in Canada in a Global Context: A Mature Industry
with Chronic Challenges. Canada: Springer.
Chen, G. (2018). Payday loans, advantages and disadvantages. Retrieved from:
https://www.lendersus.com/loan/payday-loans-advantages-disadvantages
Cohen, J. (2018). The Advantages and Disadvantages of Payday Loans. Retrieved from:
http://www.streetdirectory.com/travel_guide/175608/payday_loans/the_advantages_a
nd_disadvantages_of_payday_loans.html
Knight, J. (2012). Is this the ethical way for payday lending?. Retrieved from:
https://www.independent.co.uk/money/loans-credit/is-this-the-ethical-way-for-
payday-lending-7878447.html
Letterman, E. (2016). Advanced Debt: Stakeholders seek to impede payday loan growth.
Retrieved from: http://sbj.net/stories/advanced-debt-stakeholders-seek-to-impede-
payday-loan-growth,6697
Packman, C. (2014). Payday Lending: Global Growth of the High-Cost Credit Market. New
York: Palgrave Macmillan.
Payne, D. (2013). The Ethics of Payday Loan Practices. Ethics & Behaviour, 23, 117-132