Management Ethics and Corporate Governance - Assignment Example

Management ethics and corporate governance Name Course Institutional affiliation Part A. Predatory lending explains inequitable, misleading, or fake practices of some borrowers in the loan inauguration practice. While there are no lawful descriptions in the state for predatory lending, a review account on predatory lending from the administrative center of inspector general of the FDIC largely defines predatory lending as commanding unjust and obnoxious loan regulations on borrowers. Despite the fact, that there are laws against a lot of the precise practices frequently recognized as predatory, a range of national agencies utilize the term predatory word for many detailed unlawful actions in the loan trade. Predatory lending must not to be mistaken with predatory credit servicing that is applied to portray the unjust, misleading, or fake practices of borrowers and servicing agents all through the loan or mortgage servicing progression, post loan start. Predatory lending can as well be given another definition; alternate clarifications come in a range of structures. Some say that a person only knows predatory lending when he experiences it, whereas others depict predatory lending as a directory of burdensome lending practices. Most scholars use the catalogue approach since it offers a practical opening point for noticing and relating the pathologies that lie beneath predatory lending. The character of predatory lending, normally, benefits credit agents, borrowers, and securities and works to the disadvantage of the borrower. There are many lending practices that are seen to be offensive and tagged with the term predatory. There is a large deal of disagreement amid borrowers and customer groups as to what accurately comprise inequitable or greedy practices, but the subsequent are occasionally cited. Effects of predatory lending on individuals * Unjustified risk-based pricing. This is the act of charging extra for extending loans to borrowers known by the lender as having a bigger loan risk. The loan giving business argues that risk-based costing is a reasonable practice; as a better percentage of credits made to less creditworthy borrowers can be anticipated to go into non-fee; advanced prices are required to attain the identical result on the range as a whole. This limits the low earning personality from getting the loans on the basis of posing a higher risk and failing to cover the loan in time. * Single-premium credit insurance. This is described as the act of paying for of insurance which stand for the loan in case the borrower dies. It tends to be more costly as compared to other modes of indemnity since it does not engage any health check-up, but clientele constantly are not exposed to their options, as habitually the lender is not certified to trade other forms of indemnity. In addition, credit insurance is frequently financed into the loan as a result, it makes the loan to be pricey, but at the same time, it persuades people to acquire the insurance as they are not required to pay upfront. Despite the mentioned advantage these type of lending increases the interest rates making it more difficult for borrowers to get loans. * Failure to showcase the credit price as flexible. Many borrowers might bargain the price formation of credit with borrowers. In some conditions, borrowers can even bargain an absolute decrease in the interest charges or other charges on the credit. Consumer advocates row that borrowers, particularly basic borrowers, are not conscious of their capacity to parley and may even be under the mistaken notion that the lender is introducing the borrower's intentions above its own. As a result, borrowers lack the confidence to negotiate. When borrowers do not clearly understand that they can bargain, they are coned and led to taking the loans on high rates than it is supposed to be. * Failure to evidently and precisely reveal terms and conditions, mainly in situations where a simple borrower is concerned. Mortgage loans are multifaceted dealings involving several parties and dozens of legal paper work. In the most egregious of predatory cases, borrowers or agents have been not only given the wrong impression about borrowers but in fact, tainted documents after signing. Many borrowers are intentionally not shown the hidden charges that are in the contract terms thus, making it very hard for them to attain the loans. Therefore, the borrowers are lured into the schemes of the loan brokers thinking it is cheap while it is not. * Short-term loans with disproportionally soaring cost, for instance checking account overdraft fees, payday loans, Tax Refund, credit card and late fees expectation Loans, where the fee paid for advancing the cash for a little period works out to a yearly interest charge considerably in surplus of the market rate for high-risk credits. The instigators of such loans argue that the payment is meant to be interest. This is just another form that the borrowers are oppressed by the lenders by paying for services that they already have paid for while taking the loans. * Servicing mediator and secularization exploitations. The mortgage servicing agent is the unit that gets the mortgage fee, sustains the fee records, offers borrowers with account records, inflict late charges when the reimbursement is overdue and follows offending borrowers. Most loans are question to be sold and the capacity to act as servicing mediator sold, devoid of the approval of the borrower. A national decree calls for the notification to the borrower incase of a change in servicing mediator, but does not defend the borrower from being held aberrant on the note for fees completed to the servicing agent who does not succeed to forward the fees to the owner of the note. This is especially when the servicing agent becomes broke, and borrowers who have made all fees punctually end up being foreclosed. Thus, they become unsecured creditors of the servicing agent. Foreclosures can sometimes be done without correct notice to the borrower. In some countries, there is no protection against expulsion, making the borrower shift and sustain the expense of engaging legal help as well as finding alternative homes to stay. There are many that are related to predatory lending: these issues have been seen to generally affect a common country man by leaving the rich persons to enjoy and continue developing leaving the less fortunate behind. These are some of the main predatory lending issues that affect people. * Judicial practices: This problem comes up as a result of courts favoring some borrowers. The courts also transfer the weight of verification of fulfillment with the set terms and conditions of the debt instrument to the party which is the debtor. The duty of the borrower is to create evidence that all bills are complete to the last known manager for collection (Dale, 1995). * Risk-based pricing: this system advocates for risky borrowers being made to pay higher charges than the safe borrowers. The banks charge low-interest rates to safe borrowers and high-interest rates to high risk borrowers. This is the reason why banks need to get adequate information about their clients before advancing loans to them. This has resulted in systems like group lending in society. This is whereby people are grouped together in small groups that are familiar with each other and each member acts as a guarantor to the other group members. This way, people will tend to avoid risky borrowers and chose safe borrowers. Effects of predatory lending on the financial institutions If the government removes or heavily controls the predatory loans, it will encourage potential applicants to come back to the market. Therefore, in markets with considerable loan giving problems, the blow of a predatory lending law might be impartial or might boost the rate of subprime applications and initiations. Additionally, if it is not firmly comparative, but has a bigger blow on possible borrowers closer or away from the introduction of a predatory lending the government could increase or reduce rejection rates. Therefore, the government recognizes the conduct location and Post law recognizes the period when the law was effected in the country. The reference group includes places where the predatory lending laws can not be in effect in either period. There are no proceedings concerning the coefficients on law or Post law, because they will take into custody established probabilities related with location and time that are not restricted by other things. Given the outcome from the previous study, the expected result would be negative for the application and initiation outcomes and potentially irrelevant for the rejection result (Dale, 1995). The government losses lots of money when borrowers decide not to take loans because of the effects of predatory lending. This leads to slow economic development as borrowers are unable to get the loans as they are full of harsh terms and conditions. Part B National Consumer Credit Protection Act 2009. (Sections 3 to 337 and Schedule 1) In these sections it states that, if any of the requirements do not begin within the time of six months starting on the day on which this Act obtains the Royal consent, they begin on the first day after the end of that time. For the reasons of this Act other than the National Credit policy, an individual is a credit source, lesser, mortgagee or recipient of an assurance whether the individual is: (a) The innovative credit source, mortgagee or recipient of an assurance under a credit agreement, consumer rent, credit or assurance; or (b) An individual to whom the rights of a credit giver, mortgagee or recipient of an assurance under a credit agreement, consumer rent, credit or assurance have been allocated or passed by law. For instance, an individual who is allocated the rights of a loan supplier under a loan agreement would engage in a loan action within the significance of clause. (2) It is not an issue whether a task or passing by law of rights is the first or a consequent task or by the making the law of those rights. In response to the failure of federal regulations, states created their own disclosure regulations. Many of these disclosure regulations mimic federal regulations and employ necessary modifications as deemed by the states. For example, Australia in 1999 enacted the first predatory lending statute, which it patterned after home owners and equity protection act. Learning from the mistakes of home owners and equity protection, the Australia statute covers a broader range of loans. The statute accomplishes this by lowering the trigger for total points and fees. While many consumer advocate groups tout (National Consumer Law Center, 1970). Government interference in terms of protecting vulnerable stakeholders Australia's statute as a success, the statistics bear a different story. Since the enactment of the statute, Australia has seen an increase in the growth of subprime lending that parallels the rise in states that have not adopted similar regulations. Not only has the number of subprime loans increased since the Australia legislature enacted the statute in early 2000, but every significant subprime lender in Australia has continued to do business since. In addition, state regulation which goes too far runs the risk of angering privileged raters. Privileged raters are the three major bond and securities rating agencies. Privileged raters cannot charge securities supported by collections of residential credits if any of the credits defies their rating strategy. Thus, if a state allows assignee liability and unqualified damages-in effect eliminating holder in due-course status some privileged raters refuse to rate that state's mortgage loans, effectively shutting down the mortgage market in states with strong anti-predatory lending Legislation (Drucker, 1999). Academics and scholars alike recognize the problems associated with current regulations. In response to regulatory failures, legislators and scholars have proposed a myriad of new theories and ideas. Many of these ideas focus on altering the regulatory field as well as the mortgage market. Scholars, however, too quickly dismiss common-law remedies, particularly the contract defense of unconscionably. The equitable concept of unconscionably, found in section 2-302 of the Uniform Commercial Code, states: If the court as a subject of law discovers the agreement or one section of the agreement to be unconscionable at that moment when it was completed the court might decline to put into effect the agreement, or it might put in force the rest of the agreement with no unconscionable article, or it might so bound the request of any unconscionable section as to keep away from any unconscionable consequence. There are three problems with using the theory of unconscionably to resolve the predatory lending problem. First, since investors in the secondary market are often responsible for suing borrowers who fail to pay their loans, borrowers are prohibited from raising the defense of unconscionably due to the holder in due-course doctrine. Under that doctrine, a secondary market purchaser receives the mortgage from the lender free and clear of defenses. The waiver of defense clauses serves as another obstacle. Finally, scholars have, somewhat incorrectly, pointed to the reluctance of courts to condemn excessive price as unconscionable without more it is this problem which this comment confronts head on. At first glance, all of these legitimate problems appear to justify the reluctance to use the defense of unconscionably. However, examining the doctrine of unconscionably from a different angle diminishes or eliminates the third problem, the price term argument. Although unconscionably does not diminish the holder in due-course doctrine or waiver of defense clause, these doctrines are not as determinative as one may think. Recently, because of public policy concerns, courts have begun to chip away at the foundation of the holder in due-course doctrine and waiver of defense clause. In this case, the government takes the important role of controlling how the loans are being distributed by coming up with methods of controlling the credit providers. This in turn, helps the borrowers to get loans from certified lenders with minimal greed (Holley, 1987). Government interference with the market in terms of market efficiency Governments have since time in memorial, been controlling business activities in the country. Governments regularly intercede in market functions in cases of market malfunction and inefficiencies. The government intervenes through different ways. These include strategy changes and the execution of regulations that are meant to keep the market in check in favor of the public interest. American businesses have been controlled so that the government can efficiently observe imports, exports, tax revenue, existing and upcoming industries. This set of laws has regularly been faced by opposition from business men who feel that the regulations set up are restricting. Governments give businesses regulations for a range of reasons. First is that the government is responsible for the safety and welfare of its citizens. Through fiscal policies that ensure that industries produce safe and high standard, the government protects its citizens from harmful commodities. The government also protects its citizens through price floors and price ceilings. This is a situation where the government puts a price limit on commodities to protect consumers from exploitation by producers and on the other hand, protect producers from prices that are unfavorable to them. This ensures that all parties involved in the trade are satisfied. The second rationale is that the government’s police businesses in order to look after the interests of the preexisting industries in the country. This is done through issuing of licensing permits and government inspections. These measures assist the government to weed out fraudulent and poorly qualified industries from entering the market and disrupting the economic growth. The third reason is that governments need to keep tabs on all business activities taking place in the country for the purpose of revenue generation. Funds paid by businesses for certificates and permits are ways in which the government creates revenue. Businesses also constantly pay taxes which are also part of government revenue. Governments are able to determine the amount of tax each business should pay by reviewing their returns and cash books. This ensures that all businesses are taxed fairly and that the government has enough revenue to carry out its day to day operations. Governments always rely on businesses for the viability of the country. This is because businesses give the country financial support that it requires to carry out its daily activities. Industries form the backbone of the country. Commissions and boards in industries are gateways through which the government regulates the industries and other business activities. This ensures that there is both free flow of commerce and regulation of businesses. Conclusion Predatory lending has devastated the mortgage market, and as foreclosures rise, politicians and scholars are in the unenviable position of finding a solution. The ineffectiveness of regulations, specifically HOEPA, TILA and RESPA, only compounds matters. A solution may be found in the courts through the use of contract law and the doctrine of unconscionably. By no means will such an approach eradicate the problems of predatory lending; more likely the defense of unconscionably can serve as a useful supplement to regulation. Nonetheless, scholars and politicians have for too long ignored the doctrine of unconscionably as a way to resolve predatory lending; such a doctrine warrants at least a look. References Dale, E.A. (1995). McGraw- Hill series in management. London, Rex Book store inc. Drucker, F. P. (1999). Management: tasks responsibilities, practices. Holland, Gulf Professional Publishers. Holley, D. (1987). Moral evaluation of sales practices, Business and Professional Ethics Journal, University of Mississippi, 221. National Consumer Law Center. (1970). National consumer act, first final draft: official text with comments. Boston: Boston College Law School. Read More

This limits the low earning personality from getting the loans on the basis of posing a higher risk and failing to cover the loan in time. * Single-premium credit insurance. This is described as the act of paying for of insurance which stand for the loan in case the borrower dies. It tends to be more costly as compared to other modes of indemnity since it does not engage any health check-up, but clientele constantly are not exposed to their options, as habitually the lender is not certified to trade other forms of indemnity.

In addition, credit insurance is frequently financed into the loan as a result, it makes the loan to be pricey, but at the same time, it persuades people to acquire the insurance as they are not required to pay upfront. Despite the mentioned advantage these type of lending increases the interest rates making it more difficult for borrowers to get loans. * Failure to showcase the credit price as flexible. Many borrowers might bargain the price formation of credit with borrowers. In some conditions, borrowers can even bargain an absolute decrease in the interest charges or other charges on the credit.

Consumer advocates row that borrowers, particularly basic borrowers, are not conscious of their capacity to parley and may even be under the mistaken notion that the lender is introducing the borrower's intentions above its own. As a result, borrowers lack the confidence to negotiate. When borrowers do not clearly understand that they can bargain, they are coned and led to taking the loans on high rates than it is supposed to be. * Failure to evidently and precisely reveal terms and conditions, mainly in situations where a simple borrower is concerned.

Mortgage loans are multifaceted dealings involving several parties and dozens of legal paper work. In the most egregious of predatory cases, borrowers or agents have been not only given the wrong impression about borrowers but in fact, tainted documents after signing. Many borrowers are intentionally not shown the hidden charges that are in the contract terms thus, making it very hard for them to attain the loans. Therefore, the borrowers are lured into the schemes of the loan brokers thinking it is cheap while it is not.

* Short-term loans with disproportionally soaring cost, for instance checking account overdraft fees, payday loans, Tax Refund, credit card and late fees expectation Loans, where the fee paid for advancing the cash for a little period works out to a yearly interest charge considerably in surplus of the market rate for high-risk credits. The instigators of such loans argue that the payment is meant to be interest. This is just another form that the borrowers are oppressed by the lenders by paying for services that they already have paid for while taking the loans.

* Servicing mediator and secularization exploitations. The mortgage servicing agent is the unit that gets the mortgage fee, sustains the fee records, offers borrowers with account records, inflict late charges when the reimbursement is overdue and follows offending borrowers. Most loans are question to be sold and the capacity to act as servicing mediator sold, devoid of the approval of the borrower. A national decree calls for the notification to the borrower incase of a change in servicing mediator, but does not defend the borrower from being held aberrant on the note for fees completed to the servicing agent who does not succeed to forward the fees to the owner of the note.

This is especially when the servicing agent becomes broke, and borrowers who have made all fees punctually end up being foreclosed. Thus, they become unsecured creditors of the servicing agent. Foreclosures can sometimes be done without correct notice to the borrower. In some countries, there is no protection against expulsion, making the borrower shift and sustain the expense of engaging legal help as well as finding alternative homes to stay. There are many that are related to predatory lending: these issues have been seen to generally affect a common country man by leaving the rich persons to enjoy and continue developing leaving the less fortunate behind.

Read More