Laws and Regulations in Society - Essay Example

Full A Legal Event (Business Law I – ACCT 350) 18 May (estimated word count 315) Introduction The business environment today has become much more competitive; this is because the competition is now global in the sense anybody anywhere can compete more effectively due to the vast improvements in various technologies, such as in telecommunications which make business transactions faster, cheaper, and easier. In other words, the business field has now become “flat” in that barriers had been removed and the playing field is now leveled. The trend in globalization continues unabated as business firms seek a more competitive edge. Business firms are subject to many internal and external factors which can affect the firms' operations; these factors are usually termed as the PESTLE acronym, which means the political, economic, social, technological, legal, and environmental factors that impinge on the business operations of a firm. Among these factors, it is generally considered that regulations pose the most potential threat to any firm doing business. Experts call this as regulatory risks that can alter the way a firm operates, whether it adds to its costs or even imperil its existence. An example is clean air standards and higher mileage requirements in the auto industry. The oil industry has likewise adjusted and transitioned to lead-free gasoline in most nations. There are so many rules, regulations, and laws for business firms to comply with, it costs a significant amount to do business nowadays. There are regulations on environment, on workplace safety, consumer protection, employees’ health, fair competition, taxes and business practices which require substantial compliance or otherwise face stiff fines and penalties. The list is practically endless, such that a recent study indicated it costs $10,000 more per worker for a firm to comply with all federal regulations. This paper looks at one such new rule. Discussion The sub-prime housing mortgage crisis which started in late 2007 and which in turn caused the lingering effects of the so-called Great Recession even until today was due to the indiscriminate and widespread lax lending practices of banks, mortgage associations, and other financial institutions that resulted in easy access to credit even for those not qualified. It triggered the worst recession ever since the Great Depression of the 1930s and in turn caused the collapse of many venerable lending institutions, forcing the government to bail them out. A host of new laws had been passed to regulate almost all aspects of business operations in order to prevent white-collar fraud, corporate scandals, and other unsavory business practices. Among prominent laws passed at that time was the Sarbanes-Oxley Act (or SOX) in which corporate chairmen, board members, and external auditors are jointly liable for any substantial financial misstatements found on audited financial reports which investors rely upon. The fragile economic recovery has led many economists to term it as jobless growth, because few jobs were created, and many lost high-paying jobs are expected never to return. The financial crisis has spread to Europe and other parts of the world, it has become sort of a global contagion, in which economies plugged into a globalized world got adversely affected. In America, many homes fell below their original market values, putting homeowners at risk for eviction and foreclosure proceedings from the banks and other big lenders. The credit that was so plentiful suddenly dried up, putting many individuals in a credit or cash crunch. Many American individuals and households had also maximized their credit use to such an extent many of them got over-extended when they maxed out their credit cards for purchase of consumer items and durables which they soon regretted. In other words, people were deeply in debt, and in this volatile situation, the lenders and banks soon turned into a more aggressive collection techniques and strategies to recover their loans from individuals. One big consequence of the huge mountain of toxic assets in the form of household, family and personal debts is the outsourcing of most collection efforts to third-party collectors who employ unsavory, threatening, malicious, unethical, or overly aggressive tactics just to be able to collect a debt. These practices have earned the ire, resentment, and scrutiny of people, and also of politicians in Washington, because of so many consumer complaints. As a result, there is now a federal regulation which requires these external third-party collection agencies to be under federal supervision by the Consumer Financial Protection Bureau (CFPB) as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This new law contains the implementing rules and regulations (IRR) as it concerns the collection agencies which require these agencies to stop using threatening tactics, to act more politely and civilly towards debtors, properly identify themselves as external collectors, stop using abusive techniques and desist from shady methods (Wyatt B1). This is a legal event because of the magnitude and implications for many consumers, most of whom had been harassed by these collection agencies, some to the point of nervous breakdown, depression, or even suicide. Previously, the consumers had been at the mercy of these collection agencies, which usually employ brutal, heartless, and immoral techniques just to be able to collect, as most of their fees are based as a percentage of the amount they can collect. In short, no collection - no pay. This legal event took place in the last quarter of 2012 by virtue of signing an executive order and took effect starting last January 02, 2013. Moreover, the government has a duty to protect these hapless debtors, who were enticed by deceptive advertising to avail of loans (Bar-Gill 59). These banks and financial institutions add on high interest and severe penalties to existing unpaid loan balances such that even those willing to pay can no longer pay them back. There should be compromise agreements to lessen the debt load, in addition to strictly supervising the collection agencies. This legal event will have a significant impact on collection agencies as it severely limits their ability to collect from now on, and for the lenders, they can likewise no longer rely on coercive techniques to fatten their bottom lines through excess profits from their usurious practices of tacking on additional interests, surcharges, and penalties on existing loan balance. The government has to step in as part of its mandate under the social contract, where citizens gave up some of their rights in expectation of government protection for social stability. This is the very essence of good governance, when the interests of various parties are reconciled. A provision in Dodd-Frank Act requires the CFPB to regulate non-bank financial intermediaries. Interest rates for most consumer loans approach the levels of usury (Jennings 458). Conclusion Laws and regulations exist for society to be orderly; it is all part of the social contract which is the underlying principle in good governance. Political authority emanates from the people, as sovereign will is supreme in a democratic, representative government but there are also instances when government has to step in for the good of the greater majority. A federal regulation is an effective model of governance when it relies more on cooperation, flexibility, and collaboration instead of a top-down interventionist approach but there are clear instances when regulation is the better idea, especially when it comes to free-market capitalism (Fiorino 1) in order to level the playing field for all stakeholders, citizens included. Regulations affect the private sector the most, and it is estimated cost an additional $200 billion annually just for compliance with some 15,000 pages of detailed instructions from federal regulations. From a public policy viewpoint, the new authority given to the CFPB is a good initiative because it is an attempt to limit or eliminate the abuses committed by collection agencies while protecting consumers, who suffer from all sorts of aggravations. Although admittedly lenders have rights to collect what they are owed, it does not give them the right to harass delinquent borrowers. Works Cited Bar-Gill, Oren. Seduction by Contract: Law, Economics, and Psychology in Consumer Markets. New York, NY, USA: Oxford University Press US, 2012. Print. Fiorino, Daniel J. The New Environmental Regulation. Hoboken, NJ, USA: The MIT Press, 2006. Print. Jennings, Marianne M. Business: Its Legal, Ethical, and Global Environment. Florence, KY, USA: Cengage Learning, 2010. Print. Wyatt, Edward. “New Federal Rules for Debt Collectors: CFPB Will Begin Oversight of Debt Collectors.” The New York Times. 24 Oct. 2012. Web. 12 May 2013. . Read More