Question;

Marketing Ethics Essay
Please read the below scenario and answer the two questions that are provided at the end of this
document. Note that you are required to carry out secondary research (online search) and identify more
details about the industry and then provide your stance on the issue. formatting
(APA style),  .
In addition, a minimum response of 600 words
(total for the two questions) excluding references and cover page is required.

Scenario
A new form of credit is growing extremely fast today – online installment loan. Online installment loans
have a long duration, triple-digit interest rates (200%-400%), and is geared towards working-class
Americans who have not seen a growth in their wages or an increase in unpaid bills since the Recession
of 2008-2009. In other words, these loans are targeted towards non-prime borrowers (i.e., borrowers
who have a poor credit history, have had some sort of foreclosure, bankruptcy, short sale, late payment,
etc.).
The online installment loans industry has seen a massive growth in the last five years. Non-prime
borrowers now collectively owe about $50 billion on installment products. According to the firms that
operate this area (Enova, Elevate Credit Inc., North Cash, etc.), these installment loans offer customers
with more time to make payments and provides credit avenue to customers who have limited
alternatives to borrow money, and are ineligible to get conventional loans with lower rates. The higher
interest rates are justified by the fact that the non-prime borrowers are more likely to default on their
loans.
However, the cost of these loans can add up. The initial payments (up to first 18 months) go exclusively
towards the interest, adding up costs for customers. In addition, the government’s weakening of the
payday loan regulations has all the consumer advocates worried. Given that there are around 150
million Americans with a non-prime rating, this industry is not likely to stop growing.
Based on the above scenario, please answer the following questions:
1) Are companies like Enova and Elevate Credit exploiting disadvantaged customers?
2) Low-credit score consumers often don’t have bank accounts and credit cards. What should traditional
financial institutes like banks and credit unions do to meet the needs of these “unbanked” consumers?
Answer;

Online Installment Loans Industry

The online installment loans industry has grown massively over the last few years; this can be attributed to the tough economic situations that face a lot of Americans. Most middle-class Americans rely on search services to survive today; online installment loan companies offer loans with long payback durations, but with a high-interest rate. The installment loans target working-class Americans who have not seen a rise in their paycheck for a long time leading to piled up bills.  Maloney and Tempkin (2019, Par. 2) explain that in a span of five years online installment loans have gone from being a relatively position offering to a red –hot industry. The number of non-prime borrowers has grown and they now owe these companies over $ 50 billion on installment products. Installment loans provide a good profit to creditors but a great set back to borrowers.

According to the latest US census bureau data, household income for people with a high school diploma has had a 15% rise in the last decade  which approximately $ 46,000, this does not match the increase in the standard of living in the US and many ends up with no money to save. Lenders spotted an opportunity in this situation and came up with online installment loans where people can access loans for long payback period, but with a three-digit interest rate. A good example is the Enova Net credit platform that offers annual percentage rates between 34% and 155%, which is very high for a person who has an average salary with a lot of bills to pay. The industry has made great profits over the years that many entrepreneurs have decided to invest in similar ventures creating a surplus of online installment lenders in the market. The increase in the number of lenders increases competition which might prompt some companies to reduce their interest rates to gain a competitive advantage over their competitors.

Are companies like Enova and Elevate Credit exploiting disadvantaged customers?

Online installment loaning is a business and Kresge (2004, p. 24) points out that from a business point of view the measures taken by the loaning companies are strategic actions to ensure that the company’s future is not threatened by forfeited loans and cases of bankruptcy from some of its customers. The high interests are used to compensate defaulted loans, and provide enough capital for the business to continue with its operations. Many middle-class Americans survive through loans where they can acquire them during emergency situations and then pay the loan in installments with high-interest rates.

As much as many Americans use online installment loaning to survive I believe that the companies are in some way exploiting people since the time allocated to pay the loans together with the high interest can hardly be adhered to, by many middle-class employees.  Some end up with increased interests that amount to the same amount of loan they took or more due to their late payments on every deadline set by the loaning companies. The fact that the companies have set high interest on loans to compensate for defaulters, some of these companies end up auctioning properties owned by defaulters to get back their money together with the interest charged on the loan.

Most online investment loan companies are very successful and this can be attributed to policies that the companies use to run their businesses, it is highly unlikely that a lending company does not take any action against defaulters to get its money back meaning that with every customer using the companies’ services the company gets a lot of profit. As much as online investment companies help people during tough situations I believe they also take advantage of these people and impose huge interest rates on their loans that most people are not able to pay within the stipulated time leading to more interest penalties.

How traditional financial institutions like banks and credit unions can help unbanked consumers

Unbanked people are individuals who do not have bank accounts; this situation is popular among low-income households who cannot afford to save any money from their incomes. Banking policies that require one to have sufficient funds in their bank accounts for it to be legible and pay some fees to withdraw cash provide some of the reasons that most low-income earners prefer keeping their own cash rather than banking it. Ethnographical studies reveal that most unbanked people rarely visit the banks to cash out their checks since most banks do not cash out money for people without bank accounts in the bank or do not have enough money in their accounts to sustain the check.

Financial institutions can open specialized bank branches that concentrate on providing commercial cash check services. The institutions can be referred to as outlets to distinguish them from other banks; these outlets can offer low ranged fees to cash checks. The institutions should also provide their services to all consumers without checking on individuals who do not have enough deposits to cover their checks. Caskey (2005, p. 150) explains that the move can be very advantageous to the banks as they get the opportunity to physically interact with unbanked individuals where they can encourage them to create savings accounts and address their credit records.

Financial institutions through their cash check outlets can establish traditional deposit accounts that charge less for banking services and should place a low –minimum balance savings required by an individual. The bank outlets can also offer accounts that are specifically designed to help people build savings and through this, they can help low-income earners pay their bills and debts in time which will, in turn, improve their credit histories. The bank outlets can as well help unbanked individuals by partnering with community-based partners and offering free financial literacy programs that can help people understand the importance of savings and overcome any distrust that the community might have regarding keeping their money in banks.

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