Introduction
There are countless reasons why people opt for payday loans. Just like in the case of Tonya Burke, different needs can force one seek for a payday loan. Given the exorbitant interest rates accompanying such loans, one may be forced to take another loan to cover the previous ones. Even though opponents may argue that the loans attract huge interests, they are extremely important in handling emergency cases. However, lack of proper regulation of the market has resulted in entry of other players who can infringe on a client’s privacy (Bailey, 2013).
For instance, Hydra Group in Kansas City was taken to the Federal District Court for engaging in “illegal cash-grab scam” in which it borrowed loans using the clients’ bank accounts. These mixes in operations of payday loans have attracted proponents and opponents of equal measure. Numerous ethical and legal arguments are ongoing regarding payday loans while the debate faces a fair share of censure and backup in relation to punishment of payday lenders, or forgiving the sincere payday loan services.
The Practice of Payday Loans
As the name suggests, borrowers have limited periods of returning the money because the lender targets the payday of his/her client. A consideration for the borrowers is the ability to be in a payroll to have access to credit facilities. Some countries refer to the accredited payday institutions as cash schemes of microfinance depending on the territorial legislations put in place to protect the interests of both parties involved in the business.
For some reason, people will always have money problems and after exhausting all avenues of income generation, an individual would opt for a payday lender in order to settle bills or deal with an emergency. More often than not, the lender becomes part of a debt twist, especially when the loan accrues interest, the salary is not forth coming, and the payday loan lenders need their money (Bazelon, 2014). In most cases, people take the loans to deal with emergencies like school fees, home bills, medical emergencies, and previous debt resettlement among other things.
This explains why it becomes overly difficult to clear one loan using an overcharging loan. A normal business procedure for a payday loan lender is the ability to offer money to a borrower who should honor the promise of returning the money with an interest by his/her next payday (Bucci, 2014). Individuals are not the only victims of payday loans since there are businesses that borrow money from the franchises in order to stabilize, but the reverse could actually happen.
Before e-commercial activities became rampant, the borrowers had to write a postdated check to the lender with the repayment involving the interest the loan will have accrued by the next payday. To verify the same, the borrower returns to the facility to repay the money personally. According to Damar (2009), things are slightly different today because payday lenders mostly use technology to carry out business transactions. Through cybercrimes, some fraudulent payday lenders are capable of using the provided bank details to hack into customer accounts.
Australia, the US, and the UK take stringent measures to regulate the cash flow market with an attempt to capture fraudulent money launders, payday loans sharks, and other people whose swindle the population of its hard-earned money (Bazelon, 2014). The practice is unethical especially when it keeps increasing interest rates for the period the client delays to repay the loan. Issues of ethics equally arise when the payday loan scheme takes advantage of an ignorant customer to hack into his/her bank system while imposing huge interest loans on a previous loan (Bucci, 2011). Such fraudulent activities are unethical, illegal, and the identified individuals should face the full term of the law. In most cases, the shylocks best know how to conceal crime, leaving the complainant with the greatest burden of proof in the end.
Ethical Responsibility
Targeting the Vulnerable an Ignorant People
Anyone can fall prey to an enticement involving an unsecured loan because finding a guarantor or property as security is equally difficult. The payday lenders often prepare for any lawsuits since most of them breach ethical and legal principles, but few borrowers understand the impact of a first time borrowing exercise since payday loans are too addictive (Gallmeyer & Roberts, 2009). A series of regulators and lobbyists take an interest in the unscrupulously operated payday loan schemes in order to prevent most unwitting American from falling prey of the lenders.
It is very wrong to use the bank statements and personal data filled in by a customer to withdraw money from his/her bank account and later claim the payday loan (Karger, 2005). Normally, the online application process involves filling in information and sending it through fax mail, meaning that the client will have the money wired directly to his/her account. Use of online business transactions in the process makes even the smartest borrowers susceptible to the fraudulent schemes of some lenders. This disrespects human dignity because each citizen of a country has the right to privacy, and hacking completely contradicts such ethical principles.
Misinformation for the Poor
Most customers for the payday lenders are poor citizens who struggle to come to terms with the fast changing economic trends in different countries. Most of the time, the poor neighborhoods have access to payday lending facilities because the lenders understand that business flourishes in such neighborhoods (Nance, 2003). In this field, there are genuine organizations that operate credible credit facilities without anticipating any harm on the client.
For instance, the Consumer Financial Protection Bureau and the Federal Trade Commission are credible US based agencies that operate several payday loan-lending institutions; they claim that none of their branches would anticipate hacking into the bank accounts of their customers. Largely breach of ethics is an independent decision because many recognized regulators and owners of the payday agencies do not condone such unscrupulous activities.
The Online Lenders Alliance is another agency operating under a code of conduct; it warns clients that there are some companies seeking association with it, but they should first establish that the company logo matches that of the agency before sending any personal information (Carrns, 2014). Payday loan lenders should maintain equality and equity in resource allocation, implying that they should give out money to different people including the rich, poor, learned, and the less learned without taking advantage of any person or discriminating based on racial lines.
Examine the groups that are lobbying against reforming payday loans
There are different groups that lobby against reforms on payday loans following a heated parliamentary debate in which to Democrats sought the regulation of the payday loans market. The Senate Business and Commerce Committee lobbied against any reforms to the payday loans, especially in Texas that faces some of the worst scenarios of payday loan frauds. The 2005 law of Texas provided the payday loan lenders with an opportunity to adjust the interest loans to their advantage, and since then, they began earning outrageous interests from their businesses (Nance, 2003).
Unfortunately, recession and the customer’s inability to repay the first loan are advantageous to the lender since the two-week grace period can earn the lender a car or house of the borrower who gave up the property as collateral. Members of the Astroturf lobbying organizations have stakes in the payday business. This explains why they justify the borrowing and lending business. Notably, groups that are involved are churches, legislatures, and customer support groups.
AARP is one such lobbying institution that contradicts the activities of other Astroturf lobbying organizations because it supports the reforms (Lehman, 2003). One would identify the Astroturf lobbying organizations by taking interest in the ideologies they represent. Gerri Guzman a spokesperson for the consumer rights coalition, Michael Price the director of the Texas coalition for consumer choice also a renowned preacher, Tim von Kennel a known abolitionist of the payday reforms, and Republican Senators Mike Jackson and Chris Harris are all members of Astroturf that do not support the reforms.
There lobbying efforts are suspicious, but it is noteworthy that Price and Kennel operate a payday loan business explaining why they are in support of the adjustment of interest loans without any legal interference. According to the Astroturf lobbying organizations, payday institutions only charge fees depending on the amount they give out and the costs of lending, meaning that they do not steal from anyone (Stegman & Faris, 2003). This explains why only the defaulters of the payday loans pay with a high interest. Price argues that it would be impossible for thousands of Americans to stream online for payday loans when they do not see the value of borrowing.
The Republican lobbyists also argue that payday loans provide services that are unavailable in most banks; it naturally attracts consumers into the virtual or physical payday facilities. According to critics, people opt for payday loans as the last resort because they have exhausted previous avenues of credit facilities. In essence, the ability of loans to assist during emergencies makes it difficult to ignore the significance of payday loans. From this dimension, their lobbying efforts are not suspicious.
Ethics of Lobbyists
Prevention of Usury
In 2001, North Carolina made payday lending illegal because legislatures realized that most lenders used unscrupulous tactics to earn money from the low-income population. The lobbyists suggest that bank payday loans have extremely high interest rates; they usually lure someone to take a loan in order to clear another (Barr, 2012). To prevent such lending habits, the accredited agencies should continue operating in North Carolina, but strict legal measures should apply to organizations identified for carrying out fraudulent activities.
Annually, a customer would accrue a debt of 365%, meaning that daily the bank payday loan attracts a 1% increment (Perry, 2011). The Astroturf lobbying organizations in their part defended their ability to adjust interest rates to the advantage of the borrower since in the end, the interest earned from the borrower will help the institution in paying its charges. North Carolina wanted a state that would be in control of the payday business while limiting the annual percentage rate (APR) in order to give borrowers enough reason to seek the credit facilities.
Lobbyists in support of the payday loan reforms including Carlene McNulty, a customer civil rights legal representative at the North Carolina Justice Centre mentioned that the interest rates are unrealistic and the Uniform Small Loan Laws (USLL) played a significant role in reducing lending rates by about 40%. However, the opponents of the reform still believe that banks use usury techniques to offer payday loan services to poor and unwitting customers (Carradine, 2009).
Financial Aid
In North Carolina, about five lenders complained about the increased payday bank lending rates. About the same period, 1,200 complainants addressed issues of system hacking in their bank accounts. With such cases increasing daily, the opponents of the payday reforms suggest that the payday facilities under registered agencies are capable of offering financial aid. From an ethical perspective, organizations have a social corporate responsibility policy to assist in wining consumers’ goodwill while improving the lives of the target population. According to the Astroturf lobbying organizations, the payday loans assist in settling different forms of emergencies, and a borrower should be in a capacity to pay before borrowing (Stegman & Faris, 2003).
Equality
Price defends the payday business in Texas by mentioning that it does not entirely target the poor and ignorant individuals. It promotes equality because the bank statements and employment background determine the amount that a borrower receives. The same would not apply in North Carolina in which most activities believe that class action is a strong proponent of the business. The Astroturf lobbying organizations comprise of churches, powerful human rights movements, and legislatures who have much influence on the society (Lawrence & Elliehausen, 2008).
There are concerns that five major lenders still operating in North Carolina often receive political and religious backups, making it difficult to stop their operations completely. Additionally, the lobbyists support the C.F.P.B. actions that intend to deal with unscrupulous shylocks in order to make the society understand the ethical and financial value of paydays, which give loans irrespective of racial, financial, or gender disparities (Carrns, 2014).
Conclusion
In retrospect, payday loans put borrowers in a perennial state of loan payment with high interest rates. However, these lenders can support emergency cases like that of Tonya Burke of North Carolina where the child underwent a surgery at a time when she lacked cash. Several legal and ethical arguments arise from the debate, which naturally place the lobbyists of anti-reform in a difficult position to prove their innocence.
Government agencies have to formulate clear rules that guide the operations of the lenders. In line with this, there is an urgent need to carry out mass education or awareness to inform people of the sensitivity of their personal details. By using fraudulent means to access the bank accounts of people without their knowledge, payday loans are clearly part of fraudulent accomplishments. Banks and other financial institutions should also increase the security of their systems to minimize the numerous instances of ghost withdrawals. In conclusion, there are numerous other sources of loans, implying that people can begin to disregard payday businesses if they do not plan to increase their interest rates arbitrarily.
References
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