Case study for Business Ethics, 5000 words. Considers the state of the payday lending market in USA and Canada as of March 2018. Suitable for undergraduate or business school use. Includes the discussion of: Storefront and online payday lending in state/province and national contexts. Applicability of the concept of exploitation to payday lending. Alternatives to payday lending ("Payday Alternative Loans" provided through credit unions, and savings incentive programs that reduce demand for (...) payday lending). U.S. government regulation of 2017 that was rescinded shortly before it was to have effects on business, specifically due to change of Presidential administration (January 2018). Class discussion questions. References. (shrink)

Microcredit, a non-profit lending approach that is often championed as a source of women’s inclusion and empowerment, has in the past decade been followed by microfinance, a forprofit sibling of a different temperament. Microfinance in India is now in turmoil, precipitated by legislation in the state of Andhra Pradesh, which has encouraged withholding of payment, which in turn has frozen the market. This paper considers one precipitating condition of the crisis: the remarkable, new, and developing burden of formal economic (...) debt that poor women in the state have only recently come to hold – debt that now surpasses one year’s family income, on average. The development of this lending sector follows upon innovation in lending to the poor of the global north over the past two decades, and the practices show noteworthy parallels. Both lending schemes have produced similar disproportionate burdens upon some low-status individuals within their respective economic orders, and both may exploit a vulnerability that is born of aspiration and produces great dysfunction for borrowers. This paper introduces the two lending schemes, sketches the parallels, and introduces the claim that ethical finance arrangements for the poor require attention to vulnerability, an under-utilized category in both liberal ethical theory and in finance. (shrink)

In this article, we use a corporate social responsibility (CSR) framework to analyze the payday loan industry by critically examining its practices from an economic, legal, and ethical perspective. Payday loans are essentially a very high cost, unsecured, short‐term personal loan. Given the inherent nature of the product being offered, the industry appears on the face of it to be in a position to potentially exploit vulnerable consumers in pursuit of profits. With this concern in mind, our analysis (...) investigates the following three issues: Can the payday loan industry currently be considered to be acting in a socially responsible manner? If the industry cannot be considered to be socially responsible, should it be further regulated? If the industry should be further regulated, how should it be regulated? To address these issues, we first provide a brief historical overview of payday loans. Second, we describe the important characteristics of payday loans and how the industry operates. Third, we draw on various sources of evidence to demonstrate that the payday loan industry, while fulfilling its basic economic obligations, falls outside of both the legal and ethical domains of the Three Domain Model of CSR. Based on our analysis, our conclusion is that the payday loan industry requires additional government legal regulation, particularly with respect to allowable fees, and we conclude that there is a strong ethical case for banning payday loans altogether. (shrink)

This article focuses on the ethics of payday lending. We present information about the payday lending industry, a range of legal and best practices guidelines for the industry, and finally our own presentation of the most appropriate practices to be used to satisfy both legal and ethical edicts. This effort is made with the hope that business people in general, professionals in the payday lending industry, lawmakers, educators, and even potential consumers may benefit by (...) understanding the driving economic, legal, and social guidelines that can make payday lending services a positive and efficacious addition to our lending industries. (shrink)

Usury ceilings seem indefensible. Their opponents insist these caps harm the consumers they are intended to help. Low ceilings are said to prevent the least advantaged agents from accessing legal credit and drive them into the black market, where prices are higher and collection methods are harsher. But in this paper, I challenge these arguments and show that the benefits of interest-rate limitations in the most expensive credit markets clearly outweigh the costs. The test case is payday lending. (...) Deregulated pricing in this market produces negative externalities that justify usury restrictions. Unless prices are capped, the more solvent majority of borrowers is compelled to cross-subsidize the least solvent debtors, who have a high rate of default. Rationing the riskiest debtors out of this market by means of a moderate usury cap puts an end to this unfairness and produces fewer bad consequences than the advocates of deregulated pricing recognize. I argue that only an extreme principle like maximizing the minimum could justify a free market in payday credit. (shrink)

ABSTRACTBusiness actors often act in ways that may harm other parties. While the law aims to restrict harmful behavior and to provide remedies, legal systems do not anticipate all contingencies and legal regulations are not always well-enforced. This article argues that the logic of double effect, which has been developed and deployed in other areas of practical ethics, can be useful in helping business actors decide whether or not to pursue potentially harmful activities in commonplace business activity. The article illustrates (...) how LDE helps to explain the exploitative nature of payday lending, the distinction between permissible and impermissible forms of market competition, and the potential wrong of imposing risk of harm on others. The article also addresses foundational debates about LDE itself. We offer the article as an illustration of the sort of “midlevel” theorizing that can address directly the needs of practitioners. (shrink)

This research addresses equity in geographic access to financial services. As financial products and services continue to become more accessible and affordable, many low‐ to moderate‐income Americans remain unbanked and underbanked, relying instead upon informal, alternative financial service providers, including check cashing outlets and payday lenders. While geographic access to affordable financial products and services assists in the successful asset building strategies of economically vulnerable households, concerns that access to financial services is uneven persist. This article uses geographic information (...) systems and spatial binary logistic regression analysis to test the hypothesis that sociodemographic characteristics and mortgage lending variables have a predictive relationship on the presence of financial deserts—census tracts where check cashing outlets are more prevalent than banks—in southeastern Pennsylvania. Results of comparison of means and regression analysis reveal that these tracts are associated with higher than average population density, lower levels of median household income, a higher proportion of Black and Latinx residents, and higher levels of mortgage application denial. This article contributes to the ongoing debate over the emergence of a two‐tiered or dual financial service delivery system, whereby financial products and services are bifurcated based on socioeconomic status and geography. (shrink)

Robert Mayer argues that certain kinds of high-interest payday loans should be legally prohibited. His reasoning is that such lending practices compel more solvent borrowers to cross-subsidize less solvent ones, and thus involve a kind of negative externality. But even if such cross-subsidization exists, I argue, this does not necessarily provide a ground for legal prohibition. Such behavior might be a necessary component of a competitive market that provides opportunities for mutually beneficial transactions to willing customers. And the (...) alternative of a government-mandated interest rate faces severe problems of its own. (shrink)

Redish et al. rely too much on a rational and innate view of decision-making, when their emphasis on variation, their integrative spirit, and their neuroscientific insights point towards a broader view of why addiction is such a tenacious problem. The integration of subjective, sociocultural, and evolutionary factors with cognitive neuroscience advances our understanding of addiction and decision-making.

Müller & Schumann (M&S) deserve applause for their interdisciplinary examination of drug use, evolution, and learning. Further steps can deepen their evolutionary analysis: a focus on adaptive benefits, a distinction between approach and consummatory behaviors, an examination of how drugs can create adaptive lag through changing human niche construction, the importance of other neurobehavioral mechanisms in drug use besides instrumentalization, and the importance of sociocultural dynamics and neural plasticity in both human evolution and drug use.

This paper uses the example of payday loans to identify two standards of exploitation that better accord with intuitions about taking unfair advantage than neoclassical or neo-Marxian exploitation theory. These two standards are derived from ongoing policy debates about the regulation of payday loans. The sufficiency standard is more restrictive than relative-advantage theory, but the latter indicates when exceptions to the prohibition on exploitation should be made for the sake of the disadvantaged party.

There are major concerns about the level of personal borrowing, particularly sourced from credit cards. This paper charts the progress of an initiative to create a Responsible Lending Index (RLI) for the credit industry. The RLI proposed to voluntarily benchmark lending standards and promote best practice within the credit industry by involving suppliers of credit, customer representatives and regulators. However, despite initial support from some banks, consumer bodies and the Chair of the Treasury Select Committee, it failed to (...) gain sufficient support from financial institutions in its original format. The primary reasons for this were related to the complexity of building such a robust index and the banks trade body’s fear of exposing its members to public scrutiny. A revised alternative, the Responsible Lending Initiative, was proposed which took into account these concerns. However, the Association of Payment Clearing Service (APACS), the trade body of the credit industry, then effectively destroyed the proposal. This article describes an attempt to address the challenges in the credit card industry with the initiation of the RLI, reflected in stakeholder discourse and in the context of a wider concern expressed by the involved stakeholders in terms of the need for greater responsibility in the banking industry’s lending practices. (shrink)

Securities lending has been a lucrative business for mutual funds and exchange-traded funds over the past decade. Unfortunately for investors, the sponsors of these funds have not been very transparent with the details of their securities lending programs, and consequently most investors in these funds are unaware of their exposure to the risks inherent in securities lending. Interestingly, most funds do not return the full profits from securities lending activities to their investors. In this paper, we (...) examine and discuss the ethical considerations related to the securities lending activities of mutual funds and ETFs and offer a series of best practices that we believe will provide better transparency of these activities to fund investors. (shrink)

Created as a social being, human beings communicate and interact with other people in society. Their economic activities are also part of this communication.Transactions such as shopping and lending are also an element of the economy. Troughout history, legal systems have laid down rules regulating these activities,and imposed orders and prohibitions. Studies comparing Islamic and Jewish legal systems, which originated from revelation and still applied by their followers, are less than those made in terms of the history of religions. (...) The aim of this study is to contribute to the comperative studies in the field of law by examining the similar and differente aspects of both legal systems in terms of contractual contract. It has been determined that there are more similarities in the provisions of Islamic law and Jewish law regarding the issue of lending. The fact that the sources of these two legal systems are the same is the most natural reason for similarity.The differences are due to the interpretations of the Jews that changed religious rules in order to ensure harmony between the law and the life conditions that changed over time. (shrink)

The evidence on gender discrimination in lending remains controversial. To capture gender biases in banks’ loan allocations, we observe the impact on the applicants of a microfinance institution and exploit the natural experiment of a regulatory change imposing a strict EUR 10,000 loan ceiling on microcredit. Descriptive statistics indicate that the presence of the ceiling is associated both with bank-MFI co-financing and with harsher treatment of female borrowers. To investigate causal links, we develop an econometric approach that addresses the (...) concerns of selection biases, multicollinearity, and endogeneity. Our empirical findings suggest that the change in the MFI’s gender-related attitude was triggered by banks through co-financing. Hence, we speculate that co-financing pushes ceiling-constrained MFIs to import whatever biases in loan granting that the banks are prone to. Overall, this paper stresses that apparently benign regulations such as loan ceilings can significantly harm the women’s empowerment efforts made by MFIs. (shrink)

A talk on the morality of money lending, which looks at three different approaches to the problem of usury: political regulation, religious prohibition and economic toleration.

To address the rising concern that algorithmic decision-making may reinforce discriminatory biases, researchers have proposed many notions of fairness and corresponding mathematical formalizations. Each of these notions is often presented as a one-size-fits-all, absolute condition; however, in reality, the practical and ethical trade-offs are unavoidable and more complex. We introduce a new approach that considers fairness—not as a binary, absolute mathematical condition—but rather, as a relational notion in comparison to alternative decisionmaking processes. Using US mortgage lending as an example (...) use case, we discuss the ethical foundations of each definition of fairness and demonstrate that our proposed methodology more closely captures the ethical trade-offs of the decision-maker, as well as forcing a more explicit representation of which values and objectives are prioritised. (shrink)

Family financing has become a powerful channel for entrepreneurs to obtain entrepreneurial funding. How do family members use intent and quality signals to select new ventures to provide lending support? Building on the signaling theory, this study provides the first quantitative evidence using a sample of 166 samples of family lenders in China. Our findings reveal that psychological capital can support entrepreneurs to obtain family lending. As an intent signal, psychological capital becomes more influential when quality signals, corporate (...) competitive advantage, and firm performance perform more positively. This study emphasizes that family financing support is not only out of love or altruism and extends the literature concerning the influence of positive psychological capital in financial investment decisions. (shrink)

Crowdfunding platforms have revolutionized entrepreneurial finance, with 200 billion dollars expected to be dispersed annually to entrepreneurs and small business owners by 2020. Despite the importance of this growing phenomenon, our knowledge of the dynamics of successful lending-based prosocial crowdfunding and its implications for the business ethics literature remain limited. We use a social responsibility lens to examine whether crowdfunders on a lending-based prosocial platform lend their money based on altruistic or strategic motives. Our results indicate that the (...) dynamics of prosocial lending-based crowdfunding are somewhat consistent with traditional forms of financing. Specifically, despite a prosocial setting in nature, crowdfunders tend to act strategically, positively responding to signals of quality and low risk. Notably, we also find that projects that are high on both financial and social appeal receive the highest average amount of funding. Furthermore, language on the lender’s profile indicating ability to pay is positively related to both funding success and funding amount. Our study contributes to filling the gap in the business ethics literature about the dynamics of lending-based prosocial crowdfunding, and the strategic and altruistic ethical motives that drive lenders in such endeavors. (shrink)

Crowdfunding platforms have revolutionized entrepreneurial finance, with 200 billion dollars expected to be dispersed annually to entrepreneurs and small business owners by 2020. Despite the importance of this growing phenomenon, our knowledge of the dynamics of successful lending-based prosocial crowdfunding and its implications for the business ethics literature remain limited. We use a social responsibility lens to examine whether crowdfunders on a lending-based prosocial platform lend their money based on altruistic or strategic motives. Our results indicate that the (...) dynamics of prosocial lending-based crowdfunding are somewhat consistent with traditional forms of financing. Specifically, despite a prosocial setting in nature, crowdfunders tend to act strategically, positively responding to signals of quality and low risk. Notably, we also find that projects that are high on both financial and social appeal receive the highest average amount of funding. Furthermore, language on the lender’s profile indicating ability to pay is positively related to both funding success and funding amount. Our study contributes to filling the gap in the business ethics literature about the dynamics of lending-based prosocial crowdfunding, and the strategic and altruistic ethical motives that drive lenders in such endeavors. (shrink)

Crowdfunding platforms have revolutionized entrepreneurial finance, with 200 billion dollars expected to be dispersed annually to entrepreneurs and small business owners by 2020. Despite the importance of this growing phenomenon, our knowledge of the dynamics of successful lending-based prosocial crowdfunding and its implications for the business ethics literature remain limited. We use a social responsibility lens to examine whether crowdfunders on a lending-based prosocial platform lend their money based on altruistic or strategic motives. Our results indicate that the (...) dynamics of prosocial lending-based crowdfunding are somewhat consistent with traditional forms of financing. Specifically, despite a prosocial setting in nature, crowdfunders tend to act strategically, positively responding to signals of quality and low risk. Notably, we also find that projects that are high on both financial and social appeal receive the highest average amount of funding. Furthermore, language on the lender’s profile indicating ability to pay is positively related to both funding success and funding amount. Our study contributes to filling the gap in the business ethics literature about the dynamics of lending-based prosocial crowdfunding, and the strategic and altruistic ethical motives that drive lenders in such endeavors. (shrink)

Many philosophers take the point of Plato's Euthyphro to be an indictment of attempts to ground morality in religion, specifically in the attitudes of a deity or deities. It has been argued cogently in recent essays that Plato's case is far from conclusive. This essay suggests instead that the Euthyphro can be read more narrowly as raising critical questions about a specific religious virtue, Piety. Then it presents the ingredients of a reply to those questions. The reply proceeds by suggesting (...) that one need not accept the standards of definition used by Plato, and that one can provide an explanation of what Piety is by embedding Piety in a more comprehensive picture of the human, the divine, and the relations between the two. The picture makes use of a doctrine of divine sovereignty and a doctrine concerning love between God and humans. (shrink)

This article grapples with the causes of India’s microfinance crisis. By contrasting Bangladesh’s highly successful Grameen model with the allegedly “universalizable” version of India’s SKS Microfinance, trust or social capital is isolated—not just narrowly interpreted within standard economic theory, but more broadly construed—as the essential element accounting for the early success of microfinance. It is argued that the microfinance experience has been widely misinterpreted, in both analytical and policy terms. This article suggests inherent limits in extending the model to for-profit (...) institutions and, in particular, to the pace of scaling up. (shrink)

Many philosophers take the point of Plato's Euthyphro to be an indictment of attempts to ground morality in religion, specifically in the attitudes of a deity or deities. It has been argued cogently in recent essays that Plato's case is far from conclusive. This essay suggests instead that the Euthyphro can be read more narrowly as raising critical questions about a specific religious virtue, Piety. Then it presents the ingredients of a reply to those questions. The reply proceeds by suggesting (...) that one need not accept the standards of definition used by Plato, and that one can provide an explanation of what Piety is by embedding Piety in a more comprehensive picture of the human, the divine, and the relations between the two. The picture makes use of a doctrine of divine sovereignty and a doctrine concerning love between God and humans. (shrink)

This paper explores the ways in which a fuller attention to suffering in the tradition of the early Frankfurt School might valuably inform international political thought. Recent poststructural writing argues that trauma is silenced to prevent it disrupting narratives of order and progress and instead advocates a continual ‘encircling’ of trauma that refuses incorporation into a broader historical narrative. This paper welcomes this challenge to mainstream international ethics: attention to particular suffering provides an important challenge to the abstraction, instrumentalism and (...) universalism of modernity. However, if we simply mark trauma and refuse to incorporate it into any kind of narrative, we cannot profit from the ways in which suffering can illuminate the structures and ways of thinking that create it. Drawing on Adorno's negative dialectics, the paper argues that a dialectical understanding of the relationship between universalising order and disrupting particularity can lead from individual suffering towards a political re-engagement with the universal. (shrink)

This article deals with the ethical issues faced by commercial banks, governments and international financial institutions in their international lending activities. Such issues include not only to whom and for what purpose such lending takes place but also the more delicate questions of the relations between sovereign lending and economic management, as well of lending to sovereign countries embroiled in situations of conflict. It leads to the ethical issues raised by the present international debt crisis: co-responsibility, (...) burden-sharing, role of the international organisations. Finally, capital flight out of developing countries is studied as a special case. (shrink)

To address the rising concern that algorithmic decision-making may reinforce discriminatory biases, researchers have proposed many notions of fairness and corresponding mathematical formalizations. Each of these notions is often presented as a one-size-fits-all, absolute condition; however, in reality, the practical and ethical trade-offs are unavoidable and more complex. We introduce a new approach that considers fairness—not as a binary, absolute mathematical condition—but rather, as a relational notion in comparison to alternative decision-making processes. Using U.S. mortgage lending as an example (...) use case, we discuss the ethical foundations of each definition of fairness and demonstrate that our proposed methodology more closely captures the ethical trade-offs of the decision-maker. (shrink)

The Glass Bees by Ernst Jünger was first published in Germany in 1957. It is a speculative fictional work that foretells much of what today is the reality of life in a technological society. Of particular import is his portrayal of the ambiguity of human character and moral guideposts that leave only power to mediate human relationships. These psychological and cultural symptoms can be traced to a society under the unremitting spell of the extension of technique. Headlines drawn from today (...) demonstrate that the portrayal was not overstated. (shrink)

This paper examines the impact of three culturally endorsed leadership prototypes on bank lending corruption. We bring together studies that approach the corruption of bank lending officers from the perspective of a principal-agent problem and studies from the leadership literature, suggesting leadership as an alternative to contractual solutions to agency problems. We hypothesize, based on these views, that culturally endorsed leadership styles that improve (worsen) the leader-subordinate relationships have a negative (positive) effect on bank lending corruption. Using (...) a sample of around 3,500 firms from 36 countries, we find that the prosocial leadership prototype and the nonautonomous leadership prototype do not matter, whereas the self-serving leadership prototype has a positive and statistically significant effect on bank lending corruption. These findings are robust to the inclusion of various control variables in the regressions, and alternative estimation approaches, including ones that account for endogeneity concerns. Furthermore, we find that the power of bank regulators and the age of the credit information sharing mechanism play a moderating role in the relationship between the self-serving leadership prototype and bank lending corruption. (shrink)

Micro Credit (MC) programs lend money to poor borrowers using innovative mechanisms such as group lending under joint liability while successfully accounting for the presence of asymmetric information in underdeveloped financial markets. MC programs have achieved what the conventional financial institutions and the government have not been able to: lend to the poor, impressive loan recuperation, and a positive impact in poverty reduction. This article analyzes the performance of ALSOL, an MC program in Chiapas, México, for 2151 participants in (...) urban and rural areas for the time period between July 2000 and July 2001. While loan recuperation is high (95%), administrative costs also remain high. Socially responsible lenders and donors play a key role in providing continuous funding to MC programs and assisting in reducing the level of poverty. (shrink)

The precise manner in which language serves its communicative function suggests that natural selection, rather than exaptation or reappropriation, played the major role in its evolution. Natural selection is more readily invoked, I suggest, if it is assumed that language originated as a system of manual gestures, and later switched to an oral mode.

Banks face a dilemma in choosing between maximising profits and facilitating the sustainable use of resources within a carbon-constrained future. This study provides empirical evidence on this dilemma, investigating whether a bank loan announcement for a firm with high carbon risk conveys information to investors about the firm’s carbon risk exposure collected through a bank’s pre-loan screening and ongoing monitoring. We use a sample of 120 bank loan announcements for ASX-listed firms over the period 2009–2015. We measure high carbon risk (...) exposure based on whether firms meet the reporting threshold of the NGER scheme. We document positive and significant excess loan announcement returns for loan renewals for high carbon risk firms, but not for loan initiations. Further, we document a more significant loan announcement return for renewals with favourable term revisions. Finally, we find no evidence that the market differentiates between domestic and foreign lenders. Taken together, our results suggest that investors perceive that banks incorporate carbon risk considerations into their lending decisions. Our results highlight the value of banks as financial intermediaries given the information asymmetry surrounding firms’ carbon risk exposure, and more generally the need to extend modern banking theory to consider issues such as the impact of banks’ CSR reputation on lending decisions. (shrink)

The pioneering work on environmental regulation in Sweden and that country's leading position in sustainability rankings has paradoxically passed almost unnoticed by academics. To this fact should be added, the scant attention given to the Nordic banking system. Becoming immersed into the realm of Swedish commercial banking ethics, we have focused on one of the top three commercial banks in the country, to map its corporate sustainability policies (CSP) and the compliance of the lending business process (LBP) to these (...) policies. A descriptive-explanatory research framework utilises a critical case with a phronetic design. Data collected through interviews was manipulated under the thematic analysis method. We found a unique understanding of act-utilitarianism, in which, policies and practices are set to prevent financial risks and environment rebounds, as they are symbiotic. This allowed us to enlarge the body of knowledge on Nordic banking's sustainable governance and design the green lending model (GLM). (shrink)