Creditors & Debtors:

Whose job is it to know best?

Done By Ahmad K. Alian

ID# b00026788

American University of Sharjah

Professor David R. Lea

Ethics for Professionals – PHI 204

Section – 1

MTWRU

9:00 am to 11:30 am

I pledge that this is entirely my own work

 The banking industry, and all its derivatives have been said to be more profitable than

McDonald’s, Microsoft, and Wal-Mart combined; In addition to that, the banking industry has

been the poster child that everybody loves to hate, which from a purely collective standpoint can

be justified, since banks take our money, and naturally we as the people hate to part with our

hard-earned money after the government has nibbled some of it for “tax purposes”. But for a

long period of time, it believed by a great deal of people that the banking industry in general is a

business which will utilize parasitic means of obtaining people’s money, and that business will

always “dupe” people into parting with that hard cash without them being none the wiser ; so the

question arises, does the ethical responsibility lie on the banking industry to not act the way it

does, or does the responsibility fall on the consumer to constantly be up-to-date on the current

dealing methods of banks to avoid that dreaded home or car foreclosure or repossession? In

writing this paper, I will present some logic-based suggestions into why and how each side

should take upon itself the ethical responsibility – starting with the consumer – where I leave the

final decision to be made by the reader.

Many business people hold a belief that the consumer as a collective entity is quite a

fickle person, thus companies launch massive marketing campaigns, and conduct widespread

market research in order to zero-in on what convinces each consumer segment to become a sure-

customer; but in the case of banking it is quite a different story. It has been suggested that, with

the complexities and intricacies of the field of personal banking, many individuals tend to get

lost, or more importantly get helplessly desperate to make that final loan or mortgage payment

that they fall into a spiral of debt that seems to just get deeper and deeper no matter how many

payments have been made, and as a result people tend to attribute the falling into such debt-

spirals on the way that banks conduct their business, and dubbing it “parasitic,” or sometimes
even illegal, thus the argument is formulated that banks and its derivatives are the ones who

should be ethically responsible for their business conducting methods. There are a few good

reasons as to why people tend to have that view about banking, the first one being is called the

“universal default”. Nasdaq.com defines the term “universal default” as “a provision allowing

issuers to increase card members' interest rates for adverse financial actions such as when

cardholders failed to make timely payments to other creditors, like other credit card issuers,

utilities, car lenders, landlords or mortgage lenders”(Universal Default,Nasdaq.com, 2009); in lament’s terms,

what this means is that if one was to fail to pay their dues at the specified timing the bank has the

right, under the universal default provision, to sky-rocket their interest rate, or in some cases

(which have been recently a lot of) foreclose on one’s collateral. While this can be argued to be a

utilitarian method of doing business, one cannot ethically argue that in order to gain the most

amounts of “utiles”- which in this case would be the shareholder’s happiness- the bank would

throw out a person out onto the streets simply because they could not keep up with the staggering

spike in their interest rate that the bank has enforced due to the universal default provision.

Another thing about the universal default provision that many people do not know (which I came

to know from my father’s experience in banking) is that credit, or banking bureaus get to share

the customer or card-holder’s information with any party which they see fit, although some

might argue otherwise, but that can be construed as nothing but deceit and fraud. The second

reason as to why the banking industry has to take the ethical responsibility of proper and fair

business conduct is due to the application of usury practices. Nasdaq.com defines Usury as “the

lending of money at exorbitant interest rates” (Usury,Nasdaq.com, 2009). The obvious difference between

the universal default and usury is that the universal default provision allows bank to change the

interest rate after a loan has been lent, but usury is when a loan is lent beginning with a massive
rate of interest which is almost impossible to payoff; what makes matters worse, is that a usury

loan would still contain the universal default clause or provision. Nowadays there are usury laws

that forbid such practice of exorbitant rates, but the fact of the matter is there is a great deal of

credit firms, that are not recognized as banks, that can legally deal usury loans, these firms are

usually located in the impoverished communities where, it must be said, are the legal equivalent

of a loan-shark. The third and final reason as to why the banking industry has to take the ethical

responsibility of proper and fair business conduct is due to antitrust. Princeton University’s

WordNet Search defines antitrust as “laws and regulations designed to protect trade and

commerce from unfair business practices” (WordNet, Princeton Univ., 2009); given the definition, one can then

deduce that if banks were to break antitrust laws that they would be condemned by the federal

governing body of banks, which in this case would be ( in the U.S.) The Feds, also known as the

Federal Reserve Banks, but alas the Feds in its entirety is , as the American 9th Circuit Court

states, “we conclude that the [Federal] Reserve Banks are not federal ...

but are independent privately owned and locally controlled corporations...

without day to day direction from the federal government" (9th Circuit Court, Liberty-Tree.ca, 2009). The

repercussions of this is that the banking industry’s governing body is motivated by the same

motivation as the any other business – profit, as Michael Moore stated in the documentary “The

Corporation”; concurrently this also means that the Fed (which holds a great deal of power) is

motivated by money only, thus the rationalizing is that it will not aide the needy customer unless

it is beneficial to do so, which then leaves the entire cause of the hard-stricken customer to the

consumer protection laws and programs which are being overturned by a lobby that is said to

have fully penetrated both aisles of the American Congress .

 After examining the reasons as to why the banking industry is ethically responsible to act,

practice, and conduct their business fairly one must look at the other side of the argument, the

banking industry’s side.

In an industry where the competition is cut-throat with a “kill or be killed” mentality it is

no wonder that the banking and finance industry is disliked as it is. The majority of the reasons

as to why consumers should bear the ethical responsibility revolve around consumers

themselves. The first reason is the fact that most consumers are financially irresponsible. Most

parents teach their children to always save, this mantra is taught for a good reason which is that

people save money so they can acquire items they desire or need; but when it comes to real life,

the majority of banking clientele are ordinary people who want to buy things they cannot afford,

thus they take out loans and mortgages which they can payoff through a payment plan. Now it is

proved that this system works, it is when the consumer signs on to a loan or mortgage that they

cannot afford that the system starts to malfunction, and as soon as the bank or creditor takes

action to recover their lost money, they are quickly dubbed as loan sharks and masters of

deception; but when one objectively thinks of what happens the bank or creditor will not be at

fault. In actuality what happens is that the customer does not make a due payment, thus costing

the creditor money, now whether the customer has reasons or excuses for not paying is not nor

should be of the creditor’s business, the same thing applies to professors and students, a

professor is not obliged to give a student a makeup test if the student does not show up at the

given test date, unless in extreme cases which also apply to the banking industry; but what one

should understand is that at the end of the day a bank is a business that only works when all

payments due are made, if the bank keeps giving people more time pay their dues they would go

bankrupt.
 The second reason as to why consumers should be the ones that bear the ethical

responsibility is bankruptcy laws. In recent years the banking and finance lobby has taken it upon

itself to make it harder for people to file for bankruptcy, although this sounds almost demonic

there is a very good reason behind it. There is a saying that says “we always want what we don’t

have”, many people agree that this statement is true; but what happens is that people overstep the

line with wanting things they do not need nor have. Thus you have a customer who always wants

next year’s convertible, the latest in fashion and electro-gadgetry trends without having the

trouble to carry all their cash around, then all of the sudden (and the common excuse is “I did not

notice”) the credit cards are maxed out and the bank is out of pocket a decent sum of money,

then multiply that by millions (since this trend of overspending is getting widespread) and the

bank would stand at losing the equivalent of half its assets; to make matters even worse the

people who owe the bank or the creditor go to the nearest lawyer and file a bankruptcy form to

relieve and discharge all of their debts, and most importantly to stop the creditor of repossessing

or foreclosing on any property or estates; thus the resultant is as follows, there is an individual

who is barely sustained due to their overzealous and irresponsible spending, and an

establishment that basically gave out its money free of charge because that individual has filed

for bankruptcy, which concurrently means that the creditor cannot sue that individual for the lost

money, now the bank has to raise its interest rates on all of its customers to raise the money that

has been lost, and then people say that the banking industry is to be blamed for all the world’s

crises, massacres, and wars where the primary reason was the consumer’s shallow, irresponsible,

and fickle ego.

In conclusion, the battle to decide who is responsible to bear the ethical responsibility

falls on both sides of the equator, where banks have to practice transparency, and consumers
have to practice control and responsibility over their spending (and stop blaming marketing

campaigns) in order to keep the creditor-debtor relationship a well-oiled operation where

everyone gets what they want.

 Works Cited

9th Circuit Court Quote, from Lewis Vs. United States (1982). Liberty-Tree.ca. Retrieved Aug 09

from http://quotes.liberty-tree.ca/quote/9th_circuit_court_quote_b23e

Universal Default and Usury Definitions. Nasdaq.com personal finance glossary. Retrieved Aug

09, from http://www.nasdaq.com/personal-finance/credit-card-glossary.stm

WordNet, Princeton University. Retrieved Aug 09, from

http://wordnetweb.princeton.edu/perl/webwn?s=antitrust