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Class Action and Ethics in Practice

Discuss about the Practice of Cash Converters and its Impact.

In the current scenario, financial institutions including money exchanger plays a very important role in easy running of day to day life of an individual. In order to meet any requirements either of the business or of the daily needs, every person and every organization requires the funds. These funds are obtained through these financial institutions by having the credit appraisal from the respective financial institutions and then according to the score and eligibility the fund is granted along with the schedule of repayment. In the given case study, the class action filed by customers against Cash Converters International Limited, being the renowned company for providing cash advance and cash loans, is discussed and its impact in terms of financial on the company itself and socially and ethically towards the stakeholders have been discussed. This is the very objective of the study and in order to make the study attractive the report has been bifurcated in different parts and thereafter the conclusion has been given.

Class Action is the term used to define the action taken by the group of people against some unjust done to them. In the given case, the class action has been taken by the group of people who have availed the services of the Cash Converters International Limited. The company is registered in Australia in the early eighties and since then has been engaged in the business of providing the cash loans and cash advances to the customers. Cash Converters International Limited main business is of franchising and has been one of the old franchisor in Australia (Cash Converters Webiste, 2016). Through the franchisees the cash loans and advances are given after appraising the financial documents and creditworthiness of the borrower. The main requirement is that the borrower should have the Australian Resident ship card. Being the company listed in the Australian Stock exchange, the customers have the view that the functioning of the company is very much true and fair and will not involve the customers in any circumstances or any habit which is not ethical or which is against the prevailing norms of the business. But their views were wrong. In Actual the practice of the company to extent was not feasible. Some circumstances has happened which has led them to file Class Action.

Class Action documented in Annual Report – In the annual report of the company for the year ending 2015, the class action has been documented (Cash Converters Webiste, 2016). The main reason is the practice followed by the company. Company gives advance and loans to the borrowers as per result of their bank statement and income statement. All these loans are short term and not more than twelve months. They charges fees and pay the net amount to the borrower. In addition to this they have easily avoided the interest rate cap of forty eight percent and have charged the interest rates as up to six hundred and thirty three percent (Knaus, 2017). Also the fees that they have deducted from the loan amount as Establishment Fees gets included in the repayment schedule and very deceitfully gets the forged documents signed from the customer. This has been noticed by the customers at the very last stage when their earnings are going directly in the repayment of loan and they are having the cash crunch. This has led the customers to file suit against them for and on behalf of 37000 customers as Class Action. The customers belong to the period from 2009 to 2013 (Mauris, 2017).

Social Responsibility and Sustainability

Ethics in Practice – Ethics are defined as the set of standards for conduct for humans or organization which basically monitors and directs the behavior of the human or an organization. Ethics in business are thus defined as the standards that monitor and direct the behavior in doing business (Darus, 2015). In the given case study, Cash Converters International Limited have deliberately and knowingly that the act is not lawful have get the documents signed from the customers and have charged higher interest rates. Faced by the cash crunch and long due repayments, even then the customers are receiving the text message and e mail from the company stating the amount available for loan or advance. This has further led the customers to associate with the practice of Gambling or speculation. Borrowers in the view of repaying the loans avails higher amount of loan and thus the amount of principal gets increased and thereby the amount of interest gets high as much as not comparable. Therefore, the practice followed by the company is totally unethical as also mentioned in the theory of Consequential Ethics as the correctness of the act is solely determined by the consequence generated out of it. Thus, the practice is unethical which has led to class action and also the documentation in the Annual Report.

Every organization will have the goodwill in terms of monetary as well non monetary terms if it follows ethics in business and have system of good corporate governance in place. On the other hand the company which have indulge its functions in an unethical practice and even violated the laws to higher extent then its repercussions will not only reflected in the financial terms but also in the non financial terms. The major financial impact has been noticed and observed in the annual report for the financial year ending 2015. It is the year in which the fact of class action has been mentioned. The practice that has led to such situations has been followed by the company from 2009 to the year 2013 (Cash Converters Webiste, 2016)..  The company has the following in terms of the financial impact:

  • The Net profit of the company has been relatively decreased by one hundred and eighty eight percent in the year ending 2015 as compared to the year ending 2014 (Cash Converters Webiste, 2016).. The profitability has been decreased mainly due to the fact that the settlement made in the class action comes out with twenty three million dollar which has been recognized as an expense in the Statement of Profit and Loss Account and has been correspondingly recognized as Liability in the Balance Sheet (Chettle, 2015).
  • Earnings per share have been greatly decreased due the decrease in the Net Profit attributable to the shareholders of the company (Cash Converters Webiste, 2016).. This has further reduced the interest of the investors to invest in the company as the shareholders wealth has been greatly decreased. Thus, share price of the company has also been decreased.
  • Cash Flows have the positive impact in the year 2015. The cash flows generated through the three activities namely investment, operating and financing have positive results and shows that the company is still cash rich company (Cash Converters Webiste, 2016). But on the other hand the cash flow position has been hampered due to the repayment of the different borrowers in the next year. Due to which the bank who has extended the credit facilities has taken their amount back being in a position of getting it as Non Performing Assets.

Corporate Social Responsibility is regarded as significant term in the today’s era. It not only takes into account the growth and profitability of an organization but also considers the various interests of the society and the relevant environment. This consideration towards the society and the environment includes the effect of the activities and working of the organization towards the stakeholders, shareholders, customers, employees and all others.

Conclusion

Corporate Sustainability is the term which is closely linked with the term of Corporate Social Responsibility. Corporate Sustainability is very broader in terms and is defined as the processes that balance the requirement of profit motive with the protection of environment and equitable distribution of resources in the Society. Both the concept being interchangeable shall be incorporated by every organization to ensure the ethic and corporate governance in system (Cocris, 2010).     

 In general, the financial institutions shall have the policy documenting the social responsibility. It includes moral responsibility of the companies and employees, compliance with the statutory compliance, fulfilling the daily needs and requirements of the changing world and most importantly the management of these activities. In the given case study, Cash Converters being financial institution have followed and practiced the business of franchising but have deviated from these two concepts. The concepts major emphasis is on the stakeholders including the customers of the organization. The company has not considered its responsibility towards the society and environment rather has treated it as medium for earning profits by any means including cheating. Therefore, neither the company has followed neither the concept of corporate social responsibility nor the concept of sustainability and thus has led to the situation of class action.

Conclusion

Financial Institutions help every individual, company or any other person to meet their needs depending upon their profile. Cash Converters International Limited being well known company has been in the business of franchising since 1984 and is engaged in providing loans and advances to the prospective borrowers. Over the time the practice followed by the company has initiated the sense of gambling among the borrowers and which has ended up with the class action filed against the company. Due to this, the financial position and performance of the company has deteriorated. This has further thrown light on the non incorporation of corporate social responsibility and sustainability. Thus, to conclude every company shall have ethics in all functions of the organization.

Reference

Cash Converters Website, (2016), “Annual Reports” available on https://www.cashconverters.com/Investors/AnnualReports accessed on 11-04-2017.

Knaus C, (2017), “Cash Converters Profits Dive after move to stamp out high – fee pay day loans”, available at https://www.theguardian.com/australia-news/2017/mar/08/cash-converters-profits-dive-after-move-to-stamp-out-high-fee-payday-loans  accessed on 12-04-2017.

Mauris, (2017), “Cash Converters Class Action in Queensland”, available on https://www.mauriceblackburn.com.au/current-class-actions/cash-converters-class-action-in-queensland/  accessed on 12-04-2017.

Chettle N, (2015), “Cash Converters to refund thousands of people for charging up to 633% interest in loans”, available on https://www.abc.net.au/news/2015-06-18/cash-converters-reach-settlement-partial-refund-loans/6556018  accessed on 12-04-2017.

Darus F, (2015), “Ethical and Social Responsibility of Financial Institutions : Influence of Internal and External Pressure”, available on https://www.sciencedirect.com/science/article/pii/S2212567115010990  accessed on 12-04-2017.

Cocris V, (2010), “Corporate Social Responsibility and Sustainability in Romanian Commercial Banks”, available on https://anale.feaa.uaic.ro/anale/resurse/fin4cocris.pdf  accessed on 11-04-2017.

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