country
$20 Bonus + 25% OFF
Securing Higher Grades Costing Your Pocket? Book Your Assignment at The Lowest Price Now!

Principle Of Finance Understanding Of Money

tag 0 Download10 Pages 2,272 Words tag Add in library Click this icon and make it bookmark in your library to refer it later. GOT IT

Question:

Discuss about the Principle of Finance Understanding of Money.
 
 

Answer:

Introduction:

One of the biggest cash lender in Australia was accused of charging higher interest rate and brokerage fees on short-term loans offered to borrowers. They were liable of breaching the responsible lending practice and did not comply with the legislation. Cash converter has transformed their business model in light of changing legislation. The new business model made the borrowers pay high amount of brokerage fees despite the laws of Queensland government of capping interest rate of personal loans at 48%. Such amount included upfront and brokerage fees. Customers Cash converter was alleged of charging extortionate fees and interest rates on the amount of loan provided to its clients.  Customers of Queensland had to appoint broker for in order to access credit cash from lenders of the organizations. In year 2008, lending laws in Queensland changed and the organization contrived to avoid interest cap. This comprised of brokerage fees and the borrowers were required to pay additional interest rate of 35% on total amount of loan borrowed. Charging high amount of brokerage fees was unconscionable.

Lending practice adopted by Cash converter resulted vulnerable people in incurring massive amount of interest and additional fees. This was in contravention with the laws that were designed to lower down the cost of credit. The lending strategy was intended to force the borrowers to borrow repeatedly in light of excessive interest rate and fees. Brokerage fees were the main agenda of the loan proceedings and franchisee were mainly responsible for charging the fees and it was against the service that introduced the customers to their subsidiary. However, it was mentioned by company that brokerage fees charged were not against the legislation. Settlement of class action was done by Federal court and they were required to pay $23 million as principal settlement and this was reached on behalf of 37500 customers.

 

Discussion:

All the charges were recorded in the financial statements of the company but some were omitted and other was not mentioned under appropriate headings. Such incomes were recoded as income generated from advances made from short-term loans in the profit and loss statement. There was no separate mentioning of such income that needs to be shown separately and appear under the heading income generated from services. The higher interest rate along with upfront and brokerage fees charged by Cash converter was accounted in the annual report of company as interest income. There was no mention of brokerage fees in the annual report as there was need to mention about the income from such services. Brokerage fees would have been mentioned as income generated from services of franchise. Financial working of organization has been overstated by mentioning and charging the exorbitant interest rate on short-term advances by 633%.

The company introduced a method where the Cash converter asked its customers to sign a number of documents and this included an early repayment election. Borrowers were asked to pay a high amount of interest rate of 145% on personal loans and 633% on cash loans (Leeks and Luck 2016). Cash converter duped and took advantage of vulnerable customers who could not afford to repay back the loan amount. Therefore, the lending practice of Cash converter is regarded as unethical as borrowers have been deceived by charging interest rate beyond capping limit set out by laws and  deliberately circumvent the laws.

Now, there are two ethical theories that would be used to discuss whether lending practice of the Cash converter is ethical or unethical.  In this context, the two theories to be used are justice ethical theory and deontological theories.

It is stated in the justice ethical principle that in order to incorporate justice ethical practice into the activities of organization, the decision makers should focus on actions that are considered fair for people who are involved in it. Unless it is possible to justify the extenuating circumstances, ethical theory should be consistent with ethical decisions. However, inconsistent decisions needs to be justified (Melden 2013). The lending practice adopted by Cash converter is regarded as unethical because it deliberately duped the customers and took advantage of vulnerable people by making them pay higher or unreasonable interest rate along with brokerage and upfront fees. Cash converter made profits by breaching the legislations and did not employ ethical practice in carrying out its business activities. Hence, lending business practice is considered as unjustifiable and unethical (Oosterveer 2015).

 


It is stated in the deontological class of ethical theories that organizations when engaging in decision-making process should adhere to duties and obligations. According to this theory, upholding duty of an individual is considered as ethically right as it is regarded that an individual would follow his or her obligations to another society or individual. An organization would produce consistent decisions if it adheres to deontological theory as it will be based on set obligations (Ho 2015). According to this particular ethical theory, it is evident that Cash converter did not adhere and complied with established legislation and laws. Organizations are considered responsible under penalty threat if it did not adhere to responsible lending practice. The lending practice of Cash converter was in response to changed legislation that intended to take advantage of vulnerable borrowers. Moreover, organization did not practiced due care and diligence in advancing loan to customers. They did not enquire into the suitability criteria of loans depending upon type of borrowers (Montiel and Delgado 2014). Therefore, it can be concluded that they practiced lending system that was not in financial interest of customers. 

Cash converter experienced regressive business growth after they practiced the lending system of charging higher interest rate. Organization failed to make reasonable enquiries into the expenses and income of customers. This was done mainly in the situation when the small amount of loan was considered unsuitable by credit legislation. An internally generated assumed benchmark was that had no relation with the real expenses of customers was applied by cash converter rather than assessing real expenses recorded in the bank statement of customers. According to circumstances of customers, small amounts of loan are considered unsuitable as they fail to assess the loan for particular customers and it was entered into breach of credit legislation subsequently (Hahn and Kühnen 2013).

In lieu of the class action launched by the federal court against the Cash converter, they have paid the total penalties amounting to $ 1.35 million and this was done following the infringement notices. Cash converter is required to refund of amount $ 10.8 million as fees to eligible consumers. Companies has incurred expenditure of $ 20 million by way of legal and repayment costs that would be capped at $ 3 million. In year 2013, the share price of Cash converter rose by 2.2 percent after the announcement that pay lender can make use of strategies for making profit despite the constraint imposed by legislation of customer protection laws (Banks et al. 2015).

 


In the year 2016, there was an increase in the personal loan book of amount $ 113036461 as compared to the loan book of $ $ 119448669 in the year 2015. Loan advances increased by 34% and the organization has enough provision of cash and the estimated amount was standing at $ 5 million. Increase in the annual interest rate on short-term loan and seven month loan advances. Profit generation in financial year 2014 was recorded at $ 24.2 million as against the loss that resulted post the class action in the year 2015 and the amount stood at $ 21.5 million. The value of personal loan book fell to $ 104.5 million in the year 2015 (Slade 2015). There was a downtrend in the share price of Cash converter post the class action. Share price of organization was trading in range of $ 0.80 to $ 1.88 in the financial year 2014. The share price experienced a jump in the year 2016 as it was trading higher at 7.6% as compared to previous year. The graph below depicts share price of cash converter for a period of five years.


Share price of cash converter for five years

Source: created by author

After the multimillion losses in the previous years, cash converter was able to generate profit due to a boom in online payday lending and due to this, there was a jump in online cash loan advance to 62% in six month and the amount stood at $ 8.2 million. The value of personal loan grew back to 42% and the amount stood at $ 44.6 million. There was a lift in the revenue of the company to $ 8,6 million as compared to $ 1.6 million in the year 2015. For the first half of financial year, cash converter reported a profit of $ 15.9 million compared to a loss generated of amount $ 5.3 million in the financial year 2014 (Cashconverters.com 2017).

Embedding sustainability practices in conducting the business activities is very essential for financial institutions. Sustainability practice and Social responsibility in the financial institutions makes the provision of risk management services and financial capital that would help the organization in contributing to well-being and economic prosperity of the community or their clients. There have been an increase in the social responsibility contribution and sustainable practice in the business activities of financial institution in recent years (Eccles et al. 2014). Financial institution needs to closely identify the possible vulnerabilities for obtaining the social security. Sustainable development and special responsibility intends to determine company for establishing the goals for the long-term development of the society and their on financial interest (Bebbington et al. 2014). Social responsibility is the ethical management. It is required by financial institution to incorporate environmental and social concerns in the interaction with the stakeholders and their business operations. Sustainable development of economy and society helps in creating a crucial and fast growing for financial functioning instruments. Protecting the financial interest of the customers is the responsibility of financial institutions and this should be in aligned with the sustainable and social responsibility (Blewitt 2014).

 


Social responsibility of cash converter is identical to any other financial institutions. The lending practice adopted by Cash converter was not ethical and hence not socially responsible as it deliberately took the advantage of vulnerable class of people without carrying out due diligence in the advances of loan. The business model adopted by company was not in the financial interest of customers as it made them pay exorbitant interest rate and substantially higher amount of brokerage fees on their loan amount. Responsible steps were not taken by the organization to make the verification of the income and expenses of the customers in accordance with the responsible lending obligations. Therefore, Cash converted needs to transform the business model that is in the best interest of their customers and should not force them to buy such financial products that is not suitable for them. Borrowers of loan have been posed to threat as due to charging of higher interest rate above the cap set by legislation. Incorporation of unethical practices would hamper the growth and financial position of the company. Maximization of profits and delivering the value to shareholders should not be at the cost of their customers and it should be done by keeping the customers as their priority. Sustainability practice in financial institution is considered as business opportunity as it considered as the driver of improving the overall performance of the organization (Axelrod et al. 2014).

Conclusion:

Cash converter was alleged by the federal court of Australia of circumventing the legislation that set a limit of interest rate to be charged on loan advances. Due to below standard services to customers and unscrupulous lending practice, the reputation cash converter, as one of the biggest lender in Australia would be damaged. For the hampered community, it is essential for Cash converter to imbibe social responsibility and sustainability practice for economic well-being of society and communities. Addressing the sustainability challenge has become very complex in the current era and therefore, financial institutions needs to make the transformation of business model that helps in addressing them. It is necessary for organization such as Cash Converter to avoid indulging in such lending practice that would hamper and damage its reputation.

 

Reference:

Axelrod, R.S. and VanDeveer, S.D. eds., 2014. The global environment: institutions, law, and policy. CQ Press.

Banks, M., Marston, G., Russell, R. and Karger, H., 2015. ‘In a perfect world it would be great if they didn't exist’: How Australians experience payday loans. International Journal of Social Welfare, 24(1), pp.37-47.

Bebbington, J., Unerman, J. and O'Dwyer, B., 2014. Sustainability accounting and accountability. Routledge.

Blewitt, J., 2014. Understanding sustainable development. Routledge.

Cashconverters.com. (2017). Annual Reports. [online] Available at: https://www.cashconverters.com/Investors/AnnualReports [Accessed 13 Apr. 2017].

Eccles, R.G., Ioannou, I. and Serafeim, G., 2014. The impact of corporate sustainability on organizational processes and performance. Management Science, 60(11), pp.2835-2857.

Hahn, R. and Kühnen, M., 2013. Determinants of sustainability reporting: a review of results, trends, theory, and opportunities in an expanding field of research. Journal of Cleaner Production, 59, pp.5-21.

Ho, D., 2015. Making Ethical Progress without Ethical Theories. AMA journal of ethics, 17(4), p.289.

Leeks, A. and Luck, K., 2016. Queensland set for class actions: Practical issues and implications. Proctor, The, 36(10), p.16.

Loorbach, D. and Wijsman, K., 2013. Business transition management: exploring a new role for business in sustainability transitions. Journal of cleaner production, 45, pp.20-28.

Melden, A.I., 2013. Ethical theories. Read Books Ltd.

Miller, T.R., 2014. Reconstructing sustainability science: Knowledge and action for a sustainable future. Routledge.

Montiel, I. and Delgado-Ceballos, J., 2014. Defining and measuring corporate sustainability: Are we there yet?. Organization & Environment, 27(2), pp.113-139.

Oosterveer, P., 2015. Promoting sustainable palm oil: viewed from a global networks and flows perspective. Journal of Cleaner Production, 107, pp.146-153.

Slade, B., 2015. The social value of class actions. Precedent (Sydney, NSW), (129), p.4.

OR

Cite This Work

To export a reference to this article please select a referencing stye below:

My Assignment Help. (2018). Principle Of Finance Understanding Of Money. Retrieved from https://myassignmenthelp.com/free-samples/principle-of-finance-understanding-of-money.

"Principle Of Finance Understanding Of Money." My Assignment Help, 2018, https://myassignmenthelp.com/free-samples/principle-of-finance-understanding-of-money.

My Assignment Help (2018) Principle Of Finance Understanding Of Money [Online]. Available from: https://myassignmenthelp.com/free-samples/principle-of-finance-understanding-of-money
[Accessed 02 April 2020].

My Assignment Help. 'Principle Of Finance Understanding Of Money' (My Assignment Help, 2018) <https://myassignmenthelp.com/free-samples/principle-of-finance-understanding-of-money> accessed 02 April 2020.

My Assignment Help. Principle Of Finance Understanding Of Money [Internet]. My Assignment Help. 2018 [cited 02 April 2020]. Available from: https://myassignmenthelp.com/free-samples/principle-of-finance-understanding-of-money.


Programming and dealing in codes is not an easy thing to do specially when programming assignments are on complex topics and you are not fluent with the syntaxz, commands and others of the programming language. Get over all your programming woes in C/C++, Java, Python, PHP, SQL and lot more with our programming help. Learn the basics and know how to write codes for any program just by connecting with our programming help. Get ideas and help on how to do programming projects from scratch. Connect with us now.

Latest Finance Samples

ACCM4200 Financial Accounting And Reporting 1

Download : 0 | Pages : 8
  • Course Code: ACCM4200
  • University: Kaplan Business School
  • Country: United States

Answer: Letter From: To: Dear .. Thank you for the discussion that we had on the issues that we had with reporting of accounting standards and accounting policies. To help with the decision-making process we have made the necessary suggestions for the company and all the necessary accounting disclosures with respect to the accounting standards, with respect to each specific issue is provided. All the issues are discussed in detail and...

Read More arrow

BUS302 Entrepreneurship 3

Download : 0 | Pages : 5

Answer: Background To The Idea The core idea behind the concept of starting a home décor business is to provide customer latest fashion home decor and satisfy their needs and expectations by delivering quality and lavish products. Also, there are various home décor business opportunities present in the market that will support our growth and help in attaining commendable success.  The key concept of business is to compete i...

Read More arrow

ACC3003 Financial Accounting For Business Combination

Download : 0 | Pages : 8
  • Course Code: ACC3003
  • University: Australian Institute Of Higher Education
  • Country: Australia

Answer: The Crisis of Fair Value Accounting Following Recent International Financial Crisis Introduction The current financial crisis has resulted in a vigorous debate regarding advantages and disadvantages of the fair value accounting. Such debate indicates an increased challenge for the fair value accounting as a standard setter along with extending it into several areas (Acharya and Ryan 2016). It is observed that there are certain legiti...

Read More arrow

ACC204 Advanced Financial Accounting 2

Download : 0 | Pages : 6
  • Course Code: ACC204
  • University: Elite Education
  • Country: Australia

Answer: Introduction The present report is developed for carrying out an analysis of the financial performance of a company listed on the ASX. This is done by providing a comparison of the financial information of the selected company over the last two years. This is done for providing a comparison of the financial information of the company in their annual reports over the year 2017-2018. This is followed by providing a discussion of the susta...

Read More arrow

HI5002: Finance For Business In Learning Materials

Download : 0 | Pages : 13

Answer: Introduction The reality before speculation basic leadership, every financial specialist has played out a rundown of appraisal by utilizing diverse examination apparatuses. The point of such evaluations was to show whether the venture choice in the organization picked will be productive or not (Beatty and Liao 2014). This investigation was performed with considering Abacus Property Group (ABP), an Australian Stock Exchange recorded as...

Read More arrow
Next
watch

Save Time & improve Grades

Just share your requirements and get customized solutions on time.

question
We will use e-mail only for:

arrow Communication regarding your orders

arrow To send you invoices, and other billing info

arrow To provide you with information of offers and other benefits

1,240,264

Orders

4.9/5

Overall Rating

5,067

Experts

Our Amazing Features

delivery

On Time Delivery

Our writers make sure that all orders are submitted, prior to the deadline.

work

Plagiarism Free Work

Using reliable plagiarism detection software, Turnitin.com.We only provide customized 100 percent original papers.

time

24 X 7 Live Help

Feel free to contact our assignment writing services any time via phone, email or live chat.

subject

Services For All Subjects

Our writers can provide you professional writing assistance on any subject at any level.

price

Best Price Guarantee

Our best price guarantee ensures that the features we offer cannot be matched by any of the competitors.

Our Experts

Assignment writing guide
student rating student rating student rating student rating student rating 5/5

230 Order Completed

97% Response Time

Liya Han

Master Of Science in Geotechnical Engineering (MSc Geotec)

Singapore, Singapore

Hire Me
Assignment writing guide
student rating student rating student rating student rating student rating 5/5

2115 Order Completed

97% Response Time

Kimberley Chen

MPA in Accounting

Singapore, Singapore

Hire Me
Assignment writing guide
student rating student rating student rating student rating student rating 5/5

2830 Order Completed

97% Response Time

Leroy Bicknell

MBA in Marketing

London, United Kingdom

Hire Me
Assignment writing guide
student rating student rating student rating student rating student rating 5/5

265 Order Completed

97% Response Time

Ken Campbell

MSc in Electrical Engineering

Wellington, New Zealand

Hire Me

FREE Tools

plagiarism

Plagiarism Checker

Get all your documents checked for plagiarism or duplicacy with us.

essay

Essay Typer

Get different kinds of essays typed in minutes with clicks.

edit

GPA Calculator

Calculate your semester grades and cumulative GPa with our GPA Calculator.

referencing

Chemical Equation Balancer

Balance any chemical equation in minutes just by entering the formula.

calculator

Word Counter & Page Calculator

Calculate the number of words and number of pages of all your academic documents.

Refer Just 5 Friends to Earn More than $2000

Check your estimated earning as per your ability

1

1

1

Your Approx Earning

Live Review

Our Mission Client Satisfaction

expert working good with ratio analysis i got full marks for ratio but overall good presentation.

flag

User Id: 207116 - 02 Apr 2020

Australia

student rating student rating student rating student rating student rating

excellent work by tutor and quality of good work excellent work by tutor and quality of good work excellent work by tutor and quality of good work excellent work by tutor and quality of good work excellent work by tutor and quality of good work

flag

User Id: 264013 - 02 Apr 2020

Australia

student rating student rating student rating student rating student rating

Brilliant work, paid attention to every details, And submitted on time for review.

flag

User Id: 338016 - 02 Apr 2020

Australia

student rating student rating student rating student rating student rating

The report was exceptional. Thank you for helping me with this assignment, and I am very satisfied with the result. The content was exceptional and my grade was exactly what I needed, the writer was very on point and finished my report in a timely ma...

flag

User Id: 262907 - 02 Apr 2020

Australia

student rating student rating student rating student rating student rating
callback request mobile
Have any Query?