Subprime Loans: Social Responsibility and Current Measures Taken

     What organizations that participate in such unscrupulous acts don’t understand is that when you bring down the value of your customer, you also bring down the value of your overall image and product. According to Cohen (2009), social responsibility is when “every organization must assume full responsibility for its impact on employees, the environment, customers, and whomever and whatever it touches”. If that is the case, then subprime lenders must acknowledge how ruthless and unethical their practices are to the community. How many times have you purchased something based off of the amount of ratings or likes it had?

     If you have a bunch of people calling your company a scam, do you really think more people would be willing to do business with you, even if you have money to lend? A prime example of this would be Synchrony Bank (formerly known as GE Capital). Synchrony Bank just finished losing a class action lawsuit about racial discrimination. They were found to be systematically denying people lines of credit based off their names, pictures (via social media), how they sounded over the phone, forms of identification to seek credit (IDs), and by even the neighborhoods that they lived in.

     Synchrony Bank was also found to be randomly reversing the credit extended to melanated people, even when they had no balances owed, and when nothing warranted the closing of the account to begin with. The reputation of GE Capital was so tarnished to where they had to change their name to Synchrony Bank, back in 2014. Lenders hold a social responsibility to uplift the community, and not hinder it, by closing accounts, allowing for inquires to build up on your credit report after illegally denying you, and intentionally ruining your credit.

     The results of failing to be socially responsible are that many people within the community suffer. According to consumerfinance.gov (2014), “over 750,000 consumers were harmed by illegal, deceptive and discriminatory credit card practices behind GE Capital“. The consequences of failing to be socially responsible, for GE Capital, is that they were ordered by the Consumer Financial Protection Bureau (CFPB) to pay $225 million in relief to consumers harmed by their disgusting practices. Measures that have been taken to ensure that this doesn’t happen again, is on CFPB’s end. They made it their business to educate consumers on how to report these issues; so sickening acts (like with GE Capital/Synchrony Bank) don’t continue to go on for as long as they did. But, Synchrony Bank is not the only company participating in reckless, unscrupulous, and greedy subprime lending acts. According to Thiel, Bagdasarov, Harkrider, Johnson, and Mumford (2012), "Corporate and financial misconduct amidst the recent world financial crises, such as the predatory subprime lending practices of Ameriquest, Goldman Sachs, and IndyMac Bank, have left few wondering whether ethics in leadership should be of greater focus moving forward (Muolo and Padilla 2010; Paletta and Enrich 2008)". If corporate businesses started seeing being morally and ethically correct as a trend, social responsibility would actually be successful within this society.

Subprime Loans: Leadership Decision-Making

     Leaders have the ability to put their foot down and determine whether or not they will give borrowers a hard time. According to Joseph Gilbert (2011), “An organization does not make decisions; its function is to provide a framework, based upon established criteria, within which decisions can be fashioned in an orderly manner. Individuals make the decisions and take responsibility for them.” These words were written over 40 years ago by Alfred Sloan, the legendary chief executive officer of General Motors. If we think about their meaning, we can take the first step toward establishing who is to blame for the subprime lending mess. Mortgage loans are made by an institution, not by an individual. However, the authority to decide whether or not to make a loan is vested not in the institution as a whole but in a credit or loan officer or committee”. Leadership skills come from the top, and trickle on down to the bottom.

     If leaders took the initiative, and started lowering interest rates, and slowly extending larger amounts of credits to borrowers who have bad credit, the subprime loan industry will decrease. In addition to the subprime loan industry decreasing, other major lenders would potentially follow in suit. Just as an example, Fingerhut.com is worth over 1.7 billion dollars. Its estimated website traffic alone is worth $534,820. Back in 2002, the owner of Fingerhut.com was on the brinks of going bankrupt. He was thinking about either closing or selling the company. Then, Fingerhut.com improved its website, and started extending lines of credit to people who had imperfect credit. They started out giving the people very small lines of credit… anywhere from $50 to $150 dollars.

     Every time the borrower paid off their balance, the line of credit increased. According to Watkins (2011), “The Goldman Rule rests on the assumption that increases in profitable opportunities increase the opportunity cost of ethical behavior. Ethical behavior refers to self-imposed actions to avoid taking advantage of others that result in lower profits. The Goldman Rule suggests that financial institutions are less likely to engage in ethical behavior where the opportunity cost of such behavior is high”. It’s apparent that Fingerhut.com decided to follow the practices of the Goldman Rule. Not only did this built a relationship with Fingerhut and its borrowers, but it also improved and strengthened the credit score of the borrowers. And, yes, Fingerhut.com did have higher interest rates for people they extended lines of credit too. But, the interest did not start to occur until the borrower ran late on their minimum payment being owed. It’s this type of initiative that shows not everyone is out to make money. Leaders have the ability to make decisions that help to improve the subprime loan crisis, just as the owner of Fingerhut.com did. And, it truly is the leaders decision on whether or not they participate in ethically assisting a borrower in both taking out a line of credit, improving their credit score, and paying back said loan.

Subprime Loans: What Are They?

     Subprime loans are the types of loans, lines of credit, and mortgages that are extended to those with imperfect and poor credit. Subprime lending is usually for those who have issues with meeting the repayment schedule. People with medical emergencies, unemployment, and divorce are usually good candidates for subprime loans. Subprime lending is also known for having higher interest rates, and can be considered a risk for both the lender and the borrower. According to Investopedia (2015), “A large amount of risk is associated with subprime mortgages. Since the mortgages are specifically for people who do not fit the requirements for a prime mortgage (which usually means the borrower will have a difficult time paying it back), the organization or bank lending the money has the right to charge high interest rates to provide an added incentive for the borrower to pay on time”. Subprime loans are usually for those with credit ratings below 600. The candidates for subprime loans are placed in a higher position to default on what they have received, because they had a poor history of being able to make repayments in the first place. They also had higher interest rates to pay, which just means that there’s more being added to the loan. People with poor credit rarely have the opportunity to be approved for traditional home mortgages and conventional loans.

     Take a look at this video that explains the difference between prime and subprime loans. Courtesy of Brian O'Connor, personal finance columnist for The Detroit News: See Here

      Now that we understand some of the risks of subprime loans for borrowers, lets go over some of the risks of subprime loans for lenders. A very large risk for lenders, who participate in providing credit to borrowers, is the risk of the borrower defaulting on the loan. Lenders already seem to have an idea of what a potentially high-risk borrower looks like. According to Neil Librock (2015), “Credit scores predict the statistical odds of that a customer will default. The median consumer FICO score of about 720 has a projected default risk of about 6%, while a "superprime" 780 score has a less than 1% default rate and a subprime 640 score has a 15% default rate, according to data from a 2012 study by the Consumer Financial Protection Bureau”. But, lenders always have the ability to write-off their losses, and also sell them to debt collectors.

Change of Plans

     Plans change. As competent adults, we know this. I had plans to earn my masters degree, and then go on to gain my doctorates shortly after. I had plans to become a licensed real estate broker, turned lawyer, turned Supreme Court Justice, and have had to make a few changes.

     I have had some minor setbacks, and feel like these setbacks have only given me the ability to see the bigger picture. My career plan has been clearer than ever before.  Although, my plans have changed, they are now in the proper order. This month, I would have completed my journey in obtaining my masters degree in business. I’ve even had to take a break in managing my startup companies. My next three plans, and details on achieving them, are as follows:

     Work: Before I go on to tackle anything else, I want to get a job that pays more than my current one. During the tax season, I was making over $18 an hour, before bonuses and incentives. That job was seasonal, and still was not enough for my monthly expenses. I feel like I’ll be able to find a better paying job, after this month. My bills currently exceed my pay grade.

     Gain Real Estate Salesperson License: I already paid for the training courses, in order to grain my certification. But, I have not been able to attend the classes. I have to let the school know when I can start the class, and once I do, I won’t be able to change the date. So, I would rather do that after this month. After doing so, I would then have my bachelors, masters, and real estate license under my belt.

     Improve Credit Score: Getting my car affected my credit score, more than anything. It was a complete nightmare. I’ll have to wait for all the dealership inquires to fall off, and then I’ll have to work on strengthening my credit score, as a whole. A person can do so much with a strong credit score.

     The above plans are ones that I will be working on and completing in the near future. The below plans might take a few months to years, in order to complete them:

1. Apply for Better Paying Job 
2. Move
3. Enroll in School to Gain My Doctorates Degree
4. Enroll in Law School
5. Become Real Estate and Entertainment Attorney
6. Become Supreme Court Justice
7. Retire

     If I ever needed assistance in funding any of my business ventures, I would either go with EDA or OFN.

     The U.S. Economic Development Administration (E.D.A.) provides technical assistance in locally planning communicative and regional development programs. They also provide federal funding, in grants, for economic development in both rural and urban areas. Some requirements are that the applicant be either a private institution of higher education, or that they be a city, township, state, or county government.

     The Opportunity Finance Network (O.F.N.) provides windows and contacts through small business financers. They also offer alternative credit, federal credit union loans, business loans, and community lending. Anyone is welcome to become a member of OFN. It is their lists of contact’s that have their own requirements and qualifications.

     Some advantages of alternative financing would include the fact that it is easier to get approved. There are also repayments terms that are longer and more flexible. The disadvantages of alternative financing are that they would include less laws and regulations. The lenders can pretty much do as they please, and can make up their rules as they see fit. The borrower has less protection. 

Beware of Racism within the Entertainment Business Industry

It’s hard to imagine racism being alive in America in this day and age; especially when you see so many faces of color. You see people of color within the media, Hollywood, on TV, and even in office. But, with all the attacks, systematic discrimination, setbacks, and the downfall of the Sigma Alpha Epsilon (SAE) fraternity, it is hard to ignore the fact that racism is very much so alive.

As a south Floridian, I have had a firsthand experience of racism. I decided, a long time ago, that the entertainment industry would be the safest place for a person of color to work. I say this because over the years, I noticed more and more that transgenders, homosexuals, and non-Caucasians were being accepted within the industry… or, at least I thought. The Los Angeles Times (2012) quickly set my presumptions straight, explaining that Oscar voters are still predominately Caucasian (94%).

Have you ever qualified for a job, had all the credentials, educational level, and skills in order to properly do the job, walked into the interview, and never received a courtesy call afterwards? I have.

BuzzFeed.com Reveals Hollywood Facts That Will Make You Cringe: 

After receiving my bachelors and having two years of experience within the management industry, I decided to apply for a higher paying job elsewhere. I received a call that week and was asked if I could do a phone interview. I completed the phone interview and was called back to come in. I was asked to dress casually, and told that the spot needed to be filled quickly.

I arrived 30 minutes early. I reviewed all of the subjects they told me would be mentioned. I met with the store manager who spent less than 15 minutes interviewing me. The last question she asked me was when I could start. She even told me that she only had one more person to interview and that she would call me later on in the week to discuss the next steps. To make a long story short, I never received a call.

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I factored out everything I could have possibly done incorrectly. There was absolutely nothing I could think of to throw off my chances of employment. And, that’s when it hit me… it wasn’t me that caused my own demise; it was the color of my skin.

This was not the first time a situation like the above happened, and I am sure it will not be the last. According to a 2011 BET movie consumption study, “81% of the movies seen by black Americans do not feature a black-American cast, storyline, or even a lead black star”. What does that tell you? It is time non-Caucasian entrepreneurs start building corporately successful businesses.

Do You Suspect You're Being Discriminated Against? Seek Help:

• Know your rights.
• File a civil rights complaint.
• Ask a lawyer.

BPW1: Experts Views on the Value of Business Plans

Business Planning Expert: Tim Berry

Tim Berry is an entrepreneur, published business author, and a professional business planner. He also happens to be the founder of Palo Alto Software. The website for his company is called Bplans.com. According to Tim Berry, the key components that investors are looking for in a business plan include the following:

1. Executive Summary: Would be considered your company’s first impression.
2. Products and Services: Explains what you’re trying to achieve and technologies you’re using to do so 
3. Target Market: Lets your investors know whom you are selling to, and how you are solving their problems.
4. Management Team: Includes team biographies, and would be what is most needed for those seeking investments.
5. Financial Plan: Releases information on how much money you are spending and how much you are bringing in.

I will consider including the target market section in my business plan. The reason why is because I want to make sure it is known that my company is not just targeted for a certain type of stereotypical person. I want it to be known that any and everyone can take advantage of my products and services.

Expert Business Planning Consultant: Akira Hirai

Akira Hirai also happens to have experience in entrepreneurship. He has a combined 20 years of experience in management, business planning, financial analysis, software engineering, operations, and decision analysis. He is the CEO and founder of Cyenne Consulting, LLC. The website for his company is called Caycon.com. According to Akira Hirai, the key components that investors are looking for in a business plan include the following:

1. Pick one business model: In order to focus on making your plan appealing to a specific possible audience.
2. Keep the investor interested, beginning with the executive summary.
3. Promises: Don’t make big ones unless you are confident you can keep them. Don’t be too optimistic when it comes to measuring the size of the market.
4. Refrain from being repetitive: We should avoid repeating catchphrases and ourselves.
5. Acknowledging competition: Make sure that all information isn’t a carbon copy of another person’s business plan and works.

I will consider including the acknowledging competition section in my business plan. The reason why is because I want to ensure that I am able to be different from my competitor. I don’t want to make it look like I am trying to copy anyone. 

Success within the Business Industry

Whenever people ask me what my major is, I tell them that its in business. I can't count how many times someone has questioned, belittled, and just ridiculed my major. People tend to think that a business major is worthless or too broad of a subject to grasp. I've had people tell me that the major is worthless, or that it is the second to last major that wont get me anywhere in life… they’ve called an Art major the worst one to have. CBS News has even listed 8 reasons as to why you should not get a business degree. 

But, that simply is not true. I have learned so much as a business major. I have learned how to successfully manage my own finances, how to pitch a business idea, how to create a presentation, and way more than what I'd be able to list right now. I have so much that I want to do in life, and this major has helped in every single one of my desires. 

My desires are to become: 

• Real Estate Broker 
• Lawyer
• Judge 
• Supreme Court Justice

This year, I am now in enrolled to become a real estate agent. Becoming a real estate agent will put me on the right path in order to become a real estate broker. I have to take the GMAT in order to get enrolled for my Doctorates in real estate. I also have to take the LSAT in order to go to law school. Fortune.com even called business school a waste of time. But, this is something that I would still want to pursue. 

Dean Amy Hillman explains the importance of business education:

After completing that, I am going to become a Real Estate attorney. I will only have 2 other desires that I need to fulfill and then everything will be crossed off my list, in the name of Jesus. This is why I can’t agree with anyone when they tell me that my major is worthless. By the grace of God, I have accomplished so much in such a small amount of time. My journey does not stop here.  

Learn more about my business plan here.

Read about my chosen career field here.