Predatory Mechanisms of Business

¶ … predatory business practices seen in today's business environment. It will also analyze whether the borrower or debtor ought to bear any responsibility, in such instances.

Specific Examples of Predatory Practices by Businesses

In 1993, Wal-Mart was accused of predatory pricing practices, in items like mouthwashes, toothpastes and nonprescription medicines, and tried by an Arkansas court; three independent drugstores filed a lawsuit that the largest retailer in the nation sold items below their cost for stealing rival stores' market share. The retail pharmacies situated in Conway asserted that the retail giant's Conway superstore caused their businesses to suffer (Multimedia, 2015). They claim that the retailer violated the Unfair Practices Act of the Arkansas Code, which prohibits selling of goods below cost to injure and destroy competitors. The complainants asked for 1.1 million dollars in damages. Wal-Mart did, at court, admit to selling certain goods at below- cost prices, but argued that this policy didn't injure its Conway competitors. The then- president and CEO of Wal-Mart, David Glass testified before the jury that the ideal situation would be making profits on every single item, but that isn't practically possible, which is why they did what they did.

In the year 2007, abuses linked with the American mortgage industry triggered a financial crisis, leading U.S. and EU regulators to review credit rating services. Asset- backed securities (ABS) bearing agency ratings facilitated spreading of crisis effects to European banks and other institutional investors. Securitization's goal supported volume of origination over quality, as securitization structures can buffer against and account for historically- anticipated default levels (Matthews, 2009). The effort towards origination volume lowered obligatory borrower credit score conditions, elevated loan-to-value ratios, eased income documentation prerequisites, and prompted innovations like piggy- back loans (second- lien mortgage covers down payment of borrower) and loans having 30+ year terms. Considerably decreased documentation requirements probably led to deceitful loan applications. These loans, in fact, became popular as "liar loans." Recently, some states have attached piggyback loans to around 50% of subprime first- lien mortgages.

Though banking giant, Wells Fargo & Company has expanded its reach and holds annual meets outside headquarters (San Francisco), it still attracts protests and controversy wherever it goes. In last year's annual meeting held at San Antonio, the bank still had to deal with sharp questions regarding its loaning practices. A protest comprising of around 40 individuals outside a branch of the bank, only a little distance away, held placards that said "End Predatory Lending" and "Stop Foreclosures" (Danner, 2014). Social worker from Texas Organizing Project, Lauren Rodriguez who was among the protesters, stated that their demand was accountability from the bank. They demanded that the bank end its "predatory lending, private prison investments and cruel foreclosure practices." New Economy Project's co- director, Josh Zinner claimed that struggling homeowners still face problems, such as never- ending delays, lost paperwork and unfair loan modification denials, with the banking giant (New Economy Project was among the non-profit organizations filing stockholder proposal). He asserts that such problems are particularly seen in Black communities, hinting at discrimination by the bank on basis of color and race. However, spokesperson for Wells Fargo, Ancel Martinez strongly disagrees, stating that the bank has strived in the last few years towards ensuring that homeowners don't get turned out of their homes. He maintains that the bank aims at seeing those communities thrive and being integral to solving the financial needs of people. Wells Fargo disagreed with the aforementioned stockholder proposal - it was defeated soundly with 83% votes against the proposal (Danner, 2014).

Debtor or Borrower Responsibility

Whether the debtor/borrower must bear any responsibility is dependent upon the case. For instance, in case of credit opportunism, distress problems rarely entail just two parties. Distress poses classic collective-action challenges; the Bankruptcy Code can be considered as a means to channeling group activity acceptably. However, before bankruptcy, during greatest likelihood of creditor opportunism, Bankruptcy Code has minimal power (Lipson, 2010). Therefore, opportunism as defined by Fischel should be expanded for reflecting distress's multilateral nature: 1. Unscrupulous investors will influence or control a distressed company and its restructuring; 2. This control will be utilized by them for obtaining a more profitable deal compared to that provided by the contract, implied or express; and 3. Consequently, the debtor and other stakeholders get materially harmed. Therefore, in such a case, it appears that the debtor or borrower may have to bear a greater burden because of the investor's actions.