Predatory Business Practices: Examples and Debtor Responsibility
This paper examines predatory business practices in the modern commercial environment through three concrete case studies: Walmart's 1993 predatory pricing trial in Arkansas, the role of subprime mortgage securitization in the 2007 financial crisis, and Wells Fargo's controversial lending and foreclosure practices. The paper then analyzes the concept of debtor and borrower responsibility in predatory lending situations, drawing on the Bankruptcy Code, creditor opportunism theory, and U.S. Department of Housing and Urban Development definitions of predatory loans. The analysis considers when borrowers may bear greater responsibility and when systemic lender misconduct shifts culpability away from debtors.
- Introduction to Predatory Business Practices: Overview of predatory practices in today's business environment
- Specific Examples of Predatory Practices by Businesses: Walmart's 1993 predatory pricing trial in Arkansas
- The 2007 Mortgage Crisis and Subprime Lending: Subprime securitization and liar loans fuel financial crisis
- Wells Fargo and Predatory Lending Controversies: Protests and allegations against Wells Fargo lending practices
- Debtor and Borrower Responsibility: Legal frameworks for assigning debtor culpability
- Conclusion: Predatory loan characteristics and conditional debtor liability
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What makes this paper effective
- Grounds abstract concepts in concrete, real-world case studies (Walmart pricing, the 2007 subprime crisis, Wells Fargo lending) that give readers immediate context.
- Balances multiple stakeholder perspectives — including corporate spokespeople, social activists, and legal theorists — without collapsing into a one-sided argument.
- Introduces and applies a formal legal framework (the Bankruptcy Code and Fischel's definition of opportunism) to evaluate debtor responsibility, adding analytical depth beyond mere description.
Key academic technique demonstrated
The paper demonstrates case-based reasoning: it uses specific historical and legal cases to illustrate broader definitional claims about predatory practices. This technique allows the writer to move inductively from concrete examples toward a more general evaluative conclusion about responsibility, which is characteristic of applied business ethics and law writing at the undergraduate level.
Structure breakdown
The paper opens with a brief framing of predatory business practices, then devotes three paragraphs to distinct examples — retail pricing, the mortgage securitization crisis, and bank lending abuses. It then pivots to a normative question: who bears responsibility? This section draws on legal theory and HUD definitions to argue that culpability depends on the specific circumstances of each case. The paper closes with a summary of predatory loan characteristics and a conditional conclusion about debtor liability.
Introduction to Predatory Business Practices
This paper examines predatory business practices seen in today's commercial environment through a series of concrete historical examples. It also analyzes whether the borrower or debtor ought to bear any responsibility in such instances.
Specific Examples of Predatory Practices by Businesses
In 1993, Walmart was accused of predatory pricing practices involving items such as mouthwashes, toothpastes, and nonprescription medicines, and was tried by an Arkansas court. Three independent drugstores filed a lawsuit alleging that the largest retailer in the nation sold items below cost in order to steal 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 claimed that the retailer violated the Unfair Practices Act of the Arkansas Code, which prohibits selling goods below cost in order to injure and destroy competitors. The complainants sought $1.1 million in damages. Walmart did, at trial, admit to selling certain goods at below-cost prices, but argued that this policy did not injure its Conway competitors. The then-president and CEO of Walmart, David Glass, testified before the jury that the ideal situation would be making a profit on every single item, but that this is not practically possible, which is why they adopted the pricing strategy they did.
The 2007 Mortgage Crisis and Subprime Lending
In 2007, abuses linked to 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 the spread of the crisis's effects to European banks and other institutional investors. Securitization's emphasis on origination volume over quality — since securitization structures can buffer against and account for historically anticipated default levels — helped enable reckless lending standards (Matthews, 2009). The drive toward origination volume lowered obligatory borrower credit score requirements, elevated loan-to-value ratios, eased income documentation prerequisites, and prompted innovations such as piggyback loans (in which a second-lien mortgage covers the borrower's down payment) and loans with terms of 30 years or more. Considerably reduced documentation requirements likely led to fraudulent loan applications. These loans, in fact, became popularly known as "liar loans." Around the same time, some states saw piggyback loans attached to approximately 50% of subprime first-lien mortgages.
Wells Fargo and Predatory Lending Controversies
Although banking giant Wells Fargo & Company has expanded its reach and holds annual meetings outside its San Francisco headquarters, it has continued to attract protests and controversy wherever it goes. At last year's annual meeting, held in San Antonio, the bank still faced sharp questions regarding its lending practices. A protest comprising approximately 40 individuals outside a nearby branch of the bank featured placards reading "End Predatory Lending" and "Stop Foreclosures" (Danner, 2014). Texas Organizing Project social worker Lauren Rodriguez, who was among the protesters, stated that their demand was accountability from the bank. They called on the bank to end its "predatory lending, private prison investments and cruel foreclosure practices."
Josh Zinner, co-director of the New Economy Project — one of the nonprofit organizations that filed a stockholder proposal — claimed that struggling homeowners still face problems such as never-ending delays, lost paperwork, and unfair loan modification denials with the banking giant. He asserted that such problems are particularly prevalent in Black communities, hinting at discrimination by the bank on the basis of color and race. However, Wells Fargo spokesperson Ancel Martinez strongly disagreed, stating that the bank had worked hard in recent years to ensure that homeowners are not turned out of their homes. He maintained that the bank aims to see those communities thrive and to be integral to meeting the financial needs of people. Wells Fargo disagreed with the aforementioned stockholder proposal, which was ultimately defeated with 83% of votes against it (Danner, 2014).
Conclusion
Predatory lenders offer false promises of easy payment, debt consolidation, and swift, hassle-free approvals; they target unsophisticated consumers, concentrating particularly on those who hold a large amount of home equity (Predatory Lending: Wisconsin — HUD). Predatory lenders often wrap existing borrower loans into debt consolidation mortgages, endangering the borrower's home and equity. In such cases, debtors do bear a degree of responsibility for engaging with these products. However, as the examples of the 2007 mortgage crisis and Wells Fargo's lending practices demonstrate, systemic institutional misconduct can shift culpability substantially toward lenders, making debtor responsibility a question that must be evaluated case by case.
References
Danner, P. (2014, April 29). Wells Fargo blasted for 'predatory lending.' SFGate. Retrieved September 2, 2015, from http://www.sfgate.com/business/article/Wells-Fargo-blasted-for-predatory-lending-5440048.php
Lipson, J. (2010). Controlling creditor opportunism. Legal Studies Research Paper Series. Retrieved from http://www.academia.edu/14147191/Controlling_Creditor_Opportunism
Matthews, D. (2009). Ruined in a conventional way: Responses to credit ratings' role in credit crises. The Northwestern Journal of International Law & Business, 29(1), 245–274.
Multimedia. (1993, August 24). Wal-Mart on trial on 'predatory pricing' charges. The New York Times. Retrieved September 1, 2015, from http://www.nytimes.com/1993/08/24/business/wal-mart-on-trial-on-predatory-pricing-charges.html
Predatory lending: Wisconsin. U.S. Department of Housing and Urban Development. Retrieved September 2, 2015, from
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