Cash Connection Case

In: Business and Management

Submitted By dwdavid618
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Cash Connection: Are its Payday Lender Strategy and its Business Model Ethical?
Situation:
In 1986, Allen Franks, President of Cash Connection, opened his first check-cashing store in Shreveport, Louisiana. Not only did Cash Connection provide check cashing and payday advances, they also offered prepaid phone cards, bill payment services, and money orders—serving as Western Union agents to transfer funds for customers. In the early 1990s, payday advance services grew as a result of a strong customer demand and varying circumstances in the financial services marketplace. Recently, the payday loan industry is in a position of stagnation. Due to rapid growth early in its industry product life cycle and an increasingly regulating and rule-laden environment due to stricter government regulations, the industry’s growth has rapidly slowed and is in somewhat of a decline.

Complication:
The driving forces currently impacting the industry are the prevalence of laws regulating the lending industry, auditing processes to demonstrate compliance and limitations on the number of rollovers allowed and interest rate caps. The federal government has implemented the Truth in Lending Act (APR disclosure), Fair Debt Collection Practices Act (non-aggressive collection methods), The Federal Deposit Insurance Act (ability to charge nationwide interest rates of home state) and the Gramm-Leach-Bliley Act (privacy concerns) to address concern by consumer groups, not necessarily the consumers themselves (Gamble, 2011). Enforcing additional caps and restrictions will limit the fees that companies like Cash Connection can charge and will reduce the profits in the industry as a whole as the revenue stream continues to be squeezed. The rate ceiling, contrary to its intended purpose, prevents these low-income borrowers from establishing or re-establishing credit and restricts the availability…...

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