Ethics@Work: Bank lenders and drug dealers

Credit has the potential for long-term and poorly foreseen consequences for consumers.

By ASHER MEIR
Last week, I wrote about recent resources provided by lenders to help borrowers manage their finances and stay out of trouble. The generous explanation was that this is a service to the consumer.
When you buy a camera, the salesperson explains how to use it properly; when you take out a loan, the bank explains how to use that properly, too.
The less generous explanation is that it is a kind of disclaimer to deflect responsibility.
Some medicines recommend a dosage way below what most people find useful; if you have a problem, they can say, “We told you so.” Similarly, the bank recommends lending practices that many households ignore, but if they are accused of predatory lending, they can say they informed borrowers of the hazards.
Do lenders urge customers to take more credit than is in their interest? If so, is this practice any different, or any more blameworthy, than other merchants who try to encourage consumers to buy their product, or use easy credit as an inducement to encourage sales? I recently spoke to a former bank manager who thinks so. He says bank managers today are like drug dealers, making their living by encouraging compulsive and excessive borrowing.
But others could claim that banks are doing more than ever to encourage responsible borrowing.
I would adopt an approach to this question that is both ethical and economic.
First, I would acknowledge that salesmanship has a role in improving welfare. Sometimes people need to be educated as to how a new product can really help them.
The great advertising pioneer Bruce Barton wrote in the 1920s: “Elias Howe invented the sewing machine, but it nearly rusted away before American women could be persuaded to use it. With their sewing finished so quickly, what would they ever do with their spare time? Howe had vision, and had made his vision come true, but he could not sell!” However, I would equally acknowledge that sellers have their interests first in mind, and they often can lead consumers to do things that are against their best interest.
What distinguishes education from hucksterism? I think it is the ability of the consumer to rationally evaluate the seller’s message.
With the right information, the average 19th-century housewife was wellequipped to decide how much time a sewing machine would save her and to evaluate whether it was worth the cost.
By contrast, much research suggests that teenagers are not well-equipped to rationally evaluate the lifetime cost of developing a smoking habit, or of getting a tattoo, so here it is appropriate to impose greater education obligations on the sellers.
What about credit? The costs of a loan can be unforeseen and extend over a long period of time – less perhaps than that of a tobacco habit or a tattoo, but longer than for a sewing machine. So the ability of the consumer to evaluate its potential negative impact will be less than for that of many other “products.”
In my opinion, that justifies a greater ethical, and perhaps legal, burden on lenders to educate their customers than that placed on the direct sellers of consumer products.
Lenders are not comparable to drug dealers; they sell a useful product that can be used judiciously to increase living standards. But the product they are selling, credit, does have the potential for long-term and poorly foreseen consequences for consumers. This puts an extra burden on lenders to ensure that the borrower is a truly educated and well-informed.
ethics-at-work@besr.org Asher Meir is research director at the Business Ethics Center of Jerusalem, an independent institute in the Jerusalem College of Technology (Machon Lev).