Funds are required by everyone whether he is an individual or any organization. Funds are the basic requirement through which everyone needs be met out. In order to have funds, the needy person will either approach his or her family members or will approach the banking companies or non banking financial companies. These banking and non banking financial companies are covered under the broad head of Financial Institutions. Through this report the practice followed by the company – Cash Converters has been discussed in detail. The report has described the functioning of the company and the circumstances which has led the customers of the company to file suit against the company in group as class action. Then it has been detailed whether the practice that has been followed by company is ethical or unethical. Its impact on financial matters of the company has been analyzed through the annual report of the company. Thereafter the social responsibility and company sustainability has been discussed and the report has ended up with the proper conclusion. To have deeper understanding the study has been divided into different parts.
Class Action Analysis
Class Action is a term which signifies that the action taken by the particular group of persons or the particular group of people against someone who has caused harm to the group. In the given case study, the class of people has referred to the persons living in Queensland (Mauris, 2017). They all pertains to the lower income group who strives for their best living by sacrificing any part of luxury living. In this scenario, they have come to the renowned company – Cash Converters International Limited. The company is an Australian based company formed in 1984 and having experience in the franchising sector. Its main model is to have number of franchises and main business is of advancing the amount to the prospective borrowers in cash (Cash Converters Official Website, 2016). Therefore, in the need of having cash, the borrowers start coming to company gate.
Reasons for Class Action – Company has been in the business of providing loans since its incorporation. They have major three criteria for advancing loan to any borrower. First is that the borrower should have Australian resident card. Second the borrower shall provide the bank statement and the third is that the borrower shall provide the income statement. Even then the company appraises the documents and makes the repayment schedule that shall not exceed the twenty percent of the monthly or fortnightly or weekly income depending upon the income pay period of the respective borrowers. Once the loan is granted then repayment schedule is given which includes the twenty percent of establishment fees which is deducted and the net is paid. The repayment schedule is prepared for maximum twelve months. By having the needs satisfied and in order to repay the loan amount, the borrowers start approaching more funds and thereby the loan amount is accumulated excluding interest which is standing as separate liability(Cash Converters Official Website, 2016). In this manner, the borrowers have engaged themselves in the practice of having money without any hurdles. Further the interest that has been charged by the company has accumulated to six hundred and thirty three percent (Knaus, 2017). The company has violated the regulatory framework and crossed the limit of forty eight percent cap being governed by the country. This is the form of debt trapping which has been practiced by the company to have more and more profits at the cost of the borrowers who are the major stakeholders of the company. By having the higher amount of principal of loans and interest separately, the affected lower income group has taken the action against the company. Thus, these circumstances have led to the filing of class action against the company (Stolz, 2016).
Practice – Ethical or Unethical – Ethics is directly conferred with the term of conduct. Conduct refers to the deployment of the individual. Thus ethics is defined as the code of conduct followed by an individual or an organization that directs and controls the behavior or deployment of the individual or organization towards the accomplishment of the common goals of an organization. The practice followed by the company is totally unethical. They have not only started avoiding the large cap of 48 percent but also have got all the documents signed including the forged documents which have led the borrowers under the big trap of debt. This practice has been noticed in the year 2013 and the same has been followed by the company since 2009 (Cash Converters Official Website, 2016). As per the Deontological theory of ethics, some acts are in itself counts as good. But in the given case the borrowers have thought this, but after having the results they came to know that the ethics have never been followed by the company. Thus, the company’s practice of extending credit to borrowers in cash is totally unethical.
How Practice Affected Financially
The functioning of company itself determines its effect on the financial position and performance of the company. If the company functions properly then it will have positive impact on the financial performance, financial position and goodwill of the company otherwise the company will have negative impact. This impact creates the position of the company in different spheres in the eyes of their stakeholders. Therefore, the company shall work properly and within the sphere of ethical climate. The impact that has been encountered by the company in financial matters is listed below:
- Stock Price – Stock price is the market value of the share of the company. Due to increase in the liability of the company towards the borrowers and diminishing goodwill of the company, the share price has been drastically fallen resulting in negative earnings per share to investors(Cash Converters Official Website, 2016).
- Net Profits – Net profit is the net income earned by the company. For the year ending 2015, the company has suffered a major fall in the net profits due to the increase in the expenditure incurred on account of settlement of class action amounting to dollar 23 million (Chettle, 2015). It has been decreased from $24 millions in the year 2014 to $21millions in the year 2015. The decrease counts for more than 180 % as compared to the last financial year (Cash Converters Official Website, 2016). This has created a history in the financial matters of the company due to which the company has stopped the practice of treating the business as an edge over the borrowers to have more and more gains.
- Inflows and Outflows – The Company has been successful in making the business in the concerned year and is regarded as cash rich company. Cash flows from all the three activities have been positive and there has been increase in the cash and cash equivalents for the year ending 2015 (Cash Converters Official Website, 2016). These cash flows have further decreased in the next year due to payment of the amount of settlement to the class of borrowers amounting to dollar twenty three millions (Artfield, 2016).
Responsibility and Sustainability
Every company has duties towards their stakeholders whether they are located internally or externally like employees, customers, banks, regulatory authorities, etc. If the company does not comply with the duties and makes violation then in any case it shall be liable to make the damages good. These duties are more accurately defined under the head of social responsibility and corporate sustainability.
Social Responsibility is the duty of the company which determines how to maintain balance between the economic, environmental and the social prospective. The economic perspective means the growth of the company economically in terms of the profit, environmental prospective refers to the compliance with the relevant guidelines and the social perspective determines the satisfaction of the society. Along with this the stakeholders’ expectations have to be considered.
Corporate Sustainability at very first implies that the company shall work in such a way that the company can function for longer time for perpetuity and the same is regarded as one of the basic characteristic of the company other than being the separate legal entity. The sustainability can be achieved by considering the effects of working of the company on the environment, society and stakeholders (Cocris, 2010).
Financial institutions, especially Westpac has made tremendous growth in over the decade and has gained top first position in Dow Jones Sustainability Index (Westpac Official Website, 2012). In the case of Cash Converters International Limited, they have employed the good policies but have defeated the very fact of the social responsibility and sustainability. They have gained incomes at the cost of their stakeholders which have hampered the basic fact of the social responsibility and this in turn has affected the perpetuity concept of sustainability. After the settlement the company in order to achieve the best results has stopped the practice.
Funds are an important source in everyday life. The same has been mitigated by the well known company – Cash Converters International Limited. Being formed in Australia and listed on the stock exchange the company has been in the business of providing cash loans to the prospective borrowers. The practice followed by the company was ethical and which in turn has led to class action filed against the company. The borrowers have got the settlement amount but the business of the company has been greatly affected. Moreover, Company’s sustainability and social responsibility has been deviated from the basic path. To conclude the report, the company has fraudulently gained incomes and now it is working on correct path.
Cash Converters Official Website, (2016), “Annual Reports” available on accessed on 11/04/2017.
Westpac Official Website, (2012), “Corporate Responsibility and Our Business”, available at accessed on 11/04/2017.
Knaus C, (2017), “Cash Converters Profits Dive after move to stamp out high – fee pay day loans”, available at accessed on 11/04/2017.
Mauris, (2017), “Cash Converters Class Action in Queensland”, available on accessed on 12/04/2017.
Chettle N, (2015), “Cash Converters to refund thousands of people for charging up to 633% interest in loans”, available on accessed on 11/04/2017.
Atfield C, (2016),”Cash Converters faces $17 million Queensland Class Action Lawsuit”, available on accessed on 12/04/2017.
Stolz G, (2016), “Cash Converters faces Class Action from 20000 Queenslanders”, available on accessed on 07/04/2017.
Cocris V, (2010), “Corporate Social Responsibility and Sustainability in Romanian Commercial Banks”, available on accessed on 12/04/2017.