Legal Business Practices Of Dubious Ethics.
By Lisa Smith – Investopedia – May 01, 2012
It might be hard to believe that these ethically dubious business practices are legal and legitimate in the eyes of lawmakers. However, being aware of these unscrupulous methods can help you avoid them as best you can. The examples above are just a few instances where the law is unable to protect people, despite the best intentions of regulators. Here are a few of them:
Interest Rate Payment to Investors Vs. Interest Rate Charged to Borrowers
If you go to your bank and put $100 in a savings account, you will be lucky if the bank pays you 1% in interest for a year. If you take out a bank-sponsored credit card, the bank will charge you 25% or more in interest. Now, what's wrong with that picture? According to the banks, nothing at all. It's all perfectly legal.
Better still, from their point of view, they can charge depositors a fee to talk to a teller, a fee for having a low balance, a fee to use the ATM, a fee to order checks, a fee for bounced checks, and a few more fees for other services thrown in for added profit and good measure. Then, if the depositor decides to borrow, they can charge a loan origination fee, a loan servicing fee, an annual credit card fee and the interest on the credit cards and loans. It's all perfectly legal and fully disclosed, and bewildering to the average bank customer.
Higher Interest Rates for "Bad" Credit Vs. Lower Rates for "Good" Credit
If you are having trouble getting by (maybe you lost your job or got behind on some bills) and are trying to get back on your feet after your credit rating took a hit, you will probably be charged a higher rate of interest the next time you borrow money. You will pay more for a mortgage, a car loan, a bank loan and just about every other loan you can possibly imagine.
On the other hand, wealthy people can get loans at rock-bottom interest rates. It is standard practice to change more to higher risk clients. This policy makes sense on paper, but doesn't do any favors for hard-working people just trying make ends meet.
Pension Plan "Freeze" and Termination Vs. Pension Payments to Workers
Imagine that you worked your whole life and gave the best years of your health to one firm. However, a few years before you retired, the company froze the pension plan. Then the year you were poised to get out, they terminated the plan and gave you a lump sum check instead of a pension check for life. The worst part? It happens often and is perfectly legal.
Class Action Lawsuits Vs. Justice for the Wronged
So what happens when the "little guy" realizes that he's been wronged by a large company? More often than not, he'll probably take the company to court. However, since the little guy cannot afford the legal representation required to do battle with a corporate behemoth, he looks for a lawyer who represents a huge group of people in a similar predicament.
For example, say the lives of 1,000 people were ruined by an ill-advised investment purchase. If the victims receive a settlement, the lawyers can command a significant portion of that money, even more than half. For example, a $10 million settlement can be divided into $5,000 each for the plaintiffs and $5 million for the lawyers, and it's all legal. The "little guy" might get his day in court, but there's no guarantee that he'll be getting paid what he deserves, especially if his lawyer wants a big chunk of the settlement as payment for services rendered.