Whirlpool Credit Scandal - Term Paper Example

The financial arrangement was very profitable since the firm was earning an interest rate income of 18% to 22%. The “open end” notes worked like credit cards that are used for a single purchase. The company during the 1990s expanded its business to include the sale of dish antennas. At the time this was a unique opportunity by targeting homes in rural areas that did not have access to cable television. These dish contracts were the focus of controversy. The company claims that the problems were a misunderstanding, but in reality it seemed that the actions of the salesmen of the company were calculated and were performed intentionally to mislead the customers.

The root of the controversy was based on the customer’s claim that the salesmen told them that the dish antennas were financed on the three year basis, when in reality the company was offering a financing term of five years. The no money down financing offer that the company offered to finance the acquisition of antennas was an initiative that served a social purpose. It helped a lot of poor and lower middle class citizens in rural regions improve their quality of life. Satellite television provided access to hundreds of channels.

Rich people could acquire the Dish antennas by paying cash because the $1124 cost was insignificant to them. The problem with these contracts was that they were deceiving customers by hiding the fact that accumulated interest would increase the contract length to five instead of three years. The end result of the Dish antenna contract was that it hurt the economic well being of poor people by keeping them in debt for an extended period of time. One of the lessons to be learned from this case study is that people should carefully read the terms of the written contracts instead of trusting the word of deceptive salesmen.

The economic benefit of the case was that the Whirlpool National Financial Bank created a financial tool that allowed poor people and persons with bad credit access to expensive Dish satellite equipment. The purpose of the “open end” notes was to facilitate the acquisition of satellite television to American citizens of all social classes. The salesmen of the company entered into unethical behavior when they misled buyers into thinking that the Dish equipment debt would be liquidated in a term of three years.

The controversy with the financing became a legal matter. The customers were within their right to seek legal action because they entered into financing contracts under false premises. The executive management team of Whirlpool realized that the company was facing a major legal problem. Lawsuits are an undesirable outcome for companies due to the financial costs associated with the legal process and because the news of a pending lawsuit against a company hurts the corporate image of a firm (Referenceforbusiness, 2012).

The out of court settlement that Whirlpool signed to resolve the conflict is the first step towards fixing the situation. The firm must now take corrective actions to ensure the problem does not continue to occur. An alternative solution for the company is to restructure its credit offering to eliminate the clause that converted the contract into a five year term. It is not reasonable to charge a customer for five years to acquire a consumer good in the technological industry. The firm should limit its financing terms to a maximum of two years.

A way to ensure that the company can keep the monthly payments low for the customers is by lowering the acquisition cost of the Dish antennas. There is more money to be made in the servicing contracts than in sales of equipment. A second solution that should be implemented in conjunction with the first solution identified is to start a new