Credit Marketed to Consumers - Essay Example

? Credit marketed to consumers The radical increase of costs related to daily human needs has become a common phenomenon in most countries. This phenomenon has led to the following concern: will people be able to cover the costs involved? Marketers in financial institutions worldwide have identified a solution: the provision of credit could help people to cover their needs. The proposed schemes however, usually in the form of credit cards, have a key characteristic: they secure the profit of the lender, i.e. of the financial institution involved, as they are based on extremely high interests. In this paper a specific aspect of credit is explored: the terms under which credit is marketed to consumers and the effects of this activity on people’s life, both in the short and the long term. Emphasis is given to the following fact: the marketing plans that promote credit have a series of severe implications for consumers. These implications are analyzed below aiming to highlight the need for setting barriers to the marketing of credit around the world. One of the most critical findings of the study seems to be the following: in the past credit was regarded as a tool used under exceptional conditions; today, credit has become a key part of daily life. Thus, the terms of its marketing should be thoroughly reviewed as of their effects on consumers. In order to evaluate the potential consequences of the credit marketed to consumers it is necessary to refer primarily to the methods employed by marketers for promoting credit. Commonly, marketers who design the marketing plans promoting credit use themes and issues related to critical social incidents or problems. For example, in USA ‘the credit cards that aim to cover medical expenses’ (Scurlock 6) are quite popular. Another issue quite important for marketers developing these plans is the marketing means used for communicating with the public, i.e. for promoting credit to consumers. In his book Scurlock shows the potential ways used by marketers for promoting credit: advertisements are placed in various public places, such as ‘buses, the exterior walls of Universities and so on’ (Scurlock 11). Internet is also a popular means for promoting credit (Scurlock 12). Advertisements in television have been proved effective in promoting credit but the costs of such marketing schemes can be quite high (Scurlock 12). In other words, the marketing plans promoting credit can appear almost everywhere. It can be quite difficult for consumers to resist to the dilemmas set through the relevant advertisements. However, consumers have started to face these plans with skepticism, especially since the image that these plans present in regard to credit-related products have been proved as unreal (Scurlock 12). The introduction of the concept of credit score is considered as an effort of marketers to control the concerns of consumers towards the credit-related financial products (Scurlock 127). The positive credit report has been set as a prerequisite for the extension of existing credit or for the provision of credit; the last case refers to consumers who borrow money for the first time (Scurlock 127). The credit report is based on credit scores: a high credit score denotes a consistent borrower while a low credit score indicates the failure of the borrower to respond to his obligations in regard to his debt (Scurlock 127). Today, credit score is used for checking the overall financial status of a person, a fact that has caused strong criticism; for example, a candidate for a specific job may be asked to bring his credit report before signing the employment contract (Scurlock 128). The above practice violates human rights since it justifies the access to private data (Scurlock 128). Although it is widely used, the credit report hides a series of risks: a) by emphasizing on credit report and on the importance of credit score authorities and organizations seem to promote a specific trend: consumers are urged to put all their efforts for protecting their credit score. In this way, consumers do not seek for information in regard to one of their key rights: the right to declare bankruptcy (Scurlock 128). Focusing on a high credit score can be quite stressful, especially for consumers living in countries with unstable economy. Using bankruptcy can be a better solution for consumers who work in industries that are under severe market pressures and which are not expected to recover in the near future (Scurlock 128). Credit reports can have another implication: these reports are issued using private information of the consumer. The agencies that produce such reports need to have access to the specific pieces of information (Scurlock 129). After the process is completed, i.e. after the credit report is produced, the consumer’s personal data should be, normally, destroyed so that any risk of unauthorized access is minimized (Scurlock 129). Actually, after issuing the credit reports the agencies/ organizations involved tend to store each consumer’s personal data, often without his authorization (Scurlock 129). This practice can threaten the consumer’s private or professional life. For example, through the security number of an individual an agency is able to have access to the consumer’s medical record and check his medical history or the drugs that he currently takes. Policy makers have tried to control the risks related to the management of borrowers’ personal data in the following way: the agencies that are authorized to issue credit reports are limited. In USA ‘there are three agencies that can develop such activity: Experian, Equifax and TransUnion’ (Scurlock 131). However, the Internet is often used as a platform for the promotion of such activities, i.e. for the issue of credit report, even if there is no authorization by the state (Scurlock 131). The credit reports issued by unauthorized agencies are often full of mistakes; for example, it is possible for a financial transaction to appear to the credit report of an individual even if this transaction was cancelled afterwards (Scurlock 131). Presenting false balance in regard to existing credit accounts or omitting payments done in the long past are other common mistakes included in credit reports issued by unauthorized agencies (Scurlock 131). At this point, reference should be made to the following fact: the distinction between low credit and high credit is of importance especially for the provision or the extension of credit (Scurlock 132). In other words, a credit report is expected to be required when applying for the provision or the extension of credit (Scurlock 132). The potential use of such reports in other cases, such as when signing insurance contract is quite limited and it depends on the policy of the insurance firm involved. For this reason, it can be noted that low credit and high credit are concepts related primarily to credit marketing process. The relationship between the credit marketing process and the credit scores could be described as follows: a) the success of a credit marketing scheme can be highly depended on credit scores. For example: a credit marketing scheme can be based on the acceptance of low credit score; using this practice the specific scheme would have an advantage towards the competitors who are expected to approve only the credit requests based on high credit scores; this means that credit scores could lead to competitive advantage, b) a credit marketing scheme needs necessarily to refer to its credit scores requirements; this means that credit scores are indispensable parts of all credit marketing schemes. In general, it has been proved that emphasizing on the benefits of credit can lead to an important problem: consumers stop to have concerns on credit (Burton 95). Indeed, through attractive and persuasive marketing plans credit becomes popular, a fact that leads to its radical increase (Burton 95). It is this phenomenon that has led to the increase of credit limits of countries that are key members of the international community, such as US. Thus, the increase of the popularity of credit can cause severe damages not only at the level of individuals but also at the level of the state (Burton 95). It is possible for this reason that people who work in the financial services industry do not trust the financial products that offer credit under unfair terms; the credit cards is an indicative example (Scurlock 4). For Scurlock (2011) when referring to debt particular attention should be paid at two facts: ‘a) debt is inevitable and b) debt has a smoothing effect’ (Scurlock 3). The above view can be explained as follows: a) even if effective financial management techniques are employed the creation of debt is difficult to be avoided; the structure of modern economies can be regarded as the key reason for such phenomenon, b) as the time passes the existing debt seems to lose its power; reference is made not to the level of the debt but to the power of the debt to affect the borrower. According to Burton (2008) respecting market ethics can be difficult when having to promote ethics. The following example is mentioned: the key aim of the British organization known as Consumer’s Association is to ensure that people across UK will be fully informed on their rights as consumers (Burton 95). The above organization has developed a magazine, with the title ‘Which?’ which is available to subscribers (Burton 95). However, the Association used its position in order to promote its own interests: the ‘Which? Card’ was a credit card that the Association created as a response to the similar financial products available across UK (Burton 95). Instead of highlighting the risks of credit cards, as should do, the Association created a product which is quite popular in the banking industry (Burton 95). The lack of consistency in regard to the advice given by the above Association to consumers is clear. The above example reveals another problem: the lack of effective laws for protecting consumers from the excessive exposure to marketing plans promoted credit. The specific problem is highlighted in the study of Scurlock. As noted by Scurlock, ‘the excessive fees of financial institutions in UK have been characterized by FSA as illegal’ (Scurlock 8); in USA though ‘these fees have been considered as fully legal’ (Scurlock 8). In practice, in both the above countries the feels of financial institutions continue to be extremely high, a fact that denotes the inability of laws to control the activities of organizations operating in the particular industry. A similar approach is expected to be used by regulators and policy makers when having to deal with the marketing plans of such institutions. The expansion of marketing plans that promote credit seems to be a major problem that regulators worldwide have to face. These plans aim to attract the attention of as many people as possible. This target is achieved by highlighting the benefits of credit and by avoiding any reference to the negative aspects of credit. Using this strategy credit schemes have become quite popular among people of different social and economic status. However, the implications of the credit marketed to consumers, as these implications have been explained above, cannot be ignored. In fact, it seems that the negative aspects of credit are more than its benefits. It is suggested that the laws regulating the operations of financial institutions worldwide are reviewed and updated so that the terms used for developing marketing plans that promote credit are changed. Such effort would also require the help of media and community; credit, as a means for handling debt or for covering emerging needs, should be clearly explained to consumers as of all its aspects. In practice, consumers start to understand the implications of credit after being involved in relevant schemes, usually under the pressure of a marketing plan that promotes credit. This phenomenon could be effectively addressed only by adopting a two-parts strategy: updating laws regulating the marketing of credit schemes and establishing alternative financial schemes for helping consumers to cover their daily needs. Works Cited Burton, Dawn. Credit and Consumer Society. London: Routledge, 2008. Scurlock, James. Maxed Out: Hard Times, Easy Credit. HarperCollins, 2011. Read More