The lack of ethical behavior on behalf of financial institutions for their role in the current financial crisis in the U.S. is well documented.
The finance industry neglected its duty of care in two key areas – advancement of credit beyond levels which borrowers could afford, and failure to manage their loan portfolios with sufficient prudence so as to ensure their long term survival.
Their neglect of this duty has widespread consequences, particularly for borrowers, taxpayers and the economy as a whole.
But do borrowers have to share some of the responsibility? Yes and no.
The responsibility of borrowers
Some commentators, such as business ethics motivational speaker Chuck Gallagher, feel that borrowers need not accept responsibility for the current situation.
To a degree, this viewpoint is fair enough. Borrowers, after all, did not cause the collapse of financial institutions – this was caused by internal mismanagement of loan portfolios by the institutions themselves.
Nevertheless, what borrowers are responsible for is their own debt commitments. Borrowers, in my view, owe a duty of care not to borrow in excess of their debt servicing capacity.
Prior to taking out a loan, borrowers have a responsibility to make a realistic assessment of whether their debt servicing capacity is likely to be sufficient to meet their loan commitments, and also to ensure that they fully understand the terms and conditions of the loan. Most importantly, borrowers have a duty to refrain from accepting any offer of credit which exceeds their anticipated debt servicing capacity.
Any borrowers who do not possess sufficient expertise to do this for themselves should seek independent financial counsel prior to the acceptance of any loan.
To be sure, many borrowers may have been bombarded with aggressive marketing campaigns from lenders. As human beings, they are susceptible to such campaigns. This, however, does not absolve borrowers of responsibility for their own decisions.
Of course, some borrowers experience difficulty through no fault of their own. Unexpected circumstances, such as job losses or personal injury can easily cause even diligent borrowers to default on loan commitments.
I am not referring to such cases here. Instead, I am referring to cases where borrowers over-borrow in the first place.
In a nutshell
Borrowers did not cause the financial crisis – irresponsible lending practices and poor loan portfolio management did that.
But each and every individual borrower is responsible for ensuring that they do not accept credit levels beyond their anticipated debt servicing capacity.
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