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USURY – Japan is fighting for a Reasonable Loan Rate for Consumers, starting with an end to the “grey zones”
FIGHT FOR REASONABLE LOAN RATE FOR CONSUMERS

The symposium regarding regulations of high interest rates of consumer loans, organized by JFBA (The Japan Federation of Bar Associations), was held in Tokyo on the 19th November, 2005.


Over the past ten years, the official discount rate and bank loan interest rate have been quite low. Companies engaged in the consumer loan business have flourished earning a large sum of profit by borrowing money from banks or getting money from markets at a low interest rate and lending to relatively small income individuals at a high interest rate. The names of people who have established and run consumer loan businesses are listed as large sum taxpayers. On the other hand, a small income earner borrows money at a high interest rate since they are often refused by banks from borrowing at a low interest rate. Their debt is piled up one after another resulting in borrowing from a consumer loan business company to pay for previous loans, resulting in them having multiple debtors. The number of individual bankruptcies has reached about 200,000 a year. Moreover, it is a concern that there are currently around 2,000,000 people who are in bankruptcy. Money-sharks run by Yakuza groups or unregistered loan business entities earn a lot of money.

There are currently three Acts mainly concerned with the issue of loan interest rate; The Interest Rate Restriction Act, The Loan Business Regulation Act, The Accepting Investment, Deposit of Money and Regulating Interest Rate Act (Shushi law), which is principally criminal law. The Interest Rate Restriction Act was enacted in 1954 and limits the maximum interest rate in money lending; when the principal is less than 100,000 the maximum interest rate is restricted to a maximum of 20% a year; when the principal is from ¥100,000 to ¥1,000,000 the interest rate is restricted to a maximum of 18%; when the principal is more than ¥1,000,000 the maximum interest rate shall be 15%. Although this Act prescribes that if a borrower voluntarily pays beyond restricted interest rates, they cannot claim to return excessive payment. The Court has judged that the amount of payment over restricted interest rate is deemed to be paid as a part of the principal and that a borrower is entitled to get back the excessive amount of payment after the principal is fully paid back.

The Loan Business Act prohibits conducting a money lending business without registration by the administrative body concerned, such as FSA. If a person or a company is engaged in a money lending business without registration, they are imposed a criminal penalty. Under this Act a business money lender must give a borrower a contract document when a contract is entered into and a receipt prescribed by the regulations when receiving payment. A registered money lender shall not make an agreement with an interest rate beyond 29.2% a year. If they violate this restriction, they were penalized. Interest between 29.2% a year and the rate restricted by the Interest Rate Restriction Act is called a "grey zone interest rate". Although the Act prescribes that a borrower is not entitled to get back the grey zone payment if they paid voluntarily, actually, it is difficult for a lender to prove the condition was voluntary since Courts judge strictly with this "voluntary" condition. Many actions have been brought against money lending companies and mostly successfully ended thanks to the Court precedent.

This year, revision of restricted interest rates to loan businesses scheduled. Recently the loan industry has been advertising extensively with TV commercials in order to increase consumer loan borrowers at a high interest rate and lobbying for liberalization of interest rates and putting a barrier to claims for returning grey zone payments. Lawyers shortly will launch a movement for improvement of regulations as to consumer loans, by making a proposal, including reducing the upper limit of interest rate by loan business entities to the rate restricted by the Interest Rate Restriction Act, and by abolishing the voluntary clause which obstructs a consumer's claim to pay back grey zone rate interest payments.

(Written in English by Machiko Fujimura)

ID: 38325
Author(s): iff
Publication date: 01/12/05
   
URL(s):

Japan Federation of Bar Associations
 

Created: 31/08/06. Last changed: 31/08/06.
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