The LDP-led government began tightening regulations in consumer
lending in 2006, as millions of individuals and small firms took on
debts they couldn't repay and as criticism grew over the menacing
methods used by some to collect debts.
By 2010, the new rules cut the top rate of interest the moneylenders
could charge to 15-20 percent from almost 30 percent, and capped how
much individuals could borrow. The move whittled down the number of
specialist unsecured loan lenders from around 5,200 in March 2004 to
just 521 last year.
Now, a group of more than a dozen LDP lawmakers plans to submit a
bill to the parliament, or Diet, later this year, and may seek to
undo those changes - doubling the maximum interest rate lenders can
charge and removing the borrowing ceiling. The draft has yet to be
They say regulation has strangled small businesses who get short
shrift from Japan's big banks and who need short-term loans to tide
them over. They also argue that those who can't now go to consumer
lenders for cash resort to unregulated loan sharks. The number of
arrests of such illegal lenders, which had been declining until
2012, rose 5 percent last year to 341, according to the National
"I'm supporting the move for deregulation to rebuild a market for
short-term small loans for healthy lenders and borrowers," said
Kiyohiko Toyama, a lawmaker for the New Komeito party, LDP's
coalition partner. "There used to be a market where people could
borrow less than 300,000 yen ($2,900) for about three months. But
that market's vanished."
Hiroshi Domoto, a professor at Tokyo University of Information
Sciences, said the industry's regulation had been driven to try to
help those who over-borrowed. "But now we have to focus on those who
aren't able to borrow," he said.
The tighter regulation starved consumers of cash and hit spending,
leaving as much as an 18 trillion yen ($176.4 billion) dent in
Japan's economy over 2006-12, Takashi Iwamoto, a project professor
at the Graduate School of Business Administration at Keio
University, estimated last year.
In early 2007, more than 1.8 million Japanese were each carrying
five loans, according to the Financial Services Agency (FSA). By
March of this year, that number was almost ten times fewer.
Regulation capped borrowing from multiple lenders to the equivalent
of one third of an individual's annual salary, and sought tougher
penalties against illegal loan collection - which had become a
In one extreme case, a debt collector at Nichiei Co, a non-bank
lender specializing in business loans, was arrested in 1999 after
trying to force a customer to sell an eyeball and other organs to
raise money to repay a loan. Nichiei subsequently went bankrupt in
In May 2008, the FSA ordered Takefuji Corp - which also later
collapsed - to stop its heavy-handed tactics, which included banging
on doors and playing loud music outside customers' homes with the
lyrics "Return the money you have borrowed." Two years earlier, the
agency ordered Aiful Co <8572.T> to suspend operations at all its
branches - some for 25 days - over its debt collection practices.
One employee repeatedly phoned and wrote to a debtor's mother
demanding repayment. Another made multiple calls to a debtor's
The tighter regulation meant lenders were reluctant to lend as the
lower rates left them more exposed to defaults. In the year to March
2004, consumer lenders extended 10.57 trillion yen in unsecured
loans to consumers. In the year to March 2013, that had dropped to
2.4 trillion yen, according to the FSA, the industry watchdog.
Decades of ultra-low interest rates helped Japan's big corporate
managers raise funds cheaply, but smaller customers were often
ignored as banks tended to lend primarily to those with good credit
and collateral, such as property.
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"Japanese banks lend based on collateral. They don't price the
loans-to-risk of each individual," said Hirofumi Gomi, who was the
FSA commissioner when parliament unanimously approved the industry's
regulation in 2006. "It's natural that people who can't borrow from
banks go to consumer lenders. That's why consumer lenders could
create their own niche."
Today, just three consumer lenders dominate the industry.
Acom Co, which is 40 percent-owned by Mitsubishi UFJ Financial
Group, is the market leader with 713 billion yen in outstanding
unsecured loans to consumers.
Promise, part of Sumitomo Mitsui Financial Group's SMBC Consumer
Finance unit, has a similar amount, while SMFG also has another
consumer lending company called Mobit, with 181 billion yen of
unsecured consumer loans outstanding. Aiful has around 216 billion
yen in loans.
For the banks, these businesses aren't major money spinners. SMBC
Consumer Finance made a net profit of just 29 billion yen in the
year to end-March, a fraction of the banking group's 835.4 billion
yen. Acom contributed just 10.6 billion yen to MUFG's annual net
profit of 984.4 billion yen.
For now, the LDP group doesn't have the support of consumer lenders
or the FSA, the industry watchdog.
"The discussion on whether or not to revise the law should be
focused on consumers' funding needs. Any revision of the law should
be for the benefit of the customers," Acom said.
A senior FSA official involved in regulation said: "There needs to
be a very careful consideration over whether or not to increase
interest rates again."
Masaaki Taira, an LDP lawmaker who heads the party committee seeking
deregulation, says the problem of those with heavy debts should be
tackled as a social welfare issue, not through monetary policy. "We
will be discussing the possibility of raising interest rates and
abolishing the borrowing limit, but we will also have to think about
how to provide a welfare system to support heavily-indebted people,"
"If business owners want to pay high interest to support their
business, they should be able to do that," said Taira, who ran a
vegetable wholesaler before being elected to the Diet.
Gomi, the former FSA commissioner, argues that if regulation is to
reviewed, any new system should be designed so as not to increase
the number of those with heavy debts.
"This is a good example to show that if there is no self-discipline,
that will bring over regulation," he said. "Back then, both lenders
and borrowers had little discipline. As a result, those with self
discipline had to suffer."
(Editing by Ian Geoghegan)
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