It’s about damned time the FSA did something about legal loan-sharking in Japan:
Friday, April 14, 2006
FSA To Slap Business Suspension Order On All Aiful Outlets
TOKYO (Nikkei)–The Financial Services Agency has decided to impose a business suspension order of up to 25 days on all domestic outlets of consumer credit firm Aiful Corp. (8515) as punishment for aggressive collection tactics, The Nihon Keizai Shimbun learned Thursday.
This administrative punishment, unusual in its harshness, will be the first-ever disciplinary action by the FSA against a major consumer credit company. The measure is likely to have a major impact on calls for tougher regulations for the sector.
The decision may be formally announced as early as Friday. In addition, Aiful was allegedly obtaining powers of attorney from clients without their consent. The suspension will be 20-25 days for the Hokkaido and Kyushu branches where improper activities took place, and three days for all other locations. Aiful operates nearly 1,700 outlets across Japan.
But here’s the kicker: Aiful plans to cancel all advertising for the time being. Rejoice!
Aiful is deepening its equity and business ties with banks through mergers and acquisitions. It has also been cooperating with several regional financial institutions in the business of loan guarantees.
The firm will rush to clean up its act by cutting management salaries and reviewing management practices. It will also cancel all advertising, at least for the time being.
The ads were extremely annoying – a man sees a cute chiuahua at a pet store, imagines himself in all kinds of whimsical situations with the dog, and apparently decides to go heavily into debt to get the little dog. Another tactic used by most of the companies is to use attractive spokeswomen to showcase the “good service” they offer. I, for one, will not miss the cloying fabrications.
Of course, the practice of super-high-interest loaning is still legal – the loan sharks are just not allowed to start acting like Scientologists in their collections policies.
This practice of usurious lending has humongous social ramifications in Japan. Just about every other story on ZAKZAK is about some schmuck with a pachinko habit who started embezzling or robbing people to pay back “consumer debt.” Ads for the numerous companies block the mountains, and one can find “ATMs” which are actually unmanned loan application terminals, on city streetcorners, never far from a pachinko establishment. Meanwhile, the founders of these companies have made themselves billionaires.
But for some reason, according to the Nikkei, the government doesn’t plan on reigning in the lenders, but instead will place restrictions on how much individuals can borrow:
…the current laws that regulate non-bank moneylenders contain a loophole, whereby even if the interest rate charged is higher than the 15-20% limit set by the Interest Limitation Law, there is no penalty as long as they can prove that the borrower willingly accepts rates of up to 29.2%, the ceiling under the Investment Law. The regulations are sorely inadequate in terms of consumer protection, even lacking rules on penalties against excessive lending.
The FSA is likely to address these issues when it amends the regulations on the consumer credit sector next year. The financial watchdog will also consider introducing drastic measures to prevent the incursion of heavy debts, such as limits on the total amount of loans and the number of lenders from which an individual can borrow funds.
The FSA is currently conducting discussions with expert advisers and is expected to issue its recommendations in June. The Liberal Democratic Party, which aims to have the amended law in place by next year, will use the FSA’s proposal as a blueprint for a bill it plans to submit to the extraordinary Diet session in the fall. Although the government expects strong opposition from consumer credit firms, the FSA’s latest action is likely to have an impact on the final outcome of regulatory changes.
Now, I’m no banking expert, but I would actually close the loopholes rather than simply limiting what average people can borrow. I’m interested to see what the FSA comes up with.
(The picture has a great message: “Anyone who would buy a dog with money from loan sharks is funny in the head and should go to the hospital”)