Press Conference by Kaoru Yosano, Minister of State for Economic and Fiscal Policy and Financial Services

(Excerpt)

September 8, 2006

1.  Minister's Statement

The Cabinet meeting proceeded smoothly as planned. A resolution relating to the Financial Services Agency (FSA) was the resignation of Mr. Masazumi Gotoda from the post of Parliamentary Secretary of the Cabinet Office for Economic and Fiscal Policy and Financial Services upon his request.

2.  Q&A

Q.

What is your view on the impact of the problems raised by Mr. Gotoda you just mentioned on the current issue concerning the revision of moneylending business regulations? Also, members of the Liberal Democratic Party (LDP) held discussions over the last two days but could not reach an agreement, so they postponed the task of drawing a conclusion to next week. Please explain what the system of moneylending businesses should be like in the future.

A.

Mr. Gotoda has a strong sense of justice, and has served as an extremely powerful driving force for reforming the Interest Payment Restriction Law, the Law Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits and the Moneylending Control Law with respect to the problem concerning moneylending businesses.

The FSA's draft bill must accurately reflect the opinions of the Round Table Conference on Money-lending Business established under Director-General Mr. Mikuniya. Strenuous efforts were also made to prepare a draft that accurately reflects the approaches taken by LDP's Research Commission on the Finance and Banking Systems and the New Komeito. As a matter of course, we held meetings with key members of the ruling parties in the process and consequently produced a draft in accordance with the suggestions of both parties. With respect to sensitive areas, we made proposals with footnotes stating "this is an idea". The fact that this has become a subject of debate should be welcomed.

In regards to moneylending businesses, please pay attention to the fact that the market entry requirements for starting a moneylending business is extremely strict under the latest Law Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits and the Interest Payment Restriction Law. Firstly, the minimum net asset requirement is about to be decided at 50 million yen, and as real estate and building qualifications are conventionally required to deal in residential land and buildings, a qualification system will be introduced for moneylending businesses as well. In other words, market entrants will be required to start a moneylending business based on a proper structure in terms of assets, knowledge and qualifications.

The toughest market entry requirement, which will also be substantially affected by other factors, is that all moneylenders will be dependent on a single computer system, although this may not be an accurate description. All moneylenders will be required to subscribe to a single computer system for credit information and trade information, and will not be able to start a moneylending business without subscribing to it. This is the decisive element of the latest legal revision as a whole, and this aspect will form the basis for the administration and the industry to determine various matters which will be explained shortly.

As for interest rates, it will take one year for the enforcement of laws, and due to the huge computer system and software involved as I just explained, it will take about a year each to plan, develop and test-drive such software, so by common sense, all moneylenders should be able to participate in the computer system and commence operations in four years time.

In practice, it should be acknowledged correctly that the interest rate cap under the Law Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits and the interest rate cap under the Interest Payment Restriction Law would converge four years later.

Then, there is the question of whether a gray zone exists in the coming one-year plus three-year period. It does exist in the context of law, but moneylenders are made responsible for providing an explanation when concluding a contract in the gray zone; in particular, large moneylenders are exposed to the risk of receiving a claim for a refund later even if they conclude a contract in the gray zone, so as a matter of fact, contracts concluded in the gray zone are expected to substantially or decisively decrease in number.

The interest rate under the Law Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits will converge with the interest rate under the Interest Payment Restriction Law after the four-year period, but would this alone be sufficient? It might be better to open the way for short-term loans in small amounts based on the views of the Round Table Conference on Money-lending Business as well as the ruling coalition including the LDP. This should be done as a measure to alleviate radical change in favor of users rather than in favor of moneylenders. The FSA prepared a draft bill with such a mindset. LDP's discussions on the draft will unfold in the coming weeks.

However, a closer look reveals that it stipulates that such short-term loans in small amounts will not be available to anyone who has borrowed even one yen from another consumer credit company. It also stipulates that you cannot borrow from many moneylenders just because they are short-term loans in small amounts. It is up to the LDP to limit the number of moneylenders from whom you can borrow to three, and to settle with ¥300,000 or ¥500,000 in regards to the total amount you can borrow. The total amount you can borrow will either be ¥300,000 or ¥500,000, which is small in amount. A period of less than one year is also set forth as a legal obligation, so a short-term duration is compulsory.

The biggest problem with moneylending businesses is the emergence of many people with multiple debts, giving rise to miserable consequences in various ways. The challenge is how to curb the emergence of people with multiple debts. One way is to create a single computer system in which all moneylenders are required to participate and report all transactions − this would be a revolutionary system − as we cannot curb the occurrence of multiple debts without identifying all the lending operations executed by more than 100,000 companies that constitute the moneylending industry. I hope you will conduct research on this subject.

In regards to the question of whether such a system alone would be enough to control multiple debts, when a person with multiple debts tries to borrow money, his or her identity and address and what kind of borrowing he or she is demanding from the consumer credit company must always be checked with the computer system. By doing so, the person's borrowing status can be fully identified. In regards to the loan limit, we established a provision stating that the cumulative balance must not exceed a third of the borrower's annual income.

Fines in relation to this will roughly be doubled, and the maximum prison term will be increased to ten years from the existing five years. Advertising and other such activities will be regulated, although voluntarily, by a self-regulatory organization. The method of regulating such activities will be subject to FSA's approval, meaning that they will practically be indirectly regulated, and measures have been incorporated to curb moneylenders' glitzy advertisements to a certain degree. For debt collection, a glance at the provisions reveals that extremely tough provisions have been established, so my understanding is that overall, the draft conceived by the LDP is in fact remarkably tough in content.

In any case, the question of whether or not the preferential interest rate would remain or not is merely about a period of three or five years, so if this bill is passed, an extremely consistent, appropriate law should come into being after a certain time.

This draft was submitted by the FSA and was the best that the FSA could conceive within its scope as ordered by the ruling parties. As discussions are likely to be held one more time among the ruling parties on Monday, I would like to wait for the outcome of their discussions.

That is my answer to your questions.

Q.

Let me confirm your position: do you think the FSA does not have to change its draft bill presented to the ruling parties in consideration of the discussions that took place over the last two days?

A.

The original stance was to have it done as lawmaker-initiated legislation, but the latest legal amendment cuts across government offices, namely, the FSA and the Ministry of Justice. Furthermore, the amendment not only addresses sections concerning interest rates; for example, the bill is extremely complex in that it aims to centralize credit information. As members of the LDP asked us to submit a bill to the Cabinet based on the ideas they have put together, our stance is to wait for the conclusions drawn by the ruling parties and then start working on the legislation in concrete terms.

Q.

Upon his resignation, Mr. Gotoda repeatedly stated that the latest draft was compiled while ignoring your opposition to the preferential measures. What is your opinion on this?

A.

I have talked about the preferential measures probably twice at an open forum. I stated at the Round Table Conference that it would be a problem if an exception became a non-exception, that is, if a clause for an exception is created to survive permanently. It is no good to make a permanent system instead of a provisional, interim preferential measure. At the Round Table Conference, I indicated that it must purely be provisional.

In addition, I stated at a press conference here that if the system is to be changed, measures to alleviate radical change must be taken and interested parties must be allowed to make a "soft landing", so the FSA's draft is in agreement with what I have in mind.

Q.

At a previous press conference, you stated in relation to the revision of the system of moneylending businesses that you personally wondered whether it is necessary to give as much as three years to abolish gray-zone interest rates and keep preferential interest rates for as long as five years. Is FSA's draft in agreement with your views on these periods as well?

A.

As it states three to five years, it is within the scope of my views.

(End)

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