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On October 31, 2006, the Bill for the Amendment of the Money-Lending Business Control and Regulation Law was submitted at the 165th Diet session. The bill involves taking such measures as ensuring the appropriateness of moneylending businesses, regulating excessive lending and reducing the interest rate cap under the Law Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits, in consideration of the fact that the multiple debt problem has now become a major social problem. The specific components of the bill can be broadly divided into:
1. Ensuring Appropriateness of Moneylending Business Activities (1) Stricter Requirements for Entering the Moneylending Business - The latest amendment bill imposes stricter requirements for starting a moneylending business in order to ensure the appropriateness of moneylending business activities: the minimum amount of net assets required to run a moneylending business will be raised to ¥50 million from the existing ¥3 million for individuals and ¥5 million for companies. The minimum amount will be raised in two phases, to ¥20 million within one and a half years and ¥50 million within two and a half years of the enforcement of the law. (Article 6 of the Money-Lending Business Control and Regulation Law) - Furthermore, a qualification test will be introduced for managers of moneylending operations who provide advice and guidance for compliance with laws and regulations. Appointment of a person who has passed this test at each sales office will become mandatory. (Article 4, Article 6, paragraph 3 of Article 12 and paragraphs 7 through 50 of Article 24 of the Money-Lending Business Control and Regulation Law) (2) Enhancement of Self-Regulatory Functions of the Moneylenders Associations - The Moneylenders associations will be defined as legal entities established for the purpose of approving and issuing membership to moneylenders. The Moneylenders associations will be obliged to establish a branch in each prefecture. - The Moneylenders associations will be required to establish self-imposed rules regarding the content, method and frequency of advertising, the prevention of excessive lending, etc. and an FSA-approved framework will be introduced. Rules to prevent excessive lending include, for example, preventing the repayment period from becoming too long by ensuring that the sum to be paid back in each installment exceeds a certain percentage of the borrowed sum in the case of a revolving loan agreement. (Article 25 through paragraph 12 of Article 41 of the Money-Lending Business Control and Regulation Law) (3) Enhancement of Code of Practice (a) Enhancement of Debt Collection Regulations Attempts to collect debt at night, in the early morning, etc. and threats against debtors, etc. are given as examples of prohibited acts under the existing law. The amendment bill adds persistent debt collection activities during the day, etc. to the list of prohibited acts in order to enhance the protection of debtors, etc. (Article 21 of the Money-Lending Business Control and Regulation Law) (b) Enhancement of Duty to Issue Documents When lending money, moneylenders will be obliged to issue a document explaining the total sum of the principal, etc. in advance and make clearer to borrowers their repayment plan. (paragraph 2, Article 16 of the Money-Lending Business Control and Regulation Law (Cabinet Order)) (c) Duty to Issue Documents for Signing Life Insurance Policies and Prohibition of Payment of Insurance Claims in the Event of Suicide In cases where a moneylender signs an insurance policy that specifies the borrower as the insured, the moneylender will be obliged to issue a document explaining the terms and conditions of the insurance policy. Furthermore, suicide by the borrower will be prohibited from inclusion among insured events under an insurance policy. (paragraph 7 of Article 12 and paragraph 3 of Article 16 of the Money-Lending Business Control and Regulation Law) (d) Enhancement of Regulations on Notary Documents Moneylenders will be prohibited from acquiring a letter from an attorney for the preparation of notary documents. In addition, entrustment of the preparation of notary documents to a notary will be prohibited with respect to agreements on loans with interest exceeding the interest rate set forth in the Interest Payment Restriction Law. (Article 20 of the Money-Lending Business Control and Regulation Law) (e) Enhancement of Duty to Provide an Explanation to Joint Guarantor System In order to ensure the protection of joint guarantors, moneylenders will be obliged to explain that anyone who intends to become a joint guarantor has no right of defense against formal demands and search. (paragraph 2 of Article 16 and Article 17 of the Money-Lending Business Control and Regulation Law) (4) Introduction of Business Improvement Order Dispositions against moneylenders who violate regulations had previously been limited to deregistration and suspension of operations. The amendment bill introduces business improvement orders to deal with the violation of regulations in a more forceful manner. (paragraph 6-3 of Article 24 of the Money-Lending Business Control and Regulation Law) 2. Curbing Excessive Lending (1) Establishment of Specified Credit Information Agency System A system for specifying credit information agencies that meet requirements such as the appropriate management of credit information and the registration of all credit incidents will be introduced, and a framework that enables moneylenders to identify the borrower's total debt balance will be developed. This will enable moneylenders to identify the borrower's total debt balance and check whether any given loan is excessive or not. (paragraphs 13 through 38 of Article 41 of the Money-Lending Business Control and Regulation Law) * Specified credit information agency refers to an agency specified by the FSA as a credit information agency that collects credit-related information on the borrower from moneylenders, etc., provides such information to moneylenders and meets the bill's requirements such as the development of an information management/exchange framework above a certain level. (2) Introduction of Aggregate Debt Control Moneylenders will be obliged to investigate the borrower's repayment capacity (if the borrower is an individual, moneylenders will be obliged to conduct investigations by using credit information provided by a specified credit information agency), and will be prohibited from lending money exceeding the borrower's repayment capacity. In particular, as a general rule, moneylenders will be prohibited from lending money exceeding one third of the borrower's annual income including loans from other moneylenders, with the exception of home loans, etc. (Article 13 through paragraph 4 of Article 13 of the Money-Lending Business Control and Regulation Law) 3. Ensuring Appropriateness of Interest Rate System (1) Reduction of Interest Rate Cap The "deemed repayment" system under the existing law (gray-zone interest rate) will be abolished and the interest rate cap under the Law Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits will be reduced to 20%. Moneylenders who conclude a contract based on an interest rate exceeding 20% after the enforcement of the amended Law will be subject to criminal punishment. (Article 43 of the Money-Lending Business Control and Regulation Law, Article 5 of the Law Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits) (2) Review of Concept of Interest - Interest on money lent includes contract signing fees and debt repayment charges. However, taxes, public charges, ATM fees and other such expenses are excluded from accruing interest. (Article 6 of the Interest Payment Restriction Law, paragraph 4 of Article 5 of the Law Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits) - If the sum of the loan interest and the guarantee charges payable to the guarantee business by the borrower exceeds the interest rate cap, as a general rule guarantee charges will be nullified for the excess portion and criminal punishment will be imposed on the guarantee business. (Articles 8 and 9 of the Interest Payment Restriction Law, paragraphs 2 and 3 of Article 5 of the Law Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits) (3) Abolition of Exceptions for Daily Moneylenders and Telephone Secured Loans Daily moneylenders and telephone secured loans had been excepted from the interest rate cap of 29.2% under the Law Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits. The exceptions will be abolished in conjunction with the latest amendment. (paragraphs 8 through 16 of the Supplementary Provisions of the Law for Amendment of the Law Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits) 4. Enhancement of Measures against Loan Sharks The amendment bill will enhance penal provisions against loan sharks: punishment for lending money at an extremely high interest rate (exceeding 109.5% per annum) and for operating an unregistered moneylending business will be increased to a maximum prison sentence of ten years from the existing five years. (Article 47 of the Money-Lending Business Control and Regulation Law, Article 5 of the Law Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits) 5. Government's Efforts against Multiple Debt Problem In addition to the measures described above, the amendment bill will promote measures to resolve the multiple debt problem in a comprehensive and effective manner by enhancing collaboration between relevant ministries and agencies. (Article 66 of the Supplementary Provisions of the Money-Lending Business Control and Regulation Law)
The provisions will be enforced after the enactment of the bill as follows. |
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(2) Provisions to be Reviewed The following will be reviewed according to the supplementary provisions of the amendment bill. (Article 67 of the Supplementary Provisions of the Money-Lending Business Control and Regulation Law) - With respect to the state of the moneylending business, the need for measures to facilitate the implementation of provisions such as those of aggregate debt control will be studied within two and a half years of enforcement, and the necessary revisions will be performed according to the study findings. - With respect to the state of interest rate regulations based on the Law Concerning the Regulation of Receiving of Capital Subscription, Deposits and Interest on Deposits and the Interest Payment Restriction Law, the need for measures to be taken for the purpose of facilitating the implementation of the provisions of the Law Concerning the Regulation on Receiving Capital Subscription, Deposits and Interest on Deposits as well as the Interest Payment Restriction Law will be studied within two and a half years of enforcement, and necessary review will be performed according to the study findings. |
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