Ruling parties give up policy of legitimizing illegal consumer loan rates

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Ruling parties give up policy of legitimizing illegal consumer loan rates

The ruling Liberal Democratic and Komei parties on October 24 decided to drop the policy of allowing consumer loan companies to charge, for a certain period of time, an illegally high annual interest rate of 25.5 percent.

Loan sharks have caused serious social problems such as heavy debtors' suicides prompted by lawless collection of loans, provoking public criticism against high interest rates. Faced with public opinion and movements against high interest rates, the ruling parties have had no other choice but to abandon their policy.

Under the Interest Rate Restriction Law, the maximum interest rate moneylenders can charge is 15 to 20 percent depending on the amount of the loan. However, the Capital Subscription Law sets a 29.2 percent ceiling, imposing penalties for violations.

While an interest rate higher than 20 percent is legally regarded as invalid, consumer loan companies have imposed on their clients so-called "gray zone interest rates" of nearly 29 percent, taking advantage of the legal loophole in which the Interest Rate Restriction Law does not contain penalty provisions.

Faced with successive Supreme Court rulings that declared the "gray zone interest rates" as invalid, the government and the ruling parties have been pressed for the elimination of the "gray zone interest rates."

Although the government and the ruling parties agreed in principle to eliminate "grey zone interest rates" by lowering the ceiling set in the Capital Subscription Law, they were shrewd in drawing up a scheme to legitimize the invalid interest rate for the benefit of the consumer loan industry.

Behind this move is the influence of the industry using political donations as well as the U.S. demand for the deregulation of interest rates.

A Japanese Communist Party task force revealed that the LDP and the Komei Party have accepted 19 million yen in political donations from moneylenders during the past three years.

Severely criticizing the government and ruling parties' proposal for failing to address the problems of heavy debtors, many organizations including the Japan Federation of Bar Associations (Nichibenren) and victims of loan sharks have taken part in a nationwide campaign in opposition to the scheme.

Nichibenren and other organizations have submitted a petition bearing 3.4 million signatures calling for a reduction in the interest rates.

Lawyer Niisato Koji who has been engaged in the Nichibenren campaign said, "Faced with public criticism, the LDP decided to change its policy. This is a victory for the movement."
- Akahata, October 25, 2006