Banks halt loan flow to unaffiliated credit firms

JIJI

Banks are scaling back loans through unaffiliated consumer credit firms that are not allowed to access their databases of gangsters and other antisocial elements.

The moves follow recent revelations that Mizuho Bank, a unit of Mizuho Financial Group Inc, had extended loans to gangsters via its tie-up with consumer credit affiliate Orient Corp. and left the problem unattended for more than two years.

As of Friday, Sumitomo Mitsui Trust Bank, a unit of Sumitomo Mitsui Trust Holdings Inc., had stopped accepting new applications for such tie-up loans, except via subsidiary Sumitomo Mitsui Trust Panasonic Finance Co.

Over the last few years, the unit has been making efforts to strengthen its loan-screening system to shut out underworld elements partly by sharing the parent bank’s database.

Meanwhile, the trust bank halted new tie-up loans through consumer credit firms outside the Sumitomo Mitsui Trust Holdings group because they can’t access its database and are thus unable to fully check loan applications.

While some regional banks had already canceled existing contracts on loans extended in tie-ups with Orient and other consumer credit firms or stopped handling new such loans, Sumitomo Mitsui Trust Bank is believed to be the first major bank to curb tie-up loans.

In such tie-up loans, banks extend loans after applications are screened by consumer credit companies. The scheme lets consumer credit firms earn loan guarantee commissions while banks can up loans to individuals.

According to the Japan Consumer Credit Association, the amount of new tie-up consumer loans contracted in 2011 increased 5 percent from the previous year to ¥2.2 trillion.

Concerns are growing that the financial bases of small and independent consumer credit firms could be hit hard if banks keep curbing tie-up loan operations.