The Liberal Democratic Party is again considering allowing consumer finance firms that meet certain conditions to extend loans at usury interest rates higher than the current ceiling of 15 to 20 percent by revising the moneylender law, sources said.
Opposition to the proposed easing remains strong because the current regulations were introduced to address problems related to excessive lending, such as excessive debt and shady collection practices that bordered on harassment. The Financial Services Agency is also cautious.
The interest cap for such lenders would be a daunting 29.2 percent, the maximum rate that was in place until 2010, according to an outline of the LDP’s draft bill to revise the law. The outline also calls for exempting select firms from the rule barring loans exceeding one-third of a borrower’s annual income.
The interest rate cap was lowered based on a 2006 revision to the moneylending business law that scrapped so-called gray-zone interest rates and introduced the income-linked loan limit. The size of the industry and the balance of loans have both shrunk dramatically as a result.
The LDP is discussing the revision at a subgroup of its financial affairs division. LDP members are aiming to submit the bill to an extraordinary Diet session likely to be convened in the autumn. The LDP subgroup is discussing easing due to concerns that it has become difficult for small firms and the self-employed to borrow from nonbank lenders.