The Diet passed a package of bills Monday to tighten restrictions on “shoko” loan lenders by revising a law to cut the interest rate ceiling from 40.004 percent to 29.2 percent starting June 1. Shoko lenders are financial institutions who specialize in making collateral-free, guarantor-required, short-term loans to small companies. Their high interest rates and heavy-handed loan-collection tactics have recently come under the government and media spotlight. The package jointly submitted by the ruling coalition — the Liberal Democratic Party, Liberal Party and New Komeito — was approved at the day’s Upper House plenary session. The new legislation will obligate lenders to explain their contract conditions in detail by sending documents to guarantors. It also toughens punishment for abuses by shoko lenders. In a related move, the Upper House Financial Affairs Committee will today summon the presidents of the nation’s two largest shoko companies to give sworn testimony. Lawmakers are now ready to grill Kazuo Matsuda, president of Nichiei Co., and Kenshin Oshima, president of Shohkoh Fund and Co., on allegations that they instructed subordinates to use intimidating tactics to recover loans. Among the contract details that now must be explained before signing is “ne-hosho,” a type of contract that allows borrowers to seek additional funds without notifying the guarantors. Under the existing legal system, borrowers with a ne-hosho contract can ask for additional loans up to the upper limit initially set by the contract without the guarantors’ consent. This often traps guarantors into huge repayment obligations if borrowers default. The bills will force the lending firms to send documents to guarantors before contracts are concluded, and every time an additional loan is extended. The legislation will also raise the fine against violators of shoko-related restrictions from 300,000 yen at present to 1 million yen. Punishment for inappropriate reports to authorities will also be strengthened to a fine of less than 3 million yen or a prison term of less than one year. The current punishment is a fine of less than 100,000 yen. Shoko lenders drew particular attention in late October, when police arrested a former Nichiei employee for allegedly intimidating a guarantor. The former employee reportedly threatened the guarantor by saying “Sell one kidney to pay back money!” and “One eyeball can sell for about 1 million yen.” More than 100 lawsuits have reportedly been filed against shoko lenders across the country as of October, prompting lawmakers of both the ruling and opposition camps to support tougher restrictions on those moneylenders. The bills also include a clause calling for a review of the new upper interest rate limit in three years.

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