A key Liberal Democratic Party panel agreed Friday to shorten a transition period for the creation of a single interest-rate ceiling for consumer loans to five years instead of the original nine proposed by the Finance Services Agency, panel members said.
The panel decided to shorten the transition in response to criticism that the long phase-in of single, lower ceiling would hurt people who owe money to more than one lender.
At present, under the Interest Rate Restrictions Law, consumer loan companies can charge no more than 15 percent to 20 percent interest, depending on the size of the loan. But under the Investment Deposit and Interest Rate Law, they can charge up to 29.2 percent if borrowers agree in writing.
Both LDP and the FSA proposals would create a single interest rate cap of 20 percent. This legal change aims to help debtors who are charged interest rates in the “gray zone” between the two different rate ceilings.
“We have placed greater consideration on the users’ side rather than (lending) companies,” said Yoshitake Masuhara, head of LDP’s subcommittee on the consumer finance system. LDP critics had said the FSA proposal was too easy on lenders.
According to the draft proposal by the LDP panel, the lower ceiling will not be enforced for three years after the law is enacted and consumer lenders can continue charging interest rates in the gray zone.
Masuhara called the three-year period a “soft-landing,” stressing it is necessary to avoid consumer lenders suddenly calling in their loans or refusing to provide credit to borrowers.
According to the LDP draft, during the final two years of the transition, lenders will still be able to charge up to 25.5 percent for some risky individual borrowers. The higher limit will apply to loans of up to 300,000 yen with a maturity of one year.
The FSA initially proposed to set the upper limit for such loans at 28 percent on loans of up to five years
Under the latest draft, consumer finance firms will be allowed to charge higher rates only if the borrowers have no outstanding debts with other consumer lenders. This aims to prevent borrowers from getting in over their heads.
The draft requires the government to set up an office comprising officials from ministries, industry associations and a lawyers group, to tackle on issues related to borrowers who have debt from multiple money-lenders.
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