• Compiled From Bloomberg, Kyodo

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Consumer lender Takefuji Corp. filed for bankruptcy protection Tuesday after being forced to refund borrowers for overcharged interest, it said.

The failure of the country’s third-biggest consumer finance firm came after its board members gave the go-ahead at an emergency meeting.

With the filing at the Tokyo District Court, Takefuji will start reconstruction under the Corporate Rehabilitation Law.

President Akira Kiyokawa and Executive Vice President Taketeru Takei resigned and board member Junichi Yoshida was appointed the new president, the company said.

The lender, founded in 1966, aims to restructure its business as it doesn’t have enough cash to repay borrower claims of overpaid interest that have saddled domestic consumer lenders with ¥4.4 trillion in costs.

Rivals Aiful Corp., Promise Co. and Acom Co. may face an increase in claims as borrowers try to beat Takefuji bankruptcy court deadlines.

“Debtors request refunds not only from Takefuji, but from all their lenders,” Takehito Yamanaka, an analyst at MF Global Equity in Tokyo, said in a report. “Claims may increase temporarily in the next couple of months as lawyers gather debtors.”

With its bankruptcy filing, Takefuji has become the biggest casualty of Japan’s four-year crackdown on coercive lending practices by consumer finance companies. The lender said Monday in a statement to the Tokyo Stock Exchange that it was considering “various measures” to revitalize its business.

Takefuji said it had liabilities of ¥433.6 billion as of June. But the amount is likely to balloon even more because 2 million Takefuji borrowers have yet to claim their overcharged interest, industry sources said.

Under a law that took effect June 18, consumer lenders are prohibited from extending loans that exceed a third of a borrower’s annual income, and interest is capped at 20 percent.

The companies’ customers typically take out loans to cover living expenses, with refinancing existing debt cited as the second-most common reason, according to a survey by the Japan Financial Services Association in December.

“The fall of Takefuji, while having minimal impact on Japan’s financial system, would be gloomy news for consumers on the street and fuel bleak prospects for Japan’s economy,” said Yasuhide Yajima, an economist at NLI Research Institute in Tokyo.

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