The ruling Liberal Democratic Party may loosen restrictions on the consumer finance industry to provide more options for borrowers to obtain credit, according to a Diet lawmaker who is driving the initiative.
LDP member Masaaki Taira said he will lead a new panel that will start discussing the matter next month.
The government should consider scrapping the part of a law that limits credit to a third of a borrower’s income, Taira said in a recent interview. He also wants to raise the ceiling on interest rates back to 29.2 percent from 20 percent to encourage consumer lenders to make more loans.
Shares of companies including Aiful Corp. and Acom Co. rose on speculation that the move would bolster profits that have been dented by the legislation, which took full effect in 2010 as part of a crackdown on usury and coercive lending.
Taira said the limits on consumer loans make it harder for some businesses to grow and could hamper Prime Minister Shinzo Abe’s economic revival plan.
“It’s nonsense to rob business owners of opportunities with the regulations on interest rates and credit amounts,” Taira said. “The only way nonbanks can cover risks for small and short-term loans made without collateral is by charging higher interest.”
Aiful jumped 14 percent, the most in seven months, to ¥400 at the close of the Tokyo Stock Exchange on Friday. Acom, partly owned by Mitsubishi UFJ Financial Group Inc., rose 5 percent. Aplus Financial Co., a unit of Shinsei Bank Ltd., gained 6.3 percent.
Consumer finance firms were forced to refund massive amounts in overcharged interest to borrowers after a 2006 court ruling on “gray zone” interest. Shares of Acom, the nation’s largest consumer lender, lost almost half of their value since the clampdown began that year, and Aiful stock slumped more than 90 percent.
Net income at Acom fell 73 percent to ¥10.6 billion in the year ended March 31, the company said in a preliminary earnings report after the close of trading Friday. Aiful’s full-year profit rose 34 percent to ¥30.4 billion, the Kyoto-based firm reported Friday, also on a preliminary basis.
There is a “high hurdle” to loosen the law, in part because the Supreme Court ruled that rates above 20 percent are illegal, Yoshinobu Yamada, an analyst at Deutsche Bank AG in Tokyo, said. Even if the law was revised and complied with judicial precedent, “we do not think interest rates above 20 percent would be good news for small businesses.”
To prevent predatory lending, consumer lenders should be required to obtain a license to set rates higher than the current cap, Taira, the lawmaker, said. Eligible borrowers would include small and midsize companies and individuals, he said. The daily Nikkei reported the possible revision on April 19.
The LDP pledged to ease the regulations in its successful election campaign in 2012, saying the rules led the consumer loan market to shrink and drove some lending underground to illegal outlets.
The new panel may submit a proposal to the Diet in the current session, said Taira, adding the matter needs “careful discussion.” Previous efforts to relax the laws stalled because the LDP was in opposition, he said.
“I don’t care who will make money with the revision,” Taira said. “I just want to promote free economic activities.”
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.