Fair Lending practices

1. Undue influence When the money lending forced a borrower to pay, it can be regarded as abuse. In the case that plaintiff asked compensation to the money lender who lends him money mortgaged by his pension, the Osaka District Court[1]  accepted a claim of the plaintiff. The court said that this kind of lending got him poverty and the lender could foresee it.2 . Suitable lending practicesTo the type of poor management indebtedness, consultant and education is important. However, “the excessive spending” is the problem based on the excessive credit on one side. Money lender must lend money suitable to debtor’s ability of payment. The concept of responsible lending of lender is getting more important to prevent debtor’s excessive spending. The upper of lending should be restricted within possible amount for a borrower to be able to repay it without sacrificing his ordinary life. For the responding the issue of excessive lending, the Money lenders Restriction Law sates that the money lenders have to investigate for debtor’s possibility of repayment considering his financial status, trust worthiness, the state of indebtedness and repayment plan, and never contract of lending passing over his payment ability (s. 13). 3. Guidance [2] The guidance of the law stipulates the criteria of excessive lending. According the guidance:when lenders lending unsecured and no warranty loan by simplicity examination on a counter, lending amount never pass over ￡2,000　or within 10% of annual income of debtor (3-2-1(1));Lenders never solicit customer borrowing money passing over his necessity or stimulate his borrowing intention (3-2-1(2));When lenders lone unsecured and non warranty money to a customer, they have to confirm their customer’s borrowing intention by make them write necessity terms: expecting amount of borrowing, indebted amount, annual income and so on (3-2-1(3)):As to lend unsecured loan, lenders have to investigate debtor’s income and indebtedness through credit information institution and stipulate it in document (3-2-1-(4)) [3].As to lend with mortgage, lenders have to write down whether a borrower would be able to pay without selling mortgage, considering his condition: income, business plan, assets, family, daily life, state of debt and payment plan, loan terms and condition such as interest rate. If lenders deem that a borrower cannot pay his debt without selling mortgage, they have to confirm and write down borrower’s idea regarding selling time and his daily life plan after selling mortgage. This requirement is necessary as same as guarantor (3-2-1(5));To a guarantor, after investigating his income, assets, family, sate of daily life, debts from another lender, state of repayment, and so on. In addition, lenders have to write down the possibility of payment when he has to pay his debt. Lenders have not asked guarantor for payment passing over his possible payment (3-2-1(6);

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[1] March 5, 2004,

[2] Revised in 2006, http://www.fsa.go.jp/news/newsj/17/kinyu/20060307-1.pdf

[3] There are 5 credit information institutions in Japan:
Consumer Information Center, Japan Information Center, Personal Credit Information Center Consumer Credit Information Bureau and Teranet.