Interest rate ceiling on money lending

It is necessary to take account of the poverty state of debtor whether a loan with high interest rate is unfair or not. If the borrower is so poor that he can not maintain his household except borrowing money, a high interest rate is regarded to abuse the borrower state. But it should be equivalent of the act of undue influence and it is judged as using unfair relationship. The unfairness is in the estrangement of bargaining power between a lender and a borrower.

Then, What APR is relevant? Considering the market interest rate is variable, the lending interest rate should be variable depending to the market rate. This kind of calculation is adapted in
Germany. It seems reasonable except for the suitability of the additional rate.

The rate ceilings are decided under the interest rate restriction law. Currently, the maximum interest rate for loans of less than 100,000 yen is 20 percent per annum. The ceiling is 18 percent for loans of 100,000 yen to 1 million yen and 15 percent for loans of 1 million yen and over. The law says that the contract of interest rate against the law is void.

On the other hand, the investment law restricts the ceiling as 29.2%, and the criminal sanction is imposed against law. There is gap between 2 laws and the money lending business restriction law legitimate for money lender to lend money within the rate of the investment law. Money lender is not necessary to restore the overpayment on the basis of the interest restriction law if the borrower pays the interest voluntary.
However, recent decision of Supreme Court ruled that it was difficult to consider that the borrower paid voluntarily against the interest rate restriction law. “Gray zone” of lending due to a gap between the highest interest rates permitted fewer than two separate laws would 70 % of outstanding balance in large 5 money lender[1].

Big 4 consumer finance companies pay 60,000,000,000 as overpayment so far.[2] Moneylenders are not criminally punished if their interest rates fall below the upper limit of 29.2 percent annually under the Investment Deposit and Interest Rate Law even if they exceed the 15-20 percent upper limit imposed under the Interest Rate Restriction Law.The revisions lower the maximum annual interest rate of 29.2 percent under the Investment Deposit and Interest Rate Law to the ceilings of 15-20 percent, depending on loan principals, under the Interest Rate Restriction Law.

The revisions plug a legal loophole that has allowed consumer loan companies to charge the so-called “grey-zone” interest rates, which exceed the ceilings under the Interest Rate Restriction Law but remain below the 29.2 percent under the Investment Deposit and Interest Rate Law.

The revisions were proposed following a Supreme Court ruling in January, which effectively invalidated the grey-zone interest rates on consumer loans. Despite the court decision, moneylenders have continued to extend loans with grey-zone interest rates.

When the doorstep selling business deceived the cancellation right, a consumer can cancel the contract until the business deliver the written document that a consumer has a cancellation right on the contract and pass the ordinal cooling period. The article (sec. 9) was added in revised Specific Trading Act in 2006.

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[1] Asahi Shimbu: November 2, 2006

[2] Asahi Shimbun: December 6, 2006