Complaints toword money lenders

The Financial Services Agency compiled the states of complaints regarding money lenders in fiscal 2006.[1] Complaints were in the direction to the agency. The number of complaints was growing from 1,426 in fiscal 2005 to 6,551 in 2006.

Details

Largest figure of complaints is with respect to adjusting debts. The detail of complaints is vague because the agency did not define the meaning of the notion.The meaning is supposed that the money lenders do not correspond honestly to debtor’s claim of adjustments of debts. Second largest number is with respect to disclosure of lending details. When a debtor want to be retrieved his excessive repayment, it is necessary to recognize his loan history.

Disclosure requirement

Some money lenders have been refusing disclosure of loan and repayment history, because they already handed debtors receipts at the every receiving repayment. But, some debtors might be not affording to hold them. Other debtors might miss them. Much litigation was filed to claim disclosure of loan history to the money lender who refused to do it. Most court rulings approved debtor’s claim. These rulings also endorsed their claims of paying emotional damage. Those litigations made debtors recognize their right to disclose of loan history.The increasing of the claim is reflected above noted history.

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[1] http://www.fsa.go.jp/status/kasikin/20070629/09.pdf

Identity theft fraud by forgery and theft banking card

Recent report

The FSA reported the state of identity theft damages misused by forgery and theft banking cards in fiscal 2006 on June 26th, 2007.[1][2] The report described the change of damage from fiscal 2000 to fiscal 2006. According to the report, the fraud number by forgery card was decreasing from 897 in fiscal 2004 to 531 in fiscal 2006 whereas the figure of deceit by theft card increased from 6,080 in fiscal 2004 to 6,603 in fiscal 2005.

Law

The Depositor Protection Law was enforced in February 2006. The aim of the law is to indemnify damages incurred by identity theft. However, the scope of the law is somewhat narrow. It is only applied to cash withdrawals used forgery and theft banking cards from ATM. The law does not cover all of the cases of identity theft fraud.Whilst we can withdraw deposit by bank book at a bank teller’s gage, the law is not applied to the way of withdrawals. The law also does not cover the internet fraud committed by the way someone impersonates his victim’s bank account, user name and password collected by phising and others. In other word, the application the law is extremely limited. In conclusion, our law has not high quality. The level of the law should be not keep up with other developed countries.The law might be revised within 2 years after enactment, because it stipulates the possibility by parliament resolution at the enactment. The controversial problems such as false withdrawals by internet might be discussed again at the time of coming law revision.

Requirement

Depositors have to inform to the incident both to the financial sector and a police station. The law covers the damages within 30days after they notified the incidents to the relevant institutions. Depositors have to inform to the incident both to the financial sector and a police station. The law covers the damages within 30days after they notified the incidents to the relevant institutions. Japanese banking institutions never send account statements periodically; therefore depositors are not aware of the incidents by them. They usually know their damage by updating their accounts.

Reduction of reparation

Principally, financial institutions have obligation of indemnification of all damages to victims if the victims have no negligence for their incurred damages. On the other hand, if the victim has significant negligence, they cannot get any indemnification at all. In case victims have slight negligence to the occurrence of false withdrawals, the treatment differs in the case of forgery card from theft card. Victims of the theft card can only get 75% of damages as indemnification whereas they can recover all damageｓ in the theft card. The burden of proof of depositor’s negligence is imposed on financial institutions.

Assessment

Once again, the scope of the law is significant narrow. First of all, the law should include the money withdrawals by theft bank book: it is unreasonable to distinguish the theft bank book with the theft banking card; rather, the victims of theft bank book should be more protected because the officer of the bank teller’s gate can make sure the identity of depositor by verifying some features: signature or other depositor’s personal data Secondly, the law should be extended to the money transfer by internet. Nowadays, most financial institutions introduce internet banking system. The number of internet banking fraud by identity theft was 55 in fiscal 2006 whereas the figure in fiscal 2005 was 49. Fraudulent money transfer in internet banking by identity theft seems relatively small compared with fraud by forgery and theft card. However the number of fraud is firmly growing. The necessity of consumer protection in fraudulent internet money transfer by identity theft is not different from off-line fraud. Financial institutions have effective menu to prevent or mitigate identity theft in internet banking. At least, they have capability to develop suitable solutions. On the other hand, consumers have no way or less skill to impede their damages.Most financial sectors are already introducing the solution authenticating the person. There might be risk in case the institutions does not introduce or develop the solutions. But it does not become persuasive and comprehensive reason to transfer the risk to consumers. The risk should be endured by the financial institutions, considering the significant difference between consumers and financial sectors concerning ability of preventing damages incurred by identity theft.

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[1] http://www.fsa.go.jp/news/18/ginkou/20070626-1.html

[2] http://www.fsa.go.jp/news/18/ginkou/20070626-1/01.pdf

Interim report concerning consumer credit law reform published

Public comment

The METI has required the public comment regarding the revision of consumer credit law. The deadline is July 31^st, 2007.[1] The element which should be considered is described with to the interim report published on June 26th, 2007.

Background

The report draws the state of injuries in consumer transactions damages financed by consumer credit company. It especially points out the increasing of elderly victims in recent years. Although ratio of the elderly victim over 70 years old in all consultation people to the consumer center was 6% in 1998, the figure was increased 15% in 2005. Principal lenders to multiple-indebtedness people are money lending companies and ratio is 80%. Balance of loan of the peoples from credit company is comparatively small on the face. Whereas such victims are compelled borrowing money for repayment of installment, these traders’ marketing is getting easier by virtue of participating of sector financing to transaction of these victims.

Law reform

It is necessary that credit companies supervise their member shops to prevent finance to fraudulent transactions. However such measures have no effectiveness against bogus traders.The recommendation to introduce the connected lender liability system in consumer credit law reform is correct. The measure is quite effective devices to keep the credit companies away from bogus traders. But, if the responsibility of creditor is basis on negligence, it is obviously wrong.It is considered unfair that the law imposes consumers the burden of proof of negligence of creditor, because credit companies are in easier position than consumers to investigate the business or marketing of member traders. On the other hand, the credit companies get huge profit by financing the traders-consumers. The fact justify that the creditor should bear absolute liability to damages caused by problematic traders.

Comparative law

The system of connected lender liability is said to be introduced in UK, Denmark, Sweden and US, in either statute law or case law. In these countries, there is not reported any inconvenience and disadvantage in consumer credit sectors. On the contrary, the lender liability system, the credibility of the member shop of creditor is getting higher and thus the use of credit by consumer is stimulated and encouraged. The situation is not bad for consumer credit sector.

Period of public comment

Period of public comment is only one months. It might be shorter than other developed countries.

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[1] http://search.e-gov.go.jp/servlet/Public?CLASSNAME=Pcm1010&BID=595207028&OBJCD=&GROUP=

Alternative disputes resolution for medical malpractice disputes

The Alternative Disputes Resolution Institution for Medical Malpractices will be established in next year based on the ADR Law enacted in April 2007.[1] The organization is interesting because the victims by medical malpractices will be involved in the establishment.

Civil cases

Many compensation claims related to medical malpractices are filed with courts in Japan. The number of suits was 1,110 in 2004 and 9999 in 2005.[2] We can find court rulings concerning the cases in web-site[3] of the Supreme Court frequently.

Criminal case

The criminal cases concerning medical malpractice are relatively few rather than civil cases. But the number was 91 in 2005. Period of procedure District courts in big city have specific division dealing with medical malpractice. For instance, Osaka District Court has 2 divisions. Therefore the judicial procedure seems to be accelerated compared with previous time. However it takes over two years at least until finishing first ruling; although the period has been shorten recently. Until 2000, average period that a court procedure took was over three yeas. Nevertheless, the period is too long.

Effectiveness

In the case where difference between each party’s statements is small and the disputes are focused in the amount of damage, the ADR might be the measure of effective resolution.

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[1] http://www.jiji.com/jc/c?g=soc_date3&k=2007062400177

[2] http://www.mhlw.go.jp/shingi/2007/04/dl/s0420-11c_02.pdf

[3] http://www.courts.go.jp/search/jhsp0010?action_id=first&hanreiSrchKbn=01, http://kanz.jp/hanrei/search.html?cat=11

Mental distress damage by being interrupted of enjoyment of fireworks

The inducement of purchasing an apartment varies. Some people do it to enjoy fireworks. If their enjoyment is disturbed by other apartment build after their purchasing, is it possible to claim payment of damage compensation to the selling company of his flat?

Case

If the later flat was build by the property agent who also sold the claimant’s flat, there is possibility to claim somehow damage. The Tokyo District Court ruling on December 8th 2006 was such case.Sumida river fireworks festival is operated in August. That is one of the most famous fireworks in Japan. Defendant, who was real estate agent, advertised that purchasers could enjoy the fireworks from the flat. The plaintiffs, who believed the defendant’s advertisement, purchased their flats on construction from defendant. Their purposes of were enjoying those fireworks. The contract was formed in May 2003 and the defendant was performed them in October the same year.However, the defendant started to build another apartment in the location between plaintiff’s apartment and the Sumida River since May 2004. Therefore, the plaintiffs were to be impossible enjoying the Sumida fireworks. The claimants stated that the defendant knew or was likely to know the purpose of plaintiffs purchasing and that the construction of the other apartment disturbing plaintiffs’ vista of fireworks was against good faith. The amount of damage the plaintiffs claimed was JPY 3,500,000 each as their mental distress.

Tokyo District Court decision

The court approved the plaintiff’s claim, stated as follows: the defendant knew or was likely to know above mentioned plaintiffs’ purchasing intention; the defendant had a duty not disturbing the plaintiffs’ possible vista to the Sumida River in good faith; notwithstanding, the defendant constructed the other apartment interfering the plaintiff’s vista only 1 year after his selling to the plaintiffs.The ruling said that the defendant did not seem to take suitable care to the plaintiffs’ interest of vista until starting construction of the other apartment; even after starting construction, the defendant also failed the honest attitude to the plaintiffs. In conclusion, the ruling ordered the defendant to pay JPY 660000 as mental distress damage to the plaintiff.Prior the above mentioned decision, the Sapporo District Court on March 31st 2004 did similar decision.

Comment

These ruling admitted the duty based on good faith even after the defendant performance finished. However the requirements of the duty are still ambiguous and it is vague how long does that kind of the defendant’s duty continue.

Duty to explain about an earthquake insurance

Earthquake insurance

We have been suffering damage by frequent earthquakes. Hanshin earthquake in January 1995 was recent largest one. Following it, Tyuetsu earthquake in October 2004 and Noto earthquake in March 2007 happened.Therefore, many consumers form contracts of earthquake insurance, voluntarily or by solicitation of an insurance company. However, it is difficult for consumers to understand precisely the meaning of terms and condition in earthquake insurance contract, even if they can read it literally.The Supreme Court ruling on December 9th 2003 was the case where it became dispute concerning whether the explanation duty of the insurance company was suitable.

Case

The plaintiffs were victim of the Hanshin earthquake disaster, and they made an insurance contract with the defendant insurance company before then. Afterwards, the plaintiffs suffered the damage of their properties by fire based on the earthquake. according to the written contract, the damage caused by the earthquake was not covered by insurance claim; Plaintiffs’ damage was caused by enlarged conflagration after the earthquake, therefore their damages were not included within the fire damage claim; although there was earthquake insurance to be paid to the fire caused the earthquake and the insurance was bundled with usual fire insurance, these agreement was excluded from claimants’ contract and the plaintiff company did not explain it. As a result, the plaintiffs made signature on the contract agreements, while the plaintiffs had not well understanding that they could not get payment by the fire claims caused by earthquake.The plaintiff claimed for their fire damage based on their insurance to the defendant company, but the defendant refused plaintiffs’ claims.

Claim of plaintiffs

The claimants argued that the defendant failed to explain the details of earthquake insurance and therefore they could not have precise perception as their contract did not contain the earthquake insurance. The plaintiffs claimed that the defendant commercial practices constituted the breach of explanation duty in good faith.The plaintiff claimed not only property damages, but also the mental distress damage caused by loss of their opportunity to receive the claim of earthquake insurance.Original court ruling The Osaka Appeal Court October 31th, 2001[1] approved a part of plaintiffs’ claims as following: the information of the earthquake insurance was significantly important; the information was necessary for the plaintiffs to make their informed decision for their contract; in the situation where there were significant imbalance in information and bargaining power between the plaintiffs and the defendant, the defendant company should have performed efficient explanation concerning the earthquake insurance. The decision stated that the defendant, in addition to the content of the earthquake insurance, should have explained the meaning of stamping seal on the column described for the plaintiffs not to take agreements of earthquake insurance in good faith, The defendant should have explained that the plaintiff might suffer disadvantage by stamping their seal to the column described not to make an agreement of earthquake insurance; notwithstanding, the defendant was considered failing to explain them in negligence.The court concluded that if the defendant had performed his explanatory obligations, there would have been opportunity for the plaintiffs to make contracts concerning the earthquake insurance and the mental distress damage of the plaintiffs was the loss caused by the breach of accessory duty.

The Supreme Court Decision[2]

However, the Supreme Court Decision on December 9th 2003 did not endorse the original court ruling, stating as follows: the earthquake insurance contract was not about physical loss like as injury or death, but only about property damage; therefore, even if the defendant’s practices was insufficient in providing information or explanation, it was not regarded as illegal omission that was worthy of the plaintiffs’ mental distress damage; the plaintiffs stamped their seal to the column described not applying the earthquake insurance, thus the plaintiffs could recognize that the fire insurance was different from the earthquake insurance and they had opportunity to confirm the additional information concerning the earthquake; the fact that the plaintiffs stamped their seal to the column presumed that the plaintiffs recognized the content of the contract and the meaning of stamping seal to the column; on the other hand, there could not admit any proof that the defendant hid the terms and condition regarding the earthquake insurance.The ruling concluded that even if the defendant performed unsuitable commercial practices in providing explanation, there was not enough proof that could justify the plaintiffs’ claim approved.

Comment

The conclusion of the Supreme Court is based on the presupposition that if the defendant provides the written information to the plaintiffs, the plaintiffs might have perception of the contents of the document. However, as the ruling of Osaka Appeal Court indicated, it is usually difficult for the consumer to understand the content of insurance contract if they have not suitable explanation of the meaning by the defendant. Even if the plaintiffs can read it literally, the fact does not mean that they can understand the content precisely. It is because there is significant imbalance in information and bargaining power between the plaintiffs and the defendant. The defendant should bear the duty of confirmation regarding the plaintiffs’ recognition of the content of the contract in question. If the defendant comes to know that the plaintiffs’ recognition is wrong, the defendant should have to correct them and confirm that the plaintiffs make their informed decision. The Supreme Court ruling is considered insufficient because of neglecting the imbalance of information and ability between the plaintiffs and defendant.

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[1] http://www.courts.go.jp/hanrei/pdf/A5AEEE141ACF94E949256B590025BA7F.pdf

[2] http://www.courts.go.jp/hanrei/pdf/69E243819A9B5CC849256EA2002681A1.pdf

Administrative failures about supervising the private sector

Following Diwa Toshi Kanzai decision, our court accepted the responsibility of an administrative body failing to supervise the private institution on June 22, 2007.[1]

Ruling

The Saga District Court ordered Saga Prefecture to pay JPY 1,035,000,000 as damage compensation. The prefecture was entitled to give approval of the mutual benefit aid and supervise its management. Saga Syoko Kyosai was a private mutual benefit society that was founded based on the Small and Medium Corporative Association Law.

Case

According to the ruling, the mutual aid fell in condition of insolvency since 1991. The mutual society started to commit window dressing for the purpose to hide its financial crisis. Saga Prefecture knew it at the audit in 1996, but the prefecture failed his administrative advice as a result of his consideration that the mutual society was capable to rebuild. The mutual society could continue his business and collect deposit from members. Eventually the fund filed bankruptcy in August 2003. The members of the mutual society could only recover one third of their deposit through the bankruptcy procedure.The plaintiff filed lawsuits to seek payment of damage compensation to the board members of the mutual society and the Saga Prefecture.

Comment

Concerning the limitation of administrative body’s discretion of supervising unfair practices conducted by private sectors, much litigation have been filed to courts. However, in the case of property damage cases, our courts have rejected the consumer’s claims seeking compensation by virtue of the government failure to supervise rogue sectors. But the trend might be changing in lower court at least.

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[1] http://www.yomiuri.co.jp/national/news/20070622i303.htm　

Judgement about an infringement of personal data

On June 22th 2007, the Osaka Appeal Court ruled in favor of victims concerning personal data infringement case. It endorsed the decision of the original court on March 19th 2006.

Case

Defendants were Yahoo Japan, Softbank BB technology. Each company was subsidiaries of Softbank. Softbank BB was an internet service provider and the defendant company performed respective procedure of contract with their customers together with the Yahoo Japan. The plaintiffs were customers of Softbank BB, provided their data to the company: address, name, telephone number, e-mail address, yahoo ID, e-mail address of Yahoo, and date of application.Softbank BB stored the plaintiff’s personal data in Softbank BB’s main servers. A former employee dealt with maintenance of the main server. He was provided user’s account and password to access the main server in Softbank BB. After the former employee retired Softbank BB, he stole customer’s data together with other confederates, using user’s account and password delivered to the former employee.However, the user account and the password was joint ownership of employees who dealt with maintenance. Softbank BB did not alter user’s account and password in negligence after the former employee retired. It was a reason why the intruders could access the main computer and steal the customer’s data.The plaintiffs filed lawsuits to seek payment of damage compensation from the defendants based on tort law.

Original decision 

The Osaka District Court approved the plaintiffs’ claims: the Softbank BB had a duty to protect his customer’s data securely. Actually, although the Personal Data Protection Law was not enforced then, there was similar administrative guidance and the defendant failed to perform his duty in negligence. The ruling concluded that the plaintiffs’ data were necessary to be protected as a privacy right legally even if their data was not so significant and was only used for the purpose of identifying customers, because the plaintiffs expected Softbank BB to store their data safely and their expectation were legitimately.However, the damage compensation the ruling admitted was only JPY 5,000 per claimants. As a reason, the decision indicated that the data in question were not delivered to third parties and the data was less important.The court rejected the plaintiffs’ claim to Yahoo Japan: the information in question had not been stored in the defendant and the defendant had not responsibility to supervise Softbank BB even if they provided their respective services together.

Appeal court decision

The appeal court mostly endorsed the original ruling to Softbank BB, and it approved the claim to the Yahoo Japan different from the original decision. The court considered that although the company had a duty to supervise Softbank BB as the co-defendant, the defendant failed to perform it in negligence.

Assessment

The plaintiffs claimed payment of 1,000,000 yen for defendants as emotional distress damage compensation each. But, in the appeal court decision, the plaintiffs’ claims were not admitted over the amount the original decision approved. Our court tends not to admit mental distress as damage compensation except the case of physical injury. However, such small compensation is not effective to make personal data holders perform their compliance completely even if our civil law does not consider compensation as tool of punishment.

Collective investment scheme

Finding

According to the National Consumer Affairs Centre, the consultation number of investment scam to rural consumer centers was 2,218 in fiscal 2006, while it was 1,941 in fiscal 2005.[1] Collective investment scheme has been effective manner for bogus trader to invite consumer fraudulent transaction.

Collective investment scheme

The scheme is defined as a way of investing money with a large number of people to participate in a wider range of investments that may not be feasible for an individual investor hence many investors share the costs of doing so.In domestic law, the scheme had been not regarded by any law and any administrative body so far.[2] Therefore, bogus traders could raise fund from many consumer, and incurred a serious damages.

Large scale scams in the past

Scams related collected investment scheme were as follows:[3]Toyota shoji case (1985) … JPY 202,500,000,000 (lump sum damage), Yatsuyo case (2002) … JPY 154,900,000,000, Keizai Kakumei Klub case (1997) …JPY 35,000,000,000, G.O group case (2002)…. JPY 30,200,000,000, Orange Kyosai case (1997)….JPY 8,500,000,000

Future restriction

However, the collective investment scheme will be regarded as securities from September 2007, thus it will also be regulated by the Financial Products Trading Act.

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[1] http://www.kokusen.go.jp/pdf/n-20070620_1.pdf[2] Administrative structure for achieving consumer policy in Japan, http://www.consumer.go.jp/seisaku/shingikai/bukai21/sanko9.pdf

[3] http://www.consumer.go.jp/seisaku/cao/shohishakyouiku/2002kenkyu/file/2bu_2.pdf

State of the art defense in strict procuct liability

The Product Liability Act (Act No. 85 of 1994) was enacted in 1994, which is based on the 1985 European Product Liability Directive (EEC 85/374).

The act approved a strict or a no-fault product liability scheme that enable to any person who suffers personal injury or property damage as a result of defective product to recover compensation from the manufacturer without the need to prove negligence.

Article 3(Product Liability)

The manufacturer, etc. shall be liable for damages arising from the infringement of life, body or property of others which is caused by the defect in the delivered product which was manufactured, processed, imported, or provided with the representation of name, etc. described in item 2 or item 3 of paragraph 3 of the preceding Article, provided, however, that the manufacturer, etc. shall not be liable when the damages
occur only with respect to such product.

Since enacted the act, about 100 court rulings are found nationwide.

The law admits states of the art defence that a manufacturer should not be liable for harm caused by a product that met the best prevailing standards of design, performance and safety at the time it was manufactured.

Article 4(Exemptions)

In cases where Article 3 applies, the manufacturer, etc. shall not be liable as provided in Article 3 if he/she proves that:
(i) the defect in such product could not have been discovered given the state of scientific or technical knowledge at the time when the manufacturer, etc. delivered the product;

Concerning the food poisoning case, the ruling of the Tokyo District Court on 13th December 2002 rejected the counterclaim of the state of art defence stated by the defendant.