The Supreme Court ruled two decisions[1][2] regarding money lending cases on July 13th, 2007. Both decisions showed interesting judgments concerning the requirement of default interest in the excessive interest repayment.
Default interest
If one party makes a profit based on a loss of another party without legal basis, the other party can claim to restore the profit to the beneficiary party (art. 703 of civil code).
Article 703(Obligation to Return Unjust Enrichment)
“A person who has benefited (hereinafter in this Chapter referred to as “beneficiary”) from the property or labor of others without legal cause and has thereby caused loss to others shall assume an obligation to return that benefit, to the extent the benefit exists.
When the beneficiary party perceives that his profit is no legal basis, the claimant demand to pay the default interest adding his loss (art. 704 of the civil code).
Article 704(Obligation of Beneficiaries in Bad Faith to Return)
“A Beneficiary in bad faith must return the benefit received together with interest thereon. In such cases, if any damages still remain, the Beneficiary shall be liable to compensate for the same.”
Disputes
A number of consumers who borrow money with high interest rate claim reimbursing a default interest adding the excessive amount of repayment to consumer loan companies. On the contrary, money lenders refuse these claims: even if they recognize that the repayment by borrowers is against the restriction of the Interest Rate Restriction Law, they simultaneously may have the status to profit the repayment legitimately if they perform the procedure described in the Money Lending Business Law (art.43); it is also sufficient only to provide any document which described the allocation of the repayment to the interest and capital instead of the receipts; as long as they have the status of gaining a profit legitimately, the claim that they are in bad faith is not justified.
Two Tokyo appeal court decisions, on July 27th 2006 and on October 27th 2006, upheld the lenders arguments, because there were some academic theses in agreement with before mentioned money lenders’ view at the time of repayment.
Amout of claim
According to the Japan Times, in those case, the Tokyo woman has sued the lender for a refund of about 380,000 yen in excessive interest charges, while the Saitama man was calling for a refund of roughly 450,000 yen. However, the interest money in question is estimated at less than 10,000 yen for each of the plaintiffs in the two suits.
Under English Rule, these kind of lawsuits might be quite impossible, because if the plaintiffs fail the cases, they have to be required to pay the defendant’s lawyer fee and therefore their economic burden become significantly high.
Certainly, these plainffs have to pay their attorneys contingency fee, but it might be nominal within recovery amount in those litigation. In other words, the lawyers seem to work without without material pay. And it can be seen in consumer lawsuits generally in Japan.
Top court decisions
Two decisions of top court on July 13th, 2007 overturned these lower courts decisions as follows: the agreement against the interest rate restriction law was void in nature; money lenders recognized their obligation to reimburse the excessive interest if there was not specific circumstance justified their argument; .if the lenders’ view stemmed from academic theories, such situation should not be considered as the specific condition that they were not in bad faith; such academic theses or court decisions were necessary to be ruling in general at the time of repayment of debtors.
Default interest rate
According to the civil code, the APR of default interest rate is 5%. On the other hand it is 6% in commercial transaction. Although the consumer argued the application of 6% to default interest rate, the decision of the Supreme Court on February 13th 2007[3] adapted 6% as default interest rate in the excessive repayment cases.
updated on July 15th 2007
[1] http://www.courts.go.jp/hanrei/pdf/20070713144224.pdf [2] http://www.courts.go.jp/hanrei/pdf/20070713144518.pdf [3] http://www.courts.go.jp/hanrei/pdf/20070213110206.pdf
