The number of money lenders who mainly lend unsecured loan to consumers is decreasing up to 9,819 at the end of January 2007; it is a one-third compared with 10 years ago, the Financial Services Agency reported.
As I noted it in previous blog article, we maintain currently a vague regulation concerning the cap of intrestrat rate in money lending: it is so called ” Gray-zone”.
Gray-zone rates fall between two separate legal rate caps for consumer loans. The Interest Rate Restrictions Law caps rates between 15 percent and 20 percent according to loan amounts, while the Investment Deposit and Interest Rate Law allows rates of up to 29.2 percent to be levied if borrowers so consent in writing and are delivered the reciept in every repayment immediately.
Since a Supreme Court ruling in January 2006 effectively invalidated gray-zone rates, demands from borrowers for refunds from loan companies have increased: the court said that the case where borrowers give their consent truly would be rare.
The Diet enacted legislation in December 2006 to unify the lending rate caps at 20 percent and to eliminate gray-zone rates by late 2009. It is said that the phenomenon was stirred by revised Money Lending Business Law in 2007; therefore a interest rate of loan shall be capped up to 15% to 20% at the end of July 2010.
Influence predicted
Money lenders are shouting that the decreasing of money lenders might prompt the expanding of illegal lender. Actually, the number of illegal lending prosecuted is increasing since 2003. Some money lenders allegedly transfer their business to the profitable illegal lending.
However, the basis of the reduction is very likely based on the fact that Illegal Lending Restriction Law was enacted and enforced strictly. Honestly speaking, the decreasing of financial providers must diminish the opportunity of loan. The borrowers over-indebted might be forced to depend on illegal lenders.
Consumer policy to be set up
The decreasing of money lenders makes it realize that effective money supply by public sector is sought quickly to complete protection for over-indebted consumer who cannot get loan from money lenders.
The Government should enhance the financial capacity of credit unions and community development finance institutions.
In addition, a number of banks should act in partnership with charities for the homeless and other charitable bodies in opening up affordable forms of credit to low-income families.
