By Taisuke Senoo

The Financial Services Agency (FSA) imposed administrative punishment on Aiful, the third ranking consumer finance company, on suspicion of violation of the Moneylending Control Law. About 1,900 branches of Aiful were told to suspend operations. The period of their suspension was between three to 25 days starting from May 8. It is an exceptionally strict penalty for a major consumer credit company. This case must have been a terrible thing for Aiful because it was trying to collect funds and to improve its image before its debut on the Tokyo Stock Exchange. In cases where violations of the law occur, it is customary that only the retail premises that committed the infraction is brought to justice. In Aiful's case, however, the FSA took an unusually severe step because there were grave violations of the law and a huge defect in the company-wide control system.

Troubles concerning contracts and claims with Aiful were conspicuous. Nearly 800 people from around the country have filed a class-action lawsuit. Aiful's illegal act was using outsiders to collect debtor's money. Aiful wrote letters of proxy without the knowledge of customers in order to get certificates of income for the screening of loans. In order to press for repayment, Aiful called the borrower's homes and places of employment.

These problems have received some attention before, but now it is said that the number of consumer financing users has reached about 20 million people. Ten percent of users are called multiple debtors. Multiple debtors are people who pile up debts while they borrow money from one financer to pay off another because they don't have the money. The number of personal bankruptcy filings has now reached 200,000 cases. It is said that some multiple debtors end up committing suicide because they reach an impasse. It has become a very serious social problem. The prosecution made the decision to punish Aiful as a warning to financial circles.

What kinds of provisions can we make to counter this situation? One answer is to reconsider the interest rate that is such a burden on borrowers. At present, the interest rate is between 15 to 29.2 percent, and if a borrower agrees to this interest rate the financier is not subjected to criminal punishment. The majority of consumer finance companies lend money at an annual interest rate.

In reconsidering the interest rate, financiers hope that interest rates are unified into a higher one. However, the Supreme Court ruled that there are no obligations to pay interest that is above 15 to 20 percent and attached importance to protecting borrowers. There are concurrences in an advisory panel of well informed, independent people that the complex and obscure interest rate system should be abolished and that these interest rates should be reduced.

Appealing advertisements of consumer finance companies are ubiquitous in our society. Some people fall into heavy debt, so advertisements need to be regulated. People can borrow money too easily. In the existing situation, we can't say that this social problem is all the borrowers' fault. Some borrowers were pushed into signing a contract without seeing the total amount of repayment. Some vulnerable groups of society were made to sign a contract by force. According to this reality, problems caused by lenders are very serious.

Financiers who were extorting money from customers and lending money to customers at higher interest rates have a heavy responsibility. The financial industry has been ordered to get everything ready for a compliance and inspection system.

However, there are many people who borrow money regardless of high interest rates. People are saying that the economy is improving, but judging from these circumstances we must assume that we still need to improve the economy. Many people want the government to review the cap rate and provisions for multiple debtors. And above all, we want the government to take measures for the economic recovery. What we should pay attention to is that when the official deposit rate is between 0.2 and 0.6 percent, a lending rate of 15 to 29.2 percent is allowed. This is very irrational. Right or wrong, we hope the government reduces this interest rate. It is a reliable way to take control of the situation and stop these illegal acts.