Sarakin On The Retreat

[Mulboyne]

Asahi: Promise, Sanyo head for merger

Consumer loan companies Promise Co. and Sanyo Shinpan Finance Co. are in the final stages of negotiating to merge by the end of this year, a move that would make them the biggest firm in the industry, sources said Thursday. The loan companies are the nation's third- and fifth-biggest, respectively. The merger would give them 1.991 trillion yen in combined outstanding loans, surpassing the 1.985 trillion yen held by the current leader, Aiful Corp. This is the first merger move among the big consumer loan companies, which have been struggling because they are required to refund interest they had overcharged borrowers...According to the sources, Promise and Sanyo Shinpan, the operator of Pocket Bank outlets, decided the merger is necessary if they are to survive the tougher business environment in the near future...more...

[Mulboyne]

Yomiuri: Loan firms to reduce TV ads

With the full-scale enforcement of the revised Moneylending Control Law due later this year, moneylenders and credit sales firms plan to drastically scale down their TV advertising, The Yomiuri Shimbun has learned. The plan, which is a part of self-imposed rules the companies have drafted, aims at preventing people--especially young people--from accumulating excessive debt. The companies also plan to ban installing automated loan contract machines near pachinko parlors and public gambling facilities, according to the draft plan. The revised Moneylending Control Law obliges moneylenders to set up a new industry association that they are required to join, and to establish self-imposed rules.

In response, major consumer finance firms took the lead in drafting the self-imposed rules. A new industry association is likely to be launched by the end of this year. According to the draft plan, consumer loan firms' TV commercials will not be aired between the peak viewing hours of 7 a.m. to 9 a.m. and 5 p.m. to 10 p.m. Between 10 p.m. and midnight, the number of TV advertisements will be limited to a maximum of 100 a month per firm in each TV broadcasting zone. Starting in April last year, seven major consumer loan companies voluntarily cut their TV ads by about 60 percent. The companies initially said the decision was temporary, but they apparently plan to continue it.

In another effort to prevent their customers from overborrowing, the repayment period of loans will be limited to within five years, according to the draft plan. The period will be set at up to three years for loans of up to 300,000 yen. Some borrowers have trouble repaying moneylenders, particularly when the term of the loan is long. In extreme cases, the amount of the principal remains the same even though the borrower has paid interest for 10 years. Consumer loan companies hope there will be no such cases under the new system.

[Mulboyne]

Reuters: GE may sell Japan consumer finance unit

General Electric has sounded out financial institutions about acquiring or taking a stake in its Japanese consumer lending unit amid an industry-wide slump prompted by tighter domestic regulation, the Financial Times reported on Tuesday. Efforts to sell or find investors for the unit, called Lake, are still at an early stage, the newspaper said...GE announced earlier this year that the unit would close 60 percent of its manned personal loan branches in Japan and shed up to 400 employees as stricter regulation has eaten away at industry profits...more...

[FG Lurker]

As far as I can tell people who hold cards from consumer finance companies have not had their interest rates adjusted. Have lower maximum rates been set? If so, wouldn't companies be required to adjust the rates of existing accounts?

[Mulboyne]

Reuters: GE says Japan consumer loan exit may cost $1.1 bln

General Electric said its decision to pull out of its Japanese consumer loan business after regulators imposed interest rate caps would cost it up to $1.1 billion. In a regulatory filing dated Sept. 21, it said it was actively looking for a buyer and expected to complete the sale of the Lake personal loan business by the end of the third quarter of 2008. "In connection with this exit, we expect to record an after-tax loss in the range of $0.8 billion to $1.0 billion in the third quarter of 2007, which represents the difference between the net book value of our Lake business and the projected sale price," GE said. "We estimate that the total costs to be incurred in connection with this plan will be in the range of $0.9 billion to $1.1 billion, which includes approximately $0.1 billion of future cash expenditures," it added. GE decided to pull out of the business after the Japanese parliament approved a lending law that lowers the maximum legal interest rate to between 15 and 20 percent, depending on the size of the loan, from 29.2 percent.

[Mulboyne]

[Mulboyne]

Yomiuri: Top court tells loan shark to repay principal

The Supreme Court overturned a high court ruling and ordered a convicted former gangster and illegal moneylending group boss Tuesday to compensate plaintiffs not only for extortionate interest charged, but also the principal of the loans. The top court's No. 3 Petty Bench sent the case against the former head of the loan shark group, Susumu Kajiyama, a former senior member of Goryo-kai, a criminal gang affiliated with Japan's largest crime syndicate, the Yamaguchi-gumi, back to the Takamatsu High Court to recalculate the amount of compensation. The high court had previously ruled that the plaintiffs only be compensated for the amount of interest they paid. Kajiyama's loan shark group had forced the plaintiffs to pay off their loans at extortionate rates of interest--reaching several thousand percent on some occasions. The 11 plaintiffs from Ehime Prefecture have sought a total of about 35 million yen in the damages suit. "I cannot permit the principal amount to be deducted from the compensation," Justice Kohei Nasu said in handing down the ruling. This judicial ruling that people do not have to return money they borrowed from shady consumer loans operations likely will deal a large blow to such outfits and may lead to financial relief for their victims...Lawsuits demanding compensation are being brought against loan shark outfits across the country, but rulings have differed over the extent of the compensation...more...

[Mulboyne]

[Mulboyne]

[SIZE="4"]Interest Refunds By 4 Consumer Credit Firms Hit Record In '08[/SIZE]

TOKYO (Nikkei)--Interest overpayments refunded to borrowers by the four major consumer credit companies likely reached a record of more than 290 billion yen last year. As of last spring, Promise, Acom, Aiful Corp and Takefuji projected that refunds would start declining this past fall. But the firms had to maintain a high volume of payments through the year. Such refunds totaled 110 billion yen in 2006 and 270 billion yen in 2007. Although 2008 tallies are still being counted, the figure will apparently top 290 billion yen. And there is no sign that refund requests will dissipate, according to one consumer credit firm. In addition, the Supreme Court said on Jan. 22 that the 10-year statute of limitations on refund requests will begin from the date of the last transaction, a ruling that favors borrowers. The four companies chalked up huge losses in fiscal 2006 by earmarking reserves for refunds. Thanks to the provisions, they swung into the black in fiscal 2007. Although they expect to turn a profit again this fiscal year, their earnings may take a hit if refund requests continue to mount.

[Mulboyne]

FT: Promise blow to Japanese lending

Japan's beleaguered consumer finance industry suffered a further blow yesterday as Promise, the country's second biggest non-bank money lender by market value, revealed it would report an unexpected Y127bn ($1.28bn) loss. The preliminary estimate for the business year ended March 31 reversed the company's earlier forecast for a Y16.2bn profit. Analysts had also forecast a surplus for the group, which is about 20 per cent owned by Sumitomo Mitsui Financial Group (SMFG), Japan's third-largest bank.

Even before the current economic downturn pushed up default rates, Japanese moneylenders had been suffering because of a clampdown on their business by the government and the courts. The maximum legal annual interest charge was lowered by 10 percentage points to 20 per cent in 2006 and judges have forced lenders to return billions of yen in "excess" interest charged on older loans. Foreign investors including Citigroup and General Electric have made big investments in the sector in the past few years, only to withdraw after suffering heavy losses. Promise, which is in the process of reducing its 300-branch network by half, said it had set aside more money than it had originally planned against future reimbursement claims. It also made deeper-than-expected writedowns on outstanding loans, whose value has deteriorated amid the recession.

Due to the legal changes, "it will be impossible for [even the largest moneylenders] to make the kind of profits they have made in the past and the industry will shrink," one analyst said. SMFG and Mitsubishi UFJ Financial Group, which has a 13 per cent stake in moneylender Acom, bet on the growth of consumer lending. However, the reduction in the maximum interest rate that can be charged, higher credit costs and other pressures on the sector have meant that margins were likely to fall to about 3 per cent at the operating level and as low as 1.8 per cent at the net level, the analyst said. The plight of consumer finance companies has also hit the larger commercial banks that serve as the industry's primary source of funding.

[Mulboyne]

[Mulboyne]

Asahi: Takefuji's lending business drying up

Takefuji Corp., once the king of the consumer finance industry with 88 billion yen in loans extended in a month, has all but stopped lending, sources said. The company's new and additional loans extended in November totaled only about 1.5 billion yen, as revised laws and a credit rating downgrade have led to cash flow problems, the sources said. The revised laws have forced Takefuji to repay debtors excessive interest charges. The sources said that since November, even credit-worthy customers were not being given the full amounts sought in their loan applications. When Takefuji compiled its medium-term business plan in February, it forecast monthly loans of at least 10 billion yen. The company did extend loans worth 7 billion yen in October, but the figure slid in November to about 1.5 billion yen. The company will probably stick to that level for the time being, the sources said.

Takefuji's lower lending is in stark contrast to other consumer finance lenders. The bank-affiliated Acom Co. extends about 38 billion yen in loans per month, while Promise Co. has maintained a monthly loan level of about 30 billion yen. Even Aiful Corp., which announced in September it would enter business rehabilitation talks with its creditors, gave loans worth 3.5 billion yen in October. For the fiscal year ended last March, Takefuji posted a net consolidated loss of 256.1 billion yen. Its credit rating was subsequently lowered. As of the end of September, Takefuji's outstanding loan balance stood at 748.9 billion yen. The company's interest-bearing debt totaled 298.3 billion yen, so on paper Takefuji would appear to have sufficient funds.

However, the company apparently is making efforts to improve its cash flow because it has 189 billion yen in debts that must be repaid within a year. In November, Takefuji asked investors to agree to a reduction or suspension of repayments on convertible bonds issued last year. The company is also negotiating to procure more funds by using its real estate as collateral. If those negotiations are successful, loans could increase, a company executive said. The Financial Services Agency could view Takefuji's excessive restraint on lending as a problem. But a high-ranking agency official said the FSA is not likely to encourage Takefuji to be more aggressive in its lending.

[Mulboyne]

A survey in Osaka (Japanese) suggests that 1 in 7 borrowers in the city suspect they will have to resort to illegal lenders once tighter moneylending regulations come into force in June.

[Doctor Stop]

The other 6 out of 7 Osakans are are reported to be planning to revert to purse-snatching come June.

[Greji]

The other 6 out of 7 Osakans are are reported to be planning to revert to purse-snatching come June.

Whadda ya mean "revert" Doc? When did they ever stop?

[Mulboyne]

[YT]WqcPSvVPRto[/YT]

Clip highlighting the fact that the new restrictions on consumer lending come into effect tomorrow. An industry spokesman claims the measues could reduce the industry by half.

Some might be under the impression that tighter lending laws were already in place because of the heavy losses sustained by the major lenders. In fact, their problems stemmed from a Supreme Court judgement which held that they had routinely overcharged customers and were liable for refunds. The new law brings in stricter limits on lending to individuals. The FSA details them in Japanese here. Some of the key points for individual loans are:

1. Lending to be no more than 1/3 of annual income.
2. If an individual lender wants to lend over 500,000 yen, or if a loan will take a borrower's total loans from all lenders over 1 million yen, the lender must request documentary proof of income.
3. Housewives & house husbands need their spouse's consent to take out a loan
4. Interest ceiling to be lowered to 20%

[Christoff]

The other 6 out of 7 Osakans are are reported to be planning to revert to purse-snatching come June.

Honma?

[gkanai]

3. Housewives & house husbands need their spouse's consent to take out a loan
4. Interest ceiling to be lowered to 20%

I hate sarakin companies so this is great news to me.

[FG Lurker]

I hate sarakin companies so this is great news to me.

I don't think anyone really likes sarakin companies. That said, banks generally won't lend to small businesses or individuals so sarakin companies filled the gap.

Now the government cracks down on sarakin companies but doesn't do anything to fix the real problem which is the lack of credit from banks. The result is we still have unwilling banks but now also severely restricted sarakin. The need for credit isn't going to change so what are people going to do? Higher numbers turning to yakuza-backed loan sharks hardly seems like an improvement to me.

[Mike Oxlong]

Even "up-and-up" places like JCB were charging at least 30% interest on loans in some cases...

[nottu]

[Christoff]

[Mulboyne]

[Bucky]

Struggling Japanese consumer lender Takefuji Corp is planning to file for bankruptcy on Tuesday afternoon in Tokyo, two sources with knowledge of the matter told Reuters.

Japanese media reported on Monday that Takefuji was making preparations to file for bankruptcy protection with about $5.2 billion in debts, failing under the weight of court-ordered interest repayments and tighter lending rules.

from here

[gkanai]

Can anyone explain why Takefuji is claiming bankruptcy now? Sarakin should be a license to print money. Sure it's more regulated than the 80s but it still should be a very profitable business.

[FG Lurker]

Can anyone explain why Takefuji is claiming bankruptcy now? Sarakin should be a license to print money. Sure it's more regulated than the 80s but it still should be a very profitable business.

The problem is that they have had the rug pulled out from under their business model. They made a lot of high risk loans because they were able to charge very high interest rates that allowed them to make profits even with relatively high default rates.

Now they can't charge those high interest rates any more, and their default rates have almost certainly skyrocketed due to the current shitty economic situation. I expect they are also having difficulties getting credit themselves due to the high risk nature of their business.

Pretty much a perfect storm.

[Greji]

The problem is that they have had the rug pulled out from under their business model. They made a lot of high risk loans because they were able to charge very high interest rates that allowed them to make profits even with relatively high default rates.

Now they can't charge those high interest rates any more, and their default rates have almost certainly skyrocketed due to the current shitty economic situation. I expect they are also having difficulties getting credit themselves due to the high risk nature of their business.

Pretty much a perfect storm.

Another possible reason for the belly-up timing is the old Japanese custom of hiding assets before bankruptcy. The old boy himself, Yasuochan, died around 2006. Bankruptcy proceedings encompass all transactions for the company, entity, or person, for the last three years from the date of filing. When Yaschan kicked off, it would have been a good chance to start sorting the estate out of his and the company name, getting all assets out of court reach and then filing bankruptcy on the rest. T'is an old tried and true Japanese tradition and not really that unusual if there is no atotori son or muko in line and whether or not the company is solvent.

[FG Lurker]

Another possible reason for the belly-up timing is the old Japanese custom of hiding assets before bankruptcy. The old boy himself, Yasuochan, died around 2006. Bankruptcy proceedings encompass all transactions for the company, entity, or person, for the last three years from the date of filing. When Yaschan kicked off, it would have been a good chance to start sorting the estate out of his and the company name, getting all assets out of court reach and then filing bankruptcy on the rest. T'is an old tried and true Japanese tradition and not really that unusual if there is no atotori son or muko in line and whether or not the company is solvent.

Interesting, and makes sense too. I wouldn't be surprised if it started out as you describe and then the interest rates / shitty economy finished them off.

[Mulboyne]

[Mulboyne]