Japanese finance firms risk shut-out

Almost 3000 Japanese consumer finance companies risk being shut out of the lending market by the end of June, according to data from credit-checking firms the Government is employing to help police loan applications.

Lenders must register with Credit Information Centre or Japan Credit Information Reference Centre, a process that can take months to complete, to comply with stricter rules set to take effect by June 18.

"Unless they start making applications urgently now, many won't make it on time," Kenichi Sugasawara, a manager at the Research and Planning Department of Credit Information Centre, said.

The credit-checking firms will help ensure that borrowers can't use multiple lenders to rack up loans exceeding one-third of their annual income, as the Government extends a crackdown on the industry that's contributed to the closure of almost 10,000 consumer finance companies since March 2006.

Acom, Japan's largest consumer lender by market value, and its three biggest competitors, which together account for 68 per cent of consumer finance lending, have registered with Japan Credit.

Japan's Supreme Court ruled in January 2006 that standard loan contracts at consumer lenders were illegal and coercive. It invalidated agreements requiring borrowers to pay more than 20 per cent interest, making lenders liable to repay more than US$50 billion ($71.5 billion) in overcharged interest.

The industry, which has offered credit to borrowers including those turned away by banks, ranges from national corporations employing thousands of people to one-person operations run by their owners.

Promise, Japan's second-largest consumer lender by market value, estimates the industry had outstanding loans of 9 trillion as of March 31, 2009.

The failure of so many small consumer lenders to register reflects doubts that they'll be able to weather stricter regulation, said Masayuki Hanabusa of the Japan Financial Services Association, which surveyed the industry last year.

Promise, Aiful and Takefuji have registered with Japan Credit.

Aiful, which avoided bankruptcy in December after 65 of its creditors agreed to a reprieve on debt repayments, is cutting half its workforce, or 2095 employees.

Promise said in January it would cut 1600 jobs and close all staffed branches. Acom is shedding more than 400 staff and forecast a full-year loss of 11.4 billion ($181 million).

The Financial Services Agency ordered Aiful to close all its branches for 3 days in May 2006 after saying the Kyoto-based company intimidated families and illicitly obtained powers-of- attorney.

The Government has said Japan's banks have failed to meet the needs of small borrowers and urged them to do more to help customers.

Still, Financial Services Minister Shizuka Kamei said last week that he wouldn't soften the consumer lending law changes due to take effect in June.

- BLOOMBERG