Japanese get state aid to sue lenders

Japanese people who are in debt to consumer finance companies and cannot meet monthly public health insurance payments will get a state subsidy to help them sue the moneylenders to recover excess interest charges.

The Ministry of Health, Labour and Welfare is to pay up to a quarter of the initial costs for legal advice to consumers who owe money to both a finance company and the government.

The move follows a Supreme Court ruling on acceptable interest rate charges. Many consumer finance companies had been charging more than 20 per cent even though Japan had zero interest rates for many years until the central bank raised them last July.

The ruling set off a flurry of demands from borrowers seeking repayment of interest. The subsidies are expected to put more pressure on lenders that posted massive losses in the financial year just ended, as a result of having to make provision for excess interest payments.

Jason Rogers, credit analyst at Barclays Capital, said: “If it’s a new initiative, it’s definitely going to exacerbate the issue [of excess interest payments].”

Tim Marrable, director of research at KBC Securities in Tokyo, said the development was a blow to lenders because borrowers would feel they had nothing to lose by going to court.

Several local governments have already started to request repayment of interest from consumer loan companies on behalf of residents who have fallen behind in their tax or health insurance payments.

According to the health ministry, 19 per cent of the 4.7m households in the national insurance scheme are in arrears with their insurance payments.

Although the four biggest moneylenders have not set aside additional reserves this year, said Jason Rogers, credit analyst at Barclays Capital, “there is no clear evidence that [the level of claims] has peaked just yet”.

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