Japan's Ruling Party Divided on Consumer Loan Interest Rates

Strategic Insights -

Japan's Liberal Democratic Party is struggling to agree on the length of time it will take to lower the maximum interest rate on consumer loans and the exceptions that will permit rates above the cap. The party aims to lower the maximum rate to 15-20% by abolishing the "gray zone" between the 29.2% ceiling set in one law and the 15-20% limit stated in another law.

Lawmakers are at odds over the FSA's proposal to lower the maximum rate three years after the law revision takes effect, with some arguing that the period is too long and others calling for a gradual reduction. The proposal also includes an exception for special interest rates above the ceiling for certain lending, such as small, short-term loans to individuals, which would cover only about 800,000 of the 20 million people who make use of consumer finance firms.

Key Takeaways:

  • The Liberal Democratic Party is divided on the length of time it will take to lower the maximum interest rate on consumer loans, with some lawmakers arguing that the three-year waiting period is too long.
  • The party is also debating the exceptions that will permit rates above the cap, with some calling for a gradual reduction from 26% to 15-20% and others opposing any exceptions.
  • The FSA proposal would allow special interest rates above the ceiling for three to five years for certain lending, such as small, short-term loans to individuals.
  • The exception is expected to cover only about 800,000 of the 20 million people who make use of consumer finance firms, representing up to 400 billion yen of the total 15 trillion yen (US$127.5 billion) in outstanding loans extended by the industry.
  • The LDP hopes to start deliberations on a bill to revise the law regulating nonbank moneylenders at an extraordinary Diet session in October.
  • The New Komeito, a junior coalition partner of the LDP, is being consulted on the matter.
  • Some young LDP lawmakers are critical of the FSA proposal, arguing that high interest rates are causing individuals to go deep into debt.

Statistics:

  • The maximum interest rate on consumer loans is currently 29.2% (ceiling) and 15-20% (limit).
  • The FSA proposal would lower the maximum rate to 15-20% three years after the law revision takes effect.
  • About 800,000 of the 20 million people who make use of consumer finance firms would be covered by the exception, representing up to 400 billion yen of the total 15 trillion yen (US$127.5 billion) in outstanding loans.
  • The LDP hopes to start deliberations on a bill to revise the law regulating nonbank moneylenders at an extraordinary Diet session in October.

Sources:

  • Asia Pulse, Sept 12
  • Nikkei (no date mentioned)