Toyoki Yoshida recalls the winter day in 2002 when he tried to hang himself with a leather belt after yakuza thugs hounded him for weeks to pay back 500,000 yen ($6,300) in loans.
The belt ripped as his neck strained the noose, saving his life. The loans, with interest rates as high as 5,000 percent annually, were among those Yoshida owed to 96 loan sharks --some with connections to organized crime. Working in the billing department of a Tokyo electronics company, he’d been borrowing from consumer-finance companies to entertain clients and colleagues and fell into a spiral of debt which cost him his job. It ended when lawyers helped Yoshida terminate his contracts through a bankruptcy filing and partial payments.
“I’d started to borrow money from illegal lenders only after legitimate companies began refusing to front me cash,” the 40-year-old said in an interview in a drab debt-counseling office in the Tokyo suburb of Okegawa. “I was panicking. I didn’t have time to think.”
As Japanese committing suicide for “economic reasons” climbed to almost 9,000 a year by the mid-2000s, according to the National Police Agency, Japan’s Diet passed a law in late 2006 clamping down on predatory lending. Such suicides fell to 6,400 last year, lending crimes dropped 24 percent since the crackdown to 366 cases, and the involvement in them of yakuza, or crime syndicates, fell to 83 from 142, the police reported.
Now lawmakers who say the legislation went too far in cutting credit to small businesses in a stagnant economy want to ease restrictions on so-called non-bank lending. That’s sparking conflict with the financial regulator and consumer advocates who argue that any loosening will bring back excessive borrowing and yakuza lending, enriching gangsters and increasing the suicide rate once again.
“It’d be going backward,” said Kenji Utsunomiya, a former head of the Japan Federation of Bar Associations who has won court battles against yakuza-affiliated lenders. “The non-bank lending market must stay regulated because borrowers desperate for cash aren’t equal to lenders and are often putty in their hands.”
The opposition Liberal Democratic Party’s financial committee in May unveiled a plan to scrap the part of the law that limits credit to a third of a borrower’s income, and to lift its current 20 percent cap on loan interest rates to 30 percent. Masaaki Taira, the LDP lawmaker leading the campaign, said he plans to submit a bill to the next Diet session scheduled for January.
“Short-term loans are vital for small-business owners, who often rely on non-bank financing to make a purchase before receiving payment from clients,” Taira, whose family owns a small vegetable wholesaler with 3 billion yen annual revenue, said in an interview. “What we need is increased counseling to protect people with heavy debts.”
Even within the ruling Democratic Party of Japan, some see the need for loosening. The DPJ’s financial panel met July 5 to consider legislation allowing consumer-finance companies to provide emergency loans to small enterprises at interest rates above the current 20 percent limit. That proposal could be combined with the LDP’s version and submitted to the Diet.
In the interim, the government regulator sees no “immediate” need to review money-lending laws, Financial Services Minister Tadahiro Matsushita said in June.
Tightened regulations helped reduce the number of debtors with at least five unsecured, unguaranteed loans from consumer-finance lenders to 440,000 people in March from 1.7 million five years earlier, Financial Services Agency data show. Loans from such firms, including Acom Co. and Aiful Corp., declined 40 percent over five years to 26.1 trillion yen as of March 2011, according to the data.
Shares of Tokyo-based Acom, Japan’s biggest consumer lender, have tumbled 68 percent in the six years since the crackdown began. Kyoto-based Aiful plunged 97 percent in the same period. Acom rose 1 percent to 1,697 yen in Tokyo trading today, and Aiful gained 0.8 percent to 131 yen.
Japan’s 2,300 consumer-finance companies, which sell debt to fund loans rather than take deposits, provided 5.1 percent of 685 trillion yen in outstanding corporate and consumer credit as of March 31, according to central bank data. Banks lent the remaining 650 trillion yen. There’s no official data on loan-shark activity, also known as “yamikin,” which translates as “lending in the dark.”
“Decisive regulation tackled the social issues very well in the late 2000s, dealing a blow to yamikin lenders,” said Yasuhide Yajima, chief economist at NLI Research Institute in Tokyo. “But the remedy carried an economic side-effect that’s driving lawmakers to seek a revision. Mom-and-pop business owners who want quick, short-term cash haven’t been able to borrow as much as they used to.”
The law was passed after the Supreme Court ruled against lenders charging excessive interest rates. The legislation, which began rolling out in 2007 and took full effect in 2010, sparked customer claims for interest refunds, triggering billions of dollars in industry losses.
In 2004, the Bar Association’s Utsunomiya had led a group of lawyers representing borrowers -- including Yoshida -- who sued Susumu Kajiyama, deputy leader of Goryo-Kai, a now-defunct crime organization that was then affiliated with the Yamaguchi Gumi, Japan’s largest yakuza syndicate. More than 180 debtors won 587 million yen in compensation from Kajiyama, who was dubbed the “Loan-Shark King” and hid 5.1 billion yen in Swiss bank accounts, said Utsunomiya.
Yoshida’s debt case was among the most severe he’d ever seen, said Utsunomiya, who keeps in his office black-lacquered funerary boxes enclosing threat letters sent to debtors by gangsters and hand-written fliers posted by yakuza members in borrowers’ neighborhoods seeking to shame them into paying.
As well as loan sharking, the criminal enterprises of the yakuza include theft, fraud, drugs, prostitution and money laundering, according to a National Police Agency report. Membership totaled 70,300 as of the beginning of this year, the lowest in 20 years, compared with 84,400 a decade ago, due to a series of crackdowns, the police reported.
Anti-gang laws, first passed in 1992 and strengthened over the years, prohibit gangsters from raising protection money and collecting on debts using “improper” methods. The government has also punished companies that deal with the yakuza, further marginalizing them.
Some research has found yamikin lending growing since the crackdown. Such loans numbered 580,000 last year, up from 420,000 in 2009, said Hiroshi Domoto, a Tokyo University of Information Sciences professor who favors increasing legal borrowing limits because the restrictions curbed legitimate consumer-finance lending. The debt-to-income constraints and interest-rate cap on loans that went into force in 2010 led those in need to turn to loan sharks, he said.
Still, the loan business has become tougher for gangsters, according to a member of one of Japan’s biggest yakuza groups.
The person, who asked not to be named because of his association with the organization, said he used to lend money to small-business owners at rates ranging from 5 percent a month to 10 percent a week. Dressed in a pinstriped suit and missing his little finger, he said he found it harder to collect on loans after the crackdowns and passage of the various laws. Now, he said, he’s concentrating on making money from other lines of business, including trading stocks.
Lending crimes continue to be reported. In the southwestern Japanese city of Fukuoka, two men were arrested in May for lending at least 85 million yen to people at rates 32 times higher than the legal limit, an officer at the Fukuoka Chuo Police Department said, asking for his name not to be used due to department policy.
Prosecutors charged Shinta Inatomi and Yuki Kinoshita with violating laws on money lending and the prevention of transfer of criminal proceeds, and the first trial hearing is scheduled for Aug. 30 at Fukuoka district court, a court officer said, speaking anonymously according to judicial policy. Contact information for the men couldn’t be obtained in directories, and the court doesn’t release the whereabouts of charged individuals.
“Even though yamikin-lending crime decreased gradually, concerns that it may increase in the coming years have yet to be dispelled,” according to the National Police Agency report in April.
Yoshida began accumulating debts in the early 1990s, when he tapped consumer lenders’ fast-cash services for entertaining. By 2000, he owed 30 million yen, including a home mortgage. After creditors called him at work demanding repayment for his overdue loans, the situation became so intolerable he had to leave his job. It was then that Yoshida turned to loan sharks.
Lured by a tabloid newspaper advertisement offering a “heart-warming” credit plan, he went to the building the lender shared with tenants including prostitution agencies in Tokyo’s bustling Shinjuku district. With the door of the eighth-floor office locked behind him, he said he took out his first yamikin loan: 50,000 yen at 27,000 yen interest a week, which works out to 2,800 percent a year.
“To repay loans from a non-bank, I borrowed money from a yamikin,” Yoshida said, “and to repay that, I borrowed from another yamikin.”
Soon he owed money, debts mostly in the range of 50,000 yen, to 96 loan sharks all over the Japanese capital. Illegal lenders called him and threatened his parents’ lives if he missed payments. They also recommended he sell one of his kidneys, Yoshida said.
“I’d be worried if the laws were to be loosened and yamikin lenders become widespread again,” said Yoshida, who now works as a debt counselor for chronic borrowers. “My office would then be full of heavy debtors.”
His broken belt on that cold February day helped Yoshida avoid becoming one of the more than 32,000 people in Japan who took their own lives in 2002, 7,940 of them for economic motives. Suicides rose to 34,427 the following year, Cabinet Office figures show, with 8,897 of them labeled economic. The number fell to 30,651 last year.
“I was ignorant back then,” Yoshida said. “I am grateful to the lawyers who gave me the knowledge to get myself out of the dark and get my life back.”