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Dark Side of Debt in Japan

Borrowers' fears of stigma and indifference by police have allowed ruthless loan sharks to multiply. But excesses may bring a reckoning.

September 08, 2003|Mark Magnier | Times Staff Writer

TOKYO — The lender caught on tape confronted his client: "If you don't have money, make money!" he screamed over the phone. "Sell your kidney. That'll bring in $25,000. Sell your liver. Sell your eyeball for $8,000. Just get the money!"

The shakedown, played in court in a rare case against a lending company, provided an unusual glimpse into the excesses of Japan's consumer finance industry.

Millions of Japanese are taking on short-term, high-interest debt as they struggle to maintain their standard of living during the current economic slump. Lenders -- legal and illegal -- lure customers in with promises of easy money. The most disreputable then send gangsters to collect when payments are late.

Although loan sharking exists in almost every country, in Japan it's arguably systemic. For the last decade, authorities have allowed the practice to spread largely unchecked, partly because police look the other way and Japanese are reluctant to make waves.

As a result, growing numbers of people are becoming ensnared in the web.

But several recent incidents have put loan sharking under a harsh spotlight, forcing authorities to begin reckoning with the issue.

In June, an elderly Osaka couple and the woman's brother jumped in front of a train, leaving behind a note detailing their desperation about making loan payments. And in Tokyo, a small businessman is awaiting trial after taking four bank employees hostage, saying their employer ruined his life with excessive interest rates.

Goaded by growing media scrutiny, legislators recently voted to double maximum penalties for loan sharking to five years in prison and $85,000 in fines. The country also cut the maximum legal interest rate on loans several years ago to 29.2% -- high by U.S. standards, but down from the 40% previously allowed.

Critics say these measures are little more than window dressing, noting that loan sharks still advertise freely on billboards across the country. They say the real problem isn't the laws governing Japan's $84-billion consumer finance market but lack of enforcement.

In Tokyo, only a handful of inspectors police 7,000 registered and thousands more unregistered finance companies. There were 238 arrests nationwide for loan sharking last year, but only 12 people received prison sentences. The number of victims, meanwhile, is estimated in the hundreds of thousands each year.

"Japan is just heaven for yamikin," or loan sharks, said Nekojiro Yoshida, author of a book on the subject. (The writer doesn't use his real name, fearing that his work in behalf of debtors makes him a target for organized crime.)

In theory, the industry is regulated and subject to various laws: no illegal interest rates, no verbal or physical intimidation, no calling homes late at night.

In practice, however, the police have all but ignored industry abuses, viewing them as "civil matters" caused by victims' own irresponsibility. Police also say they're doing all they can in the face of rising crime with limited resources.

Lawmaker Hidekatsu Yoshii, however, has his doubts.

"That's their excuse," he said. "They've simply avoided tackling this problem. In the Osaka triple-suicide case, for instance, the victims asked for help from local police three times and prefectural police four times" but were brushed off.

"If that's not negligence, what is?" he said.

Japan has several tiers of legal lenders, and name-brand banks and financial institutions are quick to dissociate themselves from the hardball collection tactics at the shady end of the industry. But there's arguably a symbiosis that ties them together.

Respectable institutions lure new customers with glitzy ads that eventually provide more business for loan sharks, who return the favor by taking problem clients off their books and into even greater debt. Cheap leaflets and cold-calling salesmen seduce the desperate with visions of financial salvation.

"We want to build a bridge to your heart with 100% loans," reads a direct-mail solicitation from a company called Breeze. "We're not concerned about your past, your bankruptcies, your bad debts."

"Pearson welcomes you with a smile," reads another, depicting wads of large bills. "We support your lifestyle," says a third called Vision, targeting middle-aged homemakers with a pink-and-red tulip motif.

The game is stacked against consumers. Advertising isn't closely regulated, and there's little public education on the perils. Borrowers often don't know their legal rights or understand that a 15% interest rate over 10 days exceeds 500% a year.

A common tactic by unscrupulous lenders is to use a shell network of five or six seemingly independent companies. One company lures the desperate borrower in, sometimes using lists of problem cases acquired from unprincipled bank employees.

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