VZCZCXRO2497
PP RUEHFK RUEHKSO RUEHNAG RUEHNH
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P 170404Z AUG 06
FM AMEMBASSY TOKYO
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E.O. 12958: N/A
TAGS: EFIN JA
SUBJECT: AMBASSADOR SCHIEFFER'S AUGUST 15 MEETING WITH
MINISTER YOSANO ON CONSUMER FINANCE
1. (SBU) Summary. Ambassador Schieffer met with Minister
of State for Economic and Fiscal Policy and Financial
Services Kaoru Yosano on August 15 to discuss the state of
play on revisions to the law governing the consumer finance
industry. Minister Yosano confirmed that the "gray zone"
between the maximum interest rate for consumer finance
companies and for banks will be eliminated. He explained
that FSA is now considering the recommendations they will
make to the LDP at the end of August. In particular, the FSA
is reviewing the pros and cons of various exceptions to the
interest rate cap that might be allowed and other conditions
that might be placed on lending by consumer finance
companies. End Summary.
2. (SBU) Ambassador Schieffer met with Minister Yosano on
August 15 to inquire about the state of play on the
recommendations FSA will make by the end of August for
revisions to the law governing the consumer finance industry,
the Money Lending Business Law, and to convey US views on the
subject. Ambassador Schieffer emphasized that there was a
concern among American financial institutions that a
reduction in the interest rate would drive borrowers into the
black market. He left a non-paper with the Minister that
showed how criminal lending increased in Japan after the last
reduction. The non-paper showed the same result in Europe
when usury rates were lowered there as well.
3. (SBU) Minister Yosano explained that the consumer
finance industry has been infamous in Japan for charging high
interest rates. While he understands that some people need
"quick" money, Yosano indicated that the consumer finance
industry's almost monopoly on primetime television
commercials has turned it into a social issue. He said that
Supreme Court judgements have confirmed the "gray zone"
nature of lending over 20 percent and outlined the
requirements for lending above 20 percent to be considered
legal, noting that the presence of the gray zone makes the
validity of the consumer finance contracts above 20 percent
uncertain.
4. (SBU) Yosano went on to say that the elimination of the
gray zone will be included in the FSA recommendations to the
LDP at the end of August. The current interest rate
structure provides for tiers of maximum interest rates
between 15-20 percent depending on the amount of the loan.
The amounts were set 50 years ago and will be increased.
Some stakeholders argue strongly that a small amount of
short-term loans should be allowed at higher rates as an
exception. FSA is considering what exceptions to allow, so
that industry will not be affected that much, Yosano stated.
He noted that he and the LDP will have to take political
factors into consideration, but that FSA is ready to listen
to comments by Japanese and foreign consumer finance firms
and that they are not taking a hostile attitude toward the
industry. Finally, Yosano explained that he does not want to
see the issue become highly politicized and hopes to "stay
below the antennas." Ambassador Schieffer noted the
difficulty of balancing between not allowing consumers to be
taken advantage of and ensuring that needed credit is
available.
SCHIEFFER