Posts Tagged ‘consumer credit’

Collecting organizations try to give credit where it’s due, don’t always succeed

Thursday, November 7th, 2013

In a recent series on credit information reporting, the Asahi Shimbun explained the plight of a young Kanto woman who had applied for a credit card last March. The card she was interested in offered discounts at selected stores and could be used as an IC card for public transportation. It also had an attractive point system. Almost all her work colleagues had the card and since her financial particulars were the same as theirs she didn’t think she’d be turned down, but she was and the rejection confused her. She had one other credit card, which she had always paid on time. When she called the credit company that refused her they said they couldn’t give her the reason for the rejection.

A gift campaign notice that comes with a monthly credit card statement

A gift campaign notice that comes with a monthly credit card statement

Then she received a letter from Softbank Mobile, her cell phone service carrier, which said that due to a mistake her payments had been reported to a credit information (CI) company as being delinquent. The period of her false delinquency, she realized, fell during the same time that she applied for the credit card. In the letter Softbank said that it had corrected the mistake with the CI company, and when she applied for the card again after a while, she was approved, but when she tried to find out why they had changed their mind the company again said they couldn’t tell her.

Such situations are not uncommon, but since credit card companies are not obliged to give reasons for rejecting or accepting customers, most applicants have no idea that these problems even exist until it’s too late.

In Softbank’s case, the carrier was actually alerted to the “mistake” last March when customers pointed it out to them. The company investigated the claim and found that between December 2012 and March 2013, about 63,000 customers were reported to credit information companies as having been late with their payments, even though they hadn’t been. The reason for the mistake was fairly complex, and common enough for such a reporting system. All of the affected customers, including the woman profiled by the Asahi, had purchased their terminal devices — meaning their cell phones — through a revolving credit plan. Moreover, they accumulated points over time that could be redeemed as credit through the revolving payment system.

Softbank reported all this information to the relevant CI collecting company, but because of a computer programming redesign that took place late last year the settings that translated points into credit did not work correctly, so people who had paid for their cell phones through points were incorrectly flagged as being delinquent as far back as 2009.

When a financial institution screens someone to determine if the person is credit-worthy, they use CI from various sources: the Credit Information Center (CIC), which mostly works with credit card companies and revolving payment plans; the Japan Credit Information Reference Center Corporation (JICC), whose members are consumer loan outfits; and the Japanese Bankers Association, which collects information related to bank loans. When someone applies for a credit card or a loan the institution requests credit history information from the relevant organization. All lenders and retailers who offer revolving payment plans are obliged by law to report credit histories of customers to one of these CI organizations.

CI includes personal data, such as name, address, birthdate and nature of the transaction; as well as “payment information,” including payment trends and the balance of the account. As long as the customer pays on time, no information is recorded, but when the customer misses a payment the CI collecting company receives a notice of there being an “unpaid situation.” If that situation continues for 3 months straight, the payment situation is reported as being “irregular,” which means the customer is placed on a blacklist.

Being on a blacklist does not necessarily mean that the person will lose his or her credit card or be denied a loan. The financial institutions who request this information for screening purposes can interpret it however they want, but generally if an irregularity is persistent the person’s credit history will be tarnished. Information about irregularities stay in the customer’s credit history for five years, even if the loan or credit bill has been paid off. However, if the irregularity is the result of a mistake on the part of either the company reporting the credit information or the company collecting it, then it is immediately removed from the record.

The problem is that often such mistakes don’t come to light, and while credit reporting companies and lending institutions or credit card companies are not obligated to reveal reasons for rejections to applicants, the credit collection companies are. For instance, if you have a question about your credit card history you can call CIC and, for a fee (¥500-¥1,000), they will give it to you. It’s the same for the other two organizations, depending on where you have borrowed money. An expert in the Asahi article recommends that anyone planning to take out a large loan check beforehand with CI collecting organizations to find out whether or not there may be problems.

The Asahi also reports that an increasing number of young people are showing up on blacklists due to their phone bills. CI, it should be noted, has nothing to do with paying utility bills, a matter that is strictly between the utility and the customer. In the case of cell phones, CI is only reported on people who have bought their phones through revolving payment systems, which are usually attached to phone bills.

The problem here is that many young people forget that they are paying back money loaned to them for their phones. They think that they are paying their phone bill, so if they’re late with a payment they simply have to pay a small penalty. They don’t realize that their credit history is being damaged in the process. In many cases, in fact, it is their parents’ credit history that’s being damaged, since some parents cosign for their kids’s cell phones. It gives them more reason to monitor their cell phone usage.

Japanese attorneys throw their nets farther out

Friday, February 8th, 2013

Fight club: Bengoshi Kaikan in Hibiya

It wasn’t long ago that the law was a lonely profession in Japan, though the number of attorneys may have only seemed small in comparison with the United States, where litigation is practically a spectator sport. Apparently, that’s no longer the case, according to a recent article in Tokyo Shimbun, which says that there is a glut of lawyers in the major cities. Consequently, many are branching out to smaller cities and even the countryside to find clients. The article profiles one young attorney who opened an office in Tokyo two years ago and has had scant business ever since, so in the past year he has held seven free sodankai (consulting sessions) in Hokkaido — six in Sapporo and one in Obihiro. The Hokkaido Bar Association says that such sessions are a burgeoning trend that started three years ago.

According to a government white paper on the legal profession, there are now 15,000 lawyers practicing in Tokyo, a 70 percent increase over the last ten years. And if you include the surrounding prefectures of Kanagawa, Saitama and Chiba, the number practicing in the Tokyo Metropolitan Area tops 32,000, which is more than half of all the lawyers in Japan.

An earlier white paper released in 2008 charts the steady rise of legal professionals in Japan. From 1989 to 1995, the ranks of attorneys added only about 200 new people a year, and after 1995 the number increased gradually until 2001, when the number leaped to 1,117. In 2008, more than 4,000 passed their examinations to become lawyers. Around the turn of the century, the business world demanded more legal experts, saying that trials, especially civil court cases involving commercial matters, took too long. As a result, more law schools were set up, but the demand never materialized on the scale predicted. Between 2000 and 2008, the number of civil suits handled by district courts in Japan increased by only 0.5 percent, though the overall number of lawyers went up by 62 percent. As a result, the number of cases handled per attorney dropped by 21.7 percent, though the attendant loss of income wasn’t quite as steep. The average yearly pay for a lawyer in 2004 was ¥16.5 million and in 2008 was slightly less than ¥16 million.

The profession received a much needed boost in 2006 when the Consumer Credit Law was revised with regard to “gray area” rates (kinri) and consumer credit companies were forced to refund ¥1.6 trillion in overcharged interest. About 70 percent of the customers eligible for the refunds hired lawyers and notaries to the tune of ¥40 billion, and somewhere between 20 and 30 percent of all the lawyers in Japan have so far benefited from this windfall.

Since most of the nation’s lawyers are in Tokyo or Osaka and the consumer loan-related bankruptcy business in those areas has dried up, they are looking farther afield. One Tokyo law office, Adire, which advertises extensively on television, has already set up offices in Sapporo, Hakodate, Obihiro and Kushiro. Most law offices looking to expand in this way hire advertising agencies, which research regional municipalities and set up the consulting sessions that alert locals to the availability of legal services. A president of one ad agency told Tokyo Shimbun that big city lawyers sometimes have an edge over locals in smaller towns, because people don’t know them. It’s sometimes difficult for locally based attorneys to get business, especially with regard to bankruptcies, because potential clients are also neighbors who would prefer that the community not know anything about certain aspects of their business.

But of course, local lawyers resent these city slickers invading their bailiwicks. A representative of a consumer protection committee in Sapporo told Tokyo Shimbun that since there are no regulations limiting where a lawyer can practice, most stay in Tokyo and do their distant business online or by phone, which means they can’t always help clients in emergencies. Conversely, some of the city lawyers say they are suddenly faced with much bigger travel costs, but assume that increased revenues will justify the added expense, thus implying that until a lawyer shows up in your town you probably never thought you needed one.

Debtors left in the dark after new law goes into effect

Monday, July 5th, 2010

Notice at loan ATM indicating new rules related to proof of income

Notice at loan ATM indicating new rules related to proof of income

In December 2006 the government revised the law for consumer loans making it more difficult for certain people to borrow cash and reducing the amount of interest moneylenders could charge. Over the past 3½ years the law went into effect in stages, and as a result a number of consumer loan companies went out of business, since many were forced to pay back excessive interest they had charged their customers in the past. The main aim of the law is to curtail the occurrence of spiraling debt spread out among multiple companies.

Last month the last element of the revised law went into effect. From now on, a customer will not be able to borrow more than the equivalent of one-third of his or her annual income, and will have to submit documentation as proof of income. Though the law was conceived to save people from crushing debt, it may effectively drive more people to bankruptcy or to underground loan sharks.

Unfortunately, a lot of people don’t seem to know about the law. According to the Mainichi Shimbun, the Financial Services Agency found that less than 50 percent of the people it asked had ever even heard about the new law.

Housewives make up a good portion of consumer loan customers, and it seems they will be shut out of the system because of the new rules. Many housewives turn to consumer loan companies to pay the monthly bills when their husbands’ paychecks aren’t enough, and a good portion of them will not be able to borrow any more money from now on. The main reason is that they do not have jobs themselves and so have to submit their husband’s employment information. However, in many cases the husbands don’t even know their wives are borrowing money and the wives don’t want them to know. Even if they did get their husband’s information, because of the one-third limitation, they may not be able to borrow what they need. Much of the money that these women borrowed from consumer credit companies was used to pay off credit card debt.

The moneylenders industry association, Japan Financial Services Association, surveyed 4,000 customers in 2009 and found that half of them had debts that exceeded one-third of their annual income. It also estimates that there were 14.2 million people with outstanding loans at consumer credit companies, such as Acom, Promise and Aiful, when the law went into full effect June 1, and that about 4.9 million are housewives. (Many others are small businesses, which also rely on consumer credit to keep their companies operating on a daily basis.)

In addition, 85 percent of existing consumer loan companies have said they will no longer cater to housewives because the cost of developing systems that can handle their special needs under the revised law is prohibitive. A survey of 500 housewives conducted by JFSA found that 37 percent “know something” about the revised law, and the rest either “don’t know” about it or “don’t understand” what it means.

Josei Jiritsu no Kai (Women’s Independence Group) and other non-profit organizations have set up services to help these women who are now stuck with multiple debts and no way to refinance them, but the main problem right now is getting the word out. Though the government revised the law it didn’t take into consideration publicizing the fact and giving people enough time to prepare for the change. The JFSA, realizing the government’s neglect, started running TV commercials and other advertisements last month, but they may be too little too late. It’s likely that in the near future the personal bankruptcy rate will skyrocket, not to mention the divorce rate.


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