Will lending law revision put brakes on debt-driven suicide

In January 2002, Toyoki Yoshida tried to hang himself in his father's factory in Saitama Prefecture, unable to bear the persistent calls from loan sharks demanding that he make his 4 million yen interest payment. His belt broke. He lived.

Yoshida, 34, said that 10 months earlier, he had taken out a 100,000 yen unsecured loan from an illegal moneylender charging usurious interest -- 45,000 yen in 10 days -- and had to borrow more from other loan sharks.

Yoshida's debt woes started more than a decade ago, when he started borrowing from credit card firms, consumer loan companies and banks to buy goods, including a car and a condominium. By January 2001, he had accumulated 20 million yen in debt. He tried to kill himself then as well but got cold feet.

Had his first attempt succeeded, part of the loans may have been paid off by suicide insurance policies taken out on him by the consumer-finance lenders. Death would have played right into their hands.

According to the Financial Services Agency, in fiscal 2005, 17 consumer loan firms received a combined 4.3 billion yen in suicide policy payouts on 4,908 borrowers -- or some 15 percent of the 32,552 suicides in 2005.

Lawyers and other experts allege that, in some cases, collectors harass debtors to the point they take this route. The issue is now being cast in a harsh light because of the nation's perpetual suicide problem.

Perhaps unthinkable in other developed nations, Japanese nonbank lenders, starting about a decade ago amid the postbubble funk, began taking out life insurance policies on borrowers that included suicide coverage. Borrowers are rarely informed of such coverage.

But the likelihood of debt-induced suicide might be reduced if a bill revising the Money Lending Business Law passes Wednesday. The revision in part bars lenders from taking out suicide policies on their customers.

The revised law will also lower the maximum interest rate that can be legally charged on a loan from 29.2 percent to 20 percent, loan sharks notwithstanding.

"The revision will be an important step in resolving this problem afflicting heavily indebted people," said Kenji Utsunomiya, a leading lawyer on consumer loan problems. "I expect the number of borrowers who commit suicide due to massive debts will decrease."

Of the 14 million or so borrowers with consumer loans, 2.3 million are considered heavily in debt, or in hock to five or more consumer loan firms, according to the Federation of Credit Bureaus of Japan, which has personal information on customers at some 2,300 lenders.

Taku Otsuka, a Liberal Democratic Party lawmaker who promoted the law's revision, said Japanese tend to opt for suicide instead of claiming personal bankruptcy because it's a way of saving face and because maintaining honor is critical in this society.

"I think (taking out life insurance policies on borrowers) has worked as a strong incentive (for consumer lenders) because they can recover their debts by driving borrowers to suicide," Otsuka said.

Utsunomiya agreed, saying: "(Debt collectors) toughen their tactics on (suicide-insured) borrowers because they can recover the loans if they kill themselves."

The latest revision, besides lowering the interest rate cap and banning lenders from taking out life insurance on borrowers, also bans loans that exceed one-third of a borrower's annual income.

It also bans persistent daytime debt-collection harassment, including visits or telephone calls to borrowers' homes, workplaces and relatives to put the squeeze on them.

Utsunomiya recalled an incident in which a loan collector, an employee of Aiful Corp., dragged a debtor out of his apartment in 1996 and forced him to borrow money from a nearby liquor shop to make a loan payment. The collector hit the man in the face and kicked him in the leg as well.

In another case several years ago, an employee of a consumer loan firm explicitly told a borrower to kill himself so the company could collect on the suicide policy taken out on him.

Fierce public criticism prompted amendments to the money lending law in 2000 and 2004 that clamped down on such strong-arm collection tactics.

Lenders, for their part, claim they are now playing by the rules.

Masahiro Hashimoto, secretary general of Japan Consumer Finance Association, which comprises 80 large and midsize firms, denied that collectors would intentionally push borrowers to suicide.

"Nothing like that could possibly happen. It could be solicitation of murder if somebody did it," he said. "We do business properly. We would suffer serious damages by losing social trust."

To be sure, counselors and lawyers say debt-collection tactics have been toned down. But for former debtor Yoshida, who is now deputy secretary general of Yoake-no-kai, a support group for "debt-hell" victims in Saitama Prefecture, memories of the menace remain.

He recalled how debt collectors would come to his home and bark, "Is there anything you can do to repay your debts?" and "We'll never let you off the hook," and the time when loan sharks even threatened to kill his mother.

"I thought killing myself was better than living in that situation," he said.

But even after the latest revision, both victims and experts will be wary.

Terumi Hironaka, a housewife whose 66-year-old mother killed herself in August 2004, leaving behind a 2 million yen debt, pointed out cases in which moneylenders put the squeeze on relatives after the borrowers committed suicide.

Hironaka said that relatives who don't know about legal steps they can take to avoid paying debt left by deceased relatives may borrow from consumer lenders to repay it. "It becomes an additional ordeal for them," she said.

Yoshida of Yoake-no-kai meanwhile noted that the lower interest rate cap will nonetheless have an unintended dark side: It will drive people whose income levels don't qualify for consumer loans to loan sharks who charge illegal, usurious rates as legitimate lenders start screening applicants more carefully.

Lawyer Utsunomiya said to prevent this recourse and to support heavy debtors and their relatives, the central and local governments need to establish safety nets.

They should offer consultations in cooperation with lawyers and judicial clerks and provide low-rate loans to people rejected by banks and consumer lenders, he said.

One major concern about the revised law is that it will take about three years before the interest rate cap comes down to 20 percent, Utsunomiya said.

"Consumer loan companies will be able to cope with the lowered rate in a year," he said. "The government is worried about the impact on consumer finance firms if the interest rate is lowered too quickly."

The moratorium is unnecessary, he said.

Yoshida, too, urged speed.

"As long as consumer loan companies require their employees to achieve high debt-collection goals, their harsh tactics will not go away," he said.