Since sub-prime loans in the US started to hit the world economy a few months ago, scrutiny has turned to the government reaction to the issue, and protection for the debtors. In Japan, however, protection for individual debtors has been totally neglected; in a similar situation there is NO lender liability for the banks. Once one borrows money from a bank, all the responsibility goes to the borrower, even if the contract includes obvious mistakes and errors made by the bank. Once signature (in Japanese seals) is done, that’s it, all responsibilities and liabilities for the loan reside with the borrower!
This may, in part, be based on the assumption that Japanese banks are so professional and honest that they never lie to customers? Surprisingly, Bank Law in Japan has not changed basicaly for more than a hundred years since its first promulgation in Meiji Period, when Japan started its modernization. Considering the dynamic changes Japan has gone through since then, it is almost a miracle how the law has survived unaltered. Banks have lobbied strongly to maintain this law for their own benefit. It is based on the idea that banks never fail to keep its credibility, or in other words, never do wrong toward their customers. Protected by the law, banks have no need to take lender liability.
However, in the twenty-first century, we cannot but wonder if this is still true. Banks never do atrocious debt-collection from the debtors? Even after the bubble economy?
Here is one example.
The Large-Scale Free Loans, which was abolished in the late 1990s, used to be an active source of income for banks during the bubble economy in the 1980s. Banks started to target individuals in late 1980s, who had high-value real-estates. At that time sales persons from the banks used to rush to city halls to find out who had such real estates, and say, “If you don’t take our loans, your house and land may have to be sold to pay the government for inheritance tax. Trust us, we are a bank, we never tell a lie.”
The loans were huge. Banks even provided a loan of more than 300 times larger than the debtor’s annual income. A bank said, “The value of your land will rise in the near future. You can repay your debt in a few decades time.” But the land value never went up, as all know by now, but went down. After the collapse of the bubble economy in 1991, land value dropped significantly throughout all of Japan in just a few years time.
The Large-Scale Free Loans were abolished, being a major cause for the bubble economy. One thing for sure is, with all their abilities, banks knew a lot more than they were telling their customers about the risk of their own loans. However, they never explained it to their customers. This type of business, that is, selling a product without a balanced explanation of the risks, are strictly prohibited for banks in other countries and also for other industries including non-bank finance houses in Japan, but not the banks in Japan..
In any case, the abolishment of the Large-Scale Free Loans should be the end of the loan scandal, well everybody thought that way. Yes, it was the end of the sales of the loan, but the harsh debt-collection did not end. More than one million individuals became victims and have been deprived of everything, including their houses and lands, in order to repay their debts. Many of them are elderly people, who wanted to leave their houses and lands for their children. They are now losing their property that they have worked for throughout their lives, only because they trusted banks. They trusted banks because banks were a symbol of credibility in this country.
Why are these acts possible? Because the Bank Law protects banks. There is no lender liability in legal terms so that bank can do pretty much anything they want. With the law so protective to banks in Japan, even if individual debtors launch lawsuits, they have no hope of winning. With this legal advantage, banks keep depriving individual debtors of their property. Some banks even deprive debtors of their pensions, which is prohibited for non-bank finance houses, but not for the banks.
This is not a past issue. It is continuing today. My grandmother, who is going to be 90 years old soon, lives under uncertainty because, Mizuho bank, which first promised to protect her property from inheritance tax, is now preparing to evict her from her home, even though she is still alive. If they should decide to take her home, she will be kicked out and become homeless. Is this not an atrocious exploitation, of the weak banking laws in Japan?
This may, in part, be based on the assumption that Japanese banks are so professional and honest that they never lie to customers? Surprisingly, Bank Law in Japan has not changed basicaly for more than a hundred years since its first promulgation in Meiji Period, when Japan started its modernization. Considering the dynamic changes Japan has gone through since then, it is almost a miracle how the law has survived unaltered. Banks have lobbied strongly to maintain this law for their own benefit. It is based on the idea that banks never fail to keep its credibility, or in other words, never do wrong toward their customers. Protected by the law, banks have no need to take lender liability.
However, in the twenty-first century, we cannot but wonder if this is still true. Banks never do atrocious debt-collection from the debtors? Even after the bubble economy?
Here is one example.
The Large-Scale Free Loans, which was abolished in the late 1990s, used to be an active source of income for banks during the bubble economy in the 1980s. Banks started to target individuals in late 1980s, who had high-value real-estates. At that time sales persons from the banks used to rush to city halls to find out who had such real estates, and say, “If you don’t take our loans, your house and land may have to be sold to pay the government for inheritance tax. Trust us, we are a bank, we never tell a lie.”
The loans were huge. Banks even provided a loan of more than 300 times larger than the debtor’s annual income. A bank said, “The value of your land will rise in the near future. You can repay your debt in a few decades time.” But the land value never went up, as all know by now, but went down. After the collapse of the bubble economy in 1991, land value dropped significantly throughout all of Japan in just a few years time.
The Large-Scale Free Loans were abolished, being a major cause for the bubble economy. One thing for sure is, with all their abilities, banks knew a lot more than they were telling their customers about the risk of their own loans. However, they never explained it to their customers. This type of business, that is, selling a product without a balanced explanation of the risks, are strictly prohibited for banks in other countries and also for other industries including non-bank finance houses in Japan, but not the banks in Japan..
In any case, the abolishment of the Large-Scale Free Loans should be the end of the loan scandal, well everybody thought that way. Yes, it was the end of the sales of the loan, but the harsh debt-collection did not end. More than one million individuals became victims and have been deprived of everything, including their houses and lands, in order to repay their debts. Many of them are elderly people, who wanted to leave their houses and lands for their children. They are now losing their property that they have worked for throughout their lives, only because they trusted banks. They trusted banks because banks were a symbol of credibility in this country.
Why are these acts possible? Because the Bank Law protects banks. There is no lender liability in legal terms so that bank can do pretty much anything they want. With the law so protective to banks in Japan, even if individual debtors launch lawsuits, they have no hope of winning. With this legal advantage, banks keep depriving individual debtors of their property. Some banks even deprive debtors of their pensions, which is prohibited for non-bank finance houses, but not for the banks.
This is not a past issue. It is continuing today. My grandmother, who is going to be 90 years old soon, lives under uncertainty because, Mizuho bank, which first promised to protect her property from inheritance tax, is now preparing to evict her from her home, even though she is still alive. If they should decide to take her home, she will be kicked out and become homeless. Is this not an atrocious exploitation, of the weak banking laws in Japan?
Asahi Shimbun 4/11/2007(one of the 3 biggest newspapers in Japan.)
We appreciate those who help for the translation!
記事の英訳に協力してくださった全ての皆さんに感謝します。
日本語版(Japanese edition)
Compensation for 'loan victim' - responsibility of banks as creditors
by Atsushi Yamada
'I would rather jump from the roof and commit suicide if our home is taken away,' said Mrs. A, nearly 90 years old, who will possibly be evicted from her own home before the New Year. Her home in Tokyo, is mortgaged to Mizuho Bank who has decided to sell it by auction.
‘Your house and land is worth 800 million yen. Unless you take preventative measures against inheritance tax, the house and land will have to be sold to pay the government.’ 20 years ago, a sales representative from Daiichi Kangyo Bank, which has merged to today’s Mizuho Bank, frequently visited Mrs A. He asserted that she should borrow money to buy property and / or investment in financial products to keep her home. She accepted a loan of 190 million yen based on the advice from the sales representative. Such large scale loans were later abolished, as these were said to have encouraged the financial ‘bubble’ experienced in Japan in the late 1980’s.
Mrs. A’s son and his wife, who also live in the family home, signed as joint guarantors. Following the recommendation of the bank, they purchased a flat as well as a variable life insurance policy. However, the income from the rent of the flat was not enough to cover the interest payments on the loan. ‘We have tried to raise the money every month and paid nearly 140 million yen. Nevertheless, the loan amount has not been reduced.’ The local branch manager who was in charge of this case was a friend of Mrs. A’s son and his wife from university. He had just been assigned to the new local office and used his connections for business opportunities. He is now retired and says ‘We worked very hard, in all good faith for our clients. The outcome was, unfortunately, a severe one, but the A family is after all responsible for their own decisions.’ Mr. A, is well aware of their responsibility to make the loan payments. However, the situation is unbearable. He wrote to Seiji Sugiyama, the Head of the Bank and said: ‘You have made a loan to my mother which is 320 times the amount of her annual income as a pensioner, without fully explaining all the risks. Once circumstances changed, you are telling us that we should give up our home, even though my mother is still alive and that the bank said the loan was in fact a measure against inheritance tax. We will be evicted from our home with no money left. Doesn’t it ever cross your mind about your responsibility as a lender? ‘
As a reply to this letter, the bank said they are ready for discussion, but are still asking for repayment of the loan and the A family’s home is still listed for auction.
The subprime loan crisis in the USA was also caused by excessive financing by banks which was done without considering the debtors’ financial ability. Along with pursuing creditor’s responsibility, the US government also provided financial support for both banks and debtors. Measures to strengthen financial regulations are also being considered. In Japan, the importance of maintaining trust and discipline was underlined and banks were rescued by public resources. Mizuho Group has completed its repayment to the public fund and decided to pay retirement allowances to all their former senior managers. Meanwhile, a million ‘victims’ of this type of loan have been neglected. Gou Egami, an author and former manager of Daiichi Kangyo Bank says : ‘If banks are really reflecting on their own mistakes, they should compensate their customers for what they have suffered.’
Although the Financial Instruments and Exchange Law to protect debtors has come into effect, bank loans are not yet covered.. Lenders’ liability is still unclear and consumers’ rights are still left in the dark.
We appreciate those who help for the translation!
記事の英訳に協力してくださった全ての皆さんに感謝します。
日本語版(Japanese edition)
Compensation for 'loan victim' - responsibility of banks as creditors
by Atsushi Yamada
'I would rather jump from the roof and commit suicide if our home is taken away,' said Mrs. A, nearly 90 years old, who will possibly be evicted from her own home before the New Year. Her home in Tokyo, is mortgaged to Mizuho Bank who has decided to sell it by auction.
‘Your house and land is worth 800 million yen. Unless you take preventative measures against inheritance tax, the house and land will have to be sold to pay the government.’ 20 years ago, a sales representative from Daiichi Kangyo Bank, which has merged to today’s Mizuho Bank, frequently visited Mrs A. He asserted that she should borrow money to buy property and / or investment in financial products to keep her home. She accepted a loan of 190 million yen based on the advice from the sales representative. Such large scale loans were later abolished, as these were said to have encouraged the financial ‘bubble’ experienced in Japan in the late 1980’s.
Mrs. A’s son and his wife, who also live in the family home, signed as joint guarantors. Following the recommendation of the bank, they purchased a flat as well as a variable life insurance policy. However, the income from the rent of the flat was not enough to cover the interest payments on the loan. ‘We have tried to raise the money every month and paid nearly 140 million yen. Nevertheless, the loan amount has not been reduced.’ The local branch manager who was in charge of this case was a friend of Mrs. A’s son and his wife from university. He had just been assigned to the new local office and used his connections for business opportunities. He is now retired and says ‘We worked very hard, in all good faith for our clients. The outcome was, unfortunately, a severe one, but the A family is after all responsible for their own decisions.’ Mr. A, is well aware of their responsibility to make the loan payments. However, the situation is unbearable. He wrote to Seiji Sugiyama, the Head of the Bank and said: ‘You have made a loan to my mother which is 320 times the amount of her annual income as a pensioner, without fully explaining all the risks. Once circumstances changed, you are telling us that we should give up our home, even though my mother is still alive and that the bank said the loan was in fact a measure against inheritance tax. We will be evicted from our home with no money left. Doesn’t it ever cross your mind about your responsibility as a lender? ‘
As a reply to this letter, the bank said they are ready for discussion, but are still asking for repayment of the loan and the A family’s home is still listed for auction.
The subprime loan crisis in the USA was also caused by excessive financing by banks which was done without considering the debtors’ financial ability. Along with pursuing creditor’s responsibility, the US government also provided financial support for both banks and debtors. Measures to strengthen financial regulations are also being considered. In Japan, the importance of maintaining trust and discipline was underlined and banks were rescued by public resources. Mizuho Group has completed its repayment to the public fund and decided to pay retirement allowances to all their former senior managers. Meanwhile, a million ‘victims’ of this type of loan have been neglected. Gou Egami, an author and former manager of Daiichi Kangyo Bank says : ‘If banks are really reflecting on their own mistakes, they should compensate their customers for what they have suffered.’
Although the Financial Instruments and Exchange Law to protect debtors has come into effect, bank loans are not yet covered.. Lenders’ liability is still unclear and consumers’ rights are still left in the dark.
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