Debt Plan for Aiful

Aiful is the fourth-largest consumer-finance firm in Japan, and it has been in trouble of late, not only as a result of the general global economic downturn, but because Japan has been tightening the regulations concerning consumer finance.

It now appears though that Aiful has some good news to celebrate this holiday season. It will not have to liquidate, because its own creditors have agreed to a debt rescheduling plan through an out-of-court mediation. Here's the link to a PDF of the company's announcement.

The new regulations that led to this point were inspired, it appears, by a decision of Japan's Supreme Court in January 2006 see details here.

The short version is this: The high court ruled that consumer loan interest rates in excess of 20% are illegal, under a 1954 statute. In response, the couyntry's legislature passed the Money Lending Business Law, which endorsed the 20% cap, but allowed for a transition period during which companies could continue to charge more than 20%, although only in the expectation that this was breathing-room, like the yellow traffic light you see before it turns red.

Anyway, the red light is about to come on -- and this situation is chasing out some of the foreign-based consumer lending companies that had been doing business in Japan, as well as throwing a scare into the home-grown companies like Aiful.