Banks must improve screening for card loans to prevent excessive debt

The Yomiuri ShimbunA loan that exceeds a borrower’s repayment ability can lead to a vortex of multiple debts.

Banks are required to implement finely tuned measures to prevent excessive loans.

The Financial Services Agency will start on-site inspections within the month to grasp the actual situation in which there has been a sharp increase in outstanding card loans, which are extended by banks to individual consumers. It is expected that about 10 banks, including megabanks and regional banks, that have huge amounts of outstanding loans will be inspected.

Unlike loans provided at bank loan desks, card loan services easily provide unsecured loans and the purpose of the money is not questioned. It is also appealing that they can be withdrawn as cash from ATMs.

The banking industry’s outstanding loans have reached a total of ¥5.7 trillion, or 70 percent higher than five years ago. It is the highest level in 19 years.

The key point of the inspection is to see whether banks have proper screening systems to prevent excessive lending.

There is no end to the number of users of card loan services who struggle to repay after borrowing from multiple banks and having their debts snowball. In this regard, the FSA needs to uncover problems through its inspections.

The background to this surge in loans is the aggressive business strategies of banks trying to make high profit margins.

Ultralow interest rates have been prolonged due to the monetary easing policy of the Bank of Japan. The card loan market, which can expect high interest rates into the upper teens, is a coveted source of revenue. It is also pointed out that there are many cases in which bank employees are given excessive work quotas to press them to acquire card loan users.

Don’t wait to act

The structural issue of loopholes in regulations is also behind the increase in card loans.

With the problem in the 2000s of people holding multiple debts, consumer finance companies were subjected to a regulation limiting the amount of a user’s loans to one-third of their annual income. Banks, on the other hand, were excluded from this regulation on the grounds that they are equipped with proper screening systems.

Megabanks have brought consumer finance and credit companies under their umbrellas and expanded their individual consumer loan businesses. Mitsubishi UFJ Financial Group, Inc. owns Acom Co., while Sumitomo Mitsui Financial Group, Inc. acquired the company formerly known as Promise, and Orient Corp. is now part of Mizuho Financial Group, Inc.

As a result, there is a tail-wagging-the-dog phenomenon in which banks, which are not subject to the same regulations, have taken on customers who were refused by consumer loan companies.

Banks are the ostensible card service providers, but the reality is that many of their card loan operations are entrusted to consumer finance companies. Consumer finance companies are also commissioned to collect loans when repayments are delayed. If banks are putting all these tasks on consumer finance companies without adequate screening, there will be problems in terms of corporate governance.

The number of applications for voluntary bankruptcy last year increased for the first time in 13 years. Before the problem gets worse, banks must first of all start to thoroughly verify the repayment abilities of users and strengthen customer consultations and other systems.

(From The Yomiuri Shimbun, Sept. 9, 2017)Speech


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