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Saturday, April 15, 2006
FSA orders suspension at Aiful
1,700 outlets to close over strong-arm debt collection tactics
The Financial Services Agency said Friday it has ordered consumer finance firm Aiful Corp. to suspend most operations at its 1,700 outlets for three to 25 days over the use of strong-arm collection tactics.
It is the first time the FSA has ordered a complete shutdown on a major consumer finance firm.
The FSA ordered a 25-day suspension beginning May 8 for three outlets in Hokkaido, Shiga and Ehime prefectures, and 20 days for two outlets in Nagasaki and Fukuoka Prefectures. The remaining outlets, including 1,126 automated units, must be suspended for three days.
The FSA believes the major consumer credit firm, based in Kyoto Prefecture, exacted debts from its borrowers in a coercive manner. This included repeatedly calling borrowers at work without permission, or despite being able to contact them at home or elsewhere, a violation of the Money Lending Business Law.
It is unusual for the FSA to suspend the business of an entire network on those charges. The FSA normally orders suspensions only at the outlet that carried out the coercive measures.
However, the FSA has concluded that Aiful failed to develop a companywide internal control system to ensure full compliance with the law, even though violations have only been identified at some Aiful branches.
"The (company's) head office failed to take basic steps to prevent the violations, including not thoroughly instructing its workers on (proper) ways to collect debts and not drawing up sufficient internal regulations," said an FSA official who briefed reporters.
During the suspension period, Aiful will be allowed to remain open so customers can make loan payments on a voluntary basis and to continue legal procedures to seize properties. But it will not allow the firm to offer new loans or actively collect on debts.
Lawyers and borrowers have criticized Aiful for using aggressive collection tactics, failing to give full explanations about lending rates, and refusing to provide transaction records borrowers need to consolidate their debts.
Later in the day, Aiful President Yoshitaka Fukuda apologized at a news conference, saying that its employees were too aggressive.
"I profoundly apologize to our shareholders, customers and the public for causing a nuisance," said Fukuda.
Asked how he would take responsibility for the incident, Fukuda said he would do his utmost to rebuild its company compliance system to regain trust.
According to the FSA, an executive in Aiful's Isahaya branch in Nagasaki Prefecture falsified a letter of attorney in February 2005 and, unbeknown to the customer, got a copy of the person's family register and income documents from the city office to decide whether the person was eligible to borrow from Aiful.
In another case at the Niihama branch in Ehime Prefecture, an Aiful employee harassed a borrower between November and December 2004 to get money from a third party to pay back the Aiful loan. The worker also demanded repeatedly that the borrower's wife and mother be present during loan negotiations, the FSA said.
At the Goryokaku branch in Hokkaido, an Aiful official attempted to collect on a debt from a senile person, even though the guardian had submitted documents to annul the contract. Contracts are automatically annulled when a guardian submits papers to annul a contract on behalf of the borrower.
In November, the FSA ordered a business suspension to SFCG Co., formerly called Shohkoh Fund & Co., a credit firm for business operators, for all of its outlets for similar charges.
Established in 1967, Aiful has become one of the country's major consumer loan companies with its outstanding balance of lending at about 1.47 trillion yen on a parent-only basis at the end of March 2005.
At the end of December it had 1,777 outlets, including those with no workers.
The FSA's decision amid a growing problem of personal debt. A growing number of people owe money to several lenders at high interest rates and are unable to repay the loans.