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Saturday, Aug. 9, 2003
Debt-collectors push professionalism, not pain
By TOMOKO OTAKE
Despite popular perceptions, profanities and threats are not screamed down the phone and the receiver doesn't end up getting slammed down.
At Advance & Associates Co., a debt collection agency based in Tokyo's Nakano Ward, Kei Kosugi is trying to trace a Saitama Prefecture business owner who dropped out of view owing 560,000 yen to a credit card company.
He asks the owner's assistant when the debtor will be back before telling her he would like his call returned.
Then the phone rings.
As Kosugi's colleague answers the phone, the caller hangs up, saying she has called the wrong number. Yet the caller turns out to be one of the debtors from which Kosugi has been tasked with collecting money. Having noticed that someone had called her, she returned the call, not knowing it was from Kosugi.
"Oh, it happens all the time," Kosugi says nonchalantly. "Some people who have memorized our number even refuse to answer calls."
Kosugi and 17 other debt-collectors at the firm are unfazed by these day-to-day nuisances as they go about challenging popular perceptions -- namely that debt collection is dirty, dangerous and scary.
Company President Steven Gan proclaims that the work is professional, enjoyable and can even be artistic -- not to mention profitable.
The agency operates according to Gan's principles, or so it seemed during a recent visit to the office.
The certified public accountant from Chicago launched the firm in 1992, having worked for the Japanese unit of U.S. telecommunications giant Motorola for several years. He foresaw huge opportunities in a business field long dominated by lawyers and gangsters.
Although his firm is smaller than many of its rivals, it is unique in that it provides "one stop" credit risk management services, where employees not only collect debts but also provide trade data information and credit insurance to help corporations reduce their credit risks.
He has also found a niche in serving smaller businesses, which many lawyers find too bothersome to deal with. Today, he serves 600 clients, including credit card companies, telecommunications companies and mail order firms, all of which outsource their collection activities to the firm.
The firm charges a 35 percent to 45 percent commission on credit collected on behalf of a client. Rates vary depending on how long the debt has gone uncollected. The company now grosses annual sales of 300 million yen.
For years, Gan has advocated creating a "full-scale collection industry" mirroring that in the United States, where some 7,500 collection agencies currently operate. Collection professionals, many of whom are lawyers and accountants, organize seminars and exchange information to improve their skills.
"There is an art in all of this," he said. "(You have to be) very knowledgeable in various business fields. You need to know insurance, finance, economics, accounting, law, securities, import-export, just a variety of different things."
In Japan, however, collection practices at many firms are yet to attain this level of sophistication.
Kohji Kikuchi, president of Davinci Corp., another Tokyo collection agency, shares Gan's passion for nurturing the industry. He said that many of the negative perceptions associated with debt collectors are not completely unfounded.
With or without their underworld connections, many agencies have gone bankrupt in the past after cheating their clients by pocketing incoming payments, failing to report accurately on the progress of accounts, and engaging in violent and unethical collection practices, Kikuchi said.
"There is this huge perception among people that our collection activities are so fierce," Kikuchi said, adding that he has succeeded in gaining repayment from 40 percent to 50 percent of debtors. "We basically don't visit debtors' homes. We send letters and make phone calls, or ask debtors to come to our office. We don't call people after 8 p.m., either. If you want to run a decent business, you can't possibly rely on high-handed tactics."
While a group of debt collectors including Gan and Kikuchi are trying to prove that professionalism will prevail, lawyers are taking issue with the fact that nonlawyers and nonservicers are performing collection duties.
Lawyers had long been the only ones legally authorized to collect debts.
While the Servicer Law of 1999 opened the doors to nonlawyers, it still required a servicer to secure 500 million yen in capital and have a lawyer serve on its board. Currently, 75 firms are accredited as servicers.
Debts collectable by servicers are also limited to bad debts held by financial institutions, while only lawyers are entitled to collect business-to-business debts, including accounts receivable.
In this unique climate, many collection agencies, including Gan's and Kikuchi's, that do not have the capital to become servicers, have formed "union" partnerships under the Civil Code, thereby becoming entrustees of creditors' collection activities.
Gan estimates the number of collection agencies set up by nonattorneys under this kind of arrangement at 200.
The three lawyers' associations in Tokyo believe these bodies violate the Lawyers Law, which stipulates that one must be a lawyer to collect debts. A group of representatives from the lawyers' associations visited Gan's office in November to inquire about his business activities.
In July, the lawyers' bodies sent questionnaires to their member lawyers asking whether they had encountered problems with Advance & Associates or International Credit Management Association, the union set up by the firm.
Nobuo Takaoka, vice president of the Tokyo Bar Association, acknowledged that the association is collecting information on Gan, looking to file a criminal complaint over his business in the fall.
"In Japan, such practices are illegal, so we cannot let them go on as they please," he said.
The bar association added in a written statement to The Japan Times that collection agencies use union agreements as a "disguise" to engage in activities that only lawyers are legally entitled to carry out.
"Collection activities by representatives (of such unions) are unchecked for ethics," it says, "and problematic practices are rampant."
The Justice Ministry, meanwhile, seems to be taking a more flexible -- albeit vague -- stance.
Kunitaka Iwasaki, a lawyer at the Judicial System Department at the ministry, said that "the act of having a union (for the purpose of collecting debts) itself cannot be deemed illegal."
A union simply sending debtors an invoice would not be a legal problem, while handling cases in which debtors refuse to pay would be, he said.
Gan admits he is legally on shaky ground. He is convinced, however, that the current restrictions are only hampering the healthy development of a full-scale collection industry in Japan, as well as keeping the nation mired in its bad loan mess.
"'Keiki' (the economy) is turning and flowing of money," he said. "Removing the taboo against forming a full-scale collection industry will tremendously support the economic recovery of Japan."
What keeps him going is that, at the end of the day, clients are happy with his services.
"We are operating in a legal gray zone, but even with this legal gray zone, many people are using us," Gan said. "Even some lawyers are using us. Why are lawyers using us? The reason is, rather than putting emphasis on legality of the situation, they are putting emphasis on their needs."