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Two new Japanese credit laws taking a bite out of loan sharks

Bankruptcy is usually no cause for celebration, but recent corporate collapses have gladdened some Japanese hearts. These bankruptcies have occurred in the consumer credit industry, dominated by loan sharks with an unsavory reputation for usurious interest rates and high-pressure methods of debt collection.

An estimated 250,000 firms have set up operation in the past few years to meet a demand for cash from Japan's ''new poor'' - a growing number of people finding it hard to make ends meet and denied access to conventional bank loans.

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But the ease of obtaining credit has lured millions of Japanese into debt far beyond their means. Newspapers and official reports are full of daily tragedies of debt-ridden people committing suicide, turning to crime, or disappearing to avoid debt collectors, many of whom are thought to be gangsters.

Last November, the government finally acted with two new laws. One set a ceiling on interest rates; the other banned forcible debt collection. Companies that previously charged up to 109 percent a year were required to reduce their interest to less than 40 percent within five years.

The laws have quickly begun to bite. In May, for example, two medium-size sarakin (literally, salarymen's credit associations) went bankrupt. And in early June, the nation's fifth-largest credit company, Yatagai Credit, teetered on the verge of collapse.

Finance Ministry officials, pleased that the new loans were ''purifying'' the consumer finance industry, pledged to work closely with police to ensure that hard-pressed sarakin did not use bully tactics to recover their debts and stave off collapse. Six firms have already been suspended for violations.

Bad debts have always been present, but the credit firms were able to absorb them through exceptionally high profits. The four biggest credit companies last year each made more than did all but a handful of major city banks.

To improve their public image, the big four have already agreed to lower their interest rates below 40 percent. As a result they too are concerned about their future. The industry leader, Takefuji, says uncollectible debts soared eightfold between 1983 from '82, to 31.5 billion yen ($136.3 million), equivalent to about 10 percent of its loans last year.

Another blow to the sarakin has been that major banks have withdrawn their funds from these credit associations. The public has heavily criticized the big banks for refusing to give loans to hard-pressed personal customers while still lending money at high rates to loan sharks.

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Banking sources say the sudden liquidity crisis in the consumer-finance sector is of particular concern to foreign banks, which have been major lenders to the sarakin in the absence of enough good corporate clients in other business sectors. The Finance Ministry estimates that as of last September foreign banks had loans outstanding to the sarakin of 250 billion yen ($1.08 billion), more than 10 times the level of Japanese city banks.

Some industry analysts believe the combination of government action, bad debts, and withdrawal of bank support will cut the number of sarakin to one-third of the present number by the end of next year. Hajime Yamada, president of the federation of bankers associations, says he considers this an excellent opportunity for commercial banks to get into the consumer financing business in order to meet growing public needs for smaller, softer loans.

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