Consumer lenders ordered to pay interest on refunds

The Supreme Court ruled Friday that a consumer loan company must pay interest when it refunds excessive interest charged on borrowers.

The ruling is expected to further increase costs for consumer loan companies that face borrowers' pending lawsuits for refund of interest payments beyond the 15-20 percent ceiling under the Interest Limitation Law.

Consumer loan companies have charged interest rates between the ceiling and a 29.2 percent limit under the Investment Deposit and Interest Rate Law.

The interest rates, which must be accepted by borrowers in writing, have been called "gray zone" rates and ruled as illegal by the Supreme Court. The Diet passed a bill last year to eliminate the gray-zone rates in three years.

Since the earlier ruling by the top court, several borrowers have filed lawsuits calling for the refund of interest money beyond the lower ceiling.

Japan's major consumer lenders incurred hundreds of billions of yen in losses for their latest business year to March due to increased reserves set aside to meet an expected rise in borrowers' claims for reimbursements.

Friday's ruling came on two such suits against Eiwa, a Yokohama-based consumer loan company, after lower court rulings ordered the company to refund such excessive interest while falling short of supporting the borrowers' demand for interest on the refund.

The Supreme Court said a 5 percent interest rate should be levied on the refund in principle and ordered the Tokyo High Court to reconsider the two suits.

The interest money in question is estimated at less than 10,000 yen for each of the plaintiffs in the two suits — a woman in Tokyo and a man in Saitama Prefecture. But the Supreme Court ruling is expected to affect other pending lawsuits.

The Tokyo woman has sued the lender for a refund of about 380,000 yen in excessive interest charges, while the Saitama man was calling for a refund of roughly 450,000 yen.