Make sure you follow all these tips before hard money lending. Secure yourself and lend your money carefully. I have shared five tips.
As debt crises plagued Japan in the early 2000s, the economy was adversely affected. It was a nightmare of social problems which erupted as a result of a growing number of debtors who could not repay their multiple lenders.
Japan’s bicameral legislature, the National Diet, could no longer have the crises continue. Consequently, an amendment to the existing Money Lending Business Control and Regulation Law was passed on the 13th of December, 2006. This Law was named the Money Lending Amendment, Law 115 of 2006.
Hard Money Lending – How To Do
It was an all-encompassing law that was as binding on the Money Lending Business Control and Regulation Law, as it was on the Law Concerning the Regulation of Receiving of Capital Subscription; Deposits and Interests on Deposits; as well as the Interest Control Law. Lets read 5 tips on hard money lending.
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The changes the new amendment of 2006 brought on will be examined in points, as well as the nature of enforcement as stipulated by the regulations:
Prohibition Of Persistent Debt Collection Activities
Basically, this implied that the borrower is informed of the total amount of interests to be incurred in one loan, as well as other additional costs before the loan is extended.
Inclusion Of Loan Limits
This means that the lender is not permitted (by law) to give out amounts beyond certain stipulated limits to a borrower. These limits vary from one lender to the other, as well as on the purpose of the loan, but on a general note, there are amount limits that are not to be exceeded no matter the circumstances.
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Prior Investigation
To curb the repeated occurrence of bad debts, the amendment of 2006 mandated lenders to collect all necessary information about a potential borrower (especially individuals), and investigate thoroughly their financial background such as credit history and income before approving and disbursing loans.
The purpose of this is to gauge the wherewithal of the borrower to repay the requested loan amount. As a rule of thumb, a potential borrower is considered incapable of paying loans higher than one-third of their annual income.
Proper Documentation
Related to the aforementioned point, the new amendment of 2006 mandated that for new lending, if the new loan amount requested and the total amount previously owed by a borrower exceeded $4,188, the borrower must submit documents explaining their financial history, such as tax documentation.
Also, lenders were to measure the capacity of the potential borrower to repay requested loans by summing up the new loan amount requested by the borrowing with the total amount of loans they have previously owed (existing loans) and comparing it to their income.
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In the case of a deficit in capability, the lender was prohibited by the new act from giving out new loans to such a borrower. The Cabinet Office Ordinance was authorized to enforce this law with regards to variables and specifics in unique situations.
Interest Rates
The new amendment revised regulations on interest rates. As a result of the greed of some lenders, loans disbursed to lenders came with surging interest rates that piled on defaulting borrowers, with no hope of offsetting. To fix the debt crisis, the new regulations put interest rates at a maximum of 29.2%. Any lender that charged more than that would be considered a criminal and heavily sanctioned.
For organization operating as lenders, stricter interest regulations applied, based on the company’s net assets. The net worth minimum that qualified an organization was increased from five million yen to twenty million yen within eighteen months after the Money Lending Amendments had been approved and implemented.
Creation Of Unified Lending Organization
As a stronger enforcement step, the Japanese Financial Services Agency was endued with more authority to administer the affairs of moneylenders. Before the emergence of the new act, well more than half the number of lenders belonged to prefecture-specific organizations which came together to form a national body of lenders.
According to the provisions of the new act, a new unified group known as the Moneylenders Association would replace take the place of the existing structures at the time. As at when it was passed, the Money Lending Amendment was expected to take full effect in two years. Hope I was able to guide you on hard money lending.
