American Debt Collection Reformer in Japan Facing Harassment

An American businessman who tried to improve the way debts are collected in Japan from the oft yakuza (“Japanese mafia”)-linked intimidation route was arrested last week amid growing pressure by lawyer groups to crack down on unauthorized parties encroaching on their turf.

Steven Gan, president of Advance & Associates Co., had long known he was running a legally risky, if not outright illicit, business. But when he set up his debt-collection firm in 1992, he did so with the conviction that he was helping to change widespread public perceptions of debt collection as a dirty, scary and dangerous affair.

The U.S.-certified public accountant, who was collecting outstanding debts on behalf of more than 600 firms, was arrested Nov. 4 by the Tokyo District Prosecutor’s Office. He allegedly collected a combined 15.7 million yen ($150,000) in debts owed to credit card and transport companies without being a licensed lawyer or firm known as a “servicer,” for four years up through April.

Debt collection used to be the sole domain of lawyers until the Servicer Law of 1999 allowed in nonlawyers. But the law still required an accredited servicer — a party that collects principal and interest from borrowers — to be capitalized at 500 million yen or more, and have a lawyer on its board. And the type of debts servicers can collect is limited to those held by financial institutions. Only lawyers can collect debts held by nonfinancial entities.

As it stands, many lawyers are only interested in high-stakes cases, leaving midsize companies with the option of eating their souring debts or hiring yakuza to reclaim them, Gan claimed in an Aug. 9, 2003, story in The Japan Times.

He also said then that his work was about changing a stereotype in Japan that the “people who do collection are yakuza or related to the yakuza or that the (collection) activity is very violent.”

Debt collection can be performed ethically and professionally, Gan said, advocating the establishment of a “full-scale collection industry” in Japan as in the U.S., where not just lawyers but financial professionals engage in collection and form associations to boost their expertise.

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