Consumers Get Wake-Up Call

The financial system is changing rapidly and consumers cant keep up, Hiroko Mizuhara, head of the Consumers Federation of Japan, said. Consumers are starting to realise things are changing, but they dont yet know what to do to protect their money.

The deregulation plan is certain to cause a big shakeout with corporate failures along the way.

The myth that no Japanese financial institution could collapse has already been punctured by a string of credit union failures and the closure of regional bank Hyogo Bank Ltd in 1995 the first such failure in the post-World War II era. Consu-mers were further forced to face up to the new harsh reality in April by the collapse of debt-laden insurer Nissan Mutual Life Co, another post-war first. No one has yet seen deposits or policies disappear after a failure, and authorities have pledged to protect depositors until the reforms are fully implemented. But consumers need to start learning now that real competition means not all banks, brokers and insurers are equally safe and sound, something decades of protection for the sector has ill-equipped them to handle. Japanese consumers are accustomed to the convoy system (in which stronger institutions had to rescue weaker rivals) and to finance ministry protection, said Takayoshi Hamano, a professor at Miyazaki Municipal University. They know that change is

 

underway and that the pace is accelerating, but they still have a strong sense that all institutions are the same, Hamano said. Reuter

They arent used to taking responsibility for their decisions based on gathering and analysing information on their own. Consumer advocates are taking some tentative steps to educate the masses.

The Tokyo Metropolitan Governments consumer centre, for example, has asked Hamano to contribute two easy-to-read articles on the Big Bang to its monthly newsletter The words Big Bang are used all the time in newspapers, while magazines often write that certain banks are on the verge of failure, said the consumer centres Hiromi Asami. But it is debatable whether consumers really understand what it all means.

Consumers faced with decisions on where to put their money, however, at present lack enough reliable data to cope. Glaring gaps in disclosure have been driven home not only by recent financial failures, which belied the apparent health implied by published accounts, but also by a high-profile scandal involving alleged payoffs to a corporate extortionist by giant Nomura Securities Co Ltd and Dai-Ichi Kangyo Bank Ltd.

As the Big Bang proceeds, consumers choices will widen and that is a good thing. Competition will increase, and that ought to mean that benefits to consumers also increase, said Hatsuko Yoshioka, head of the Housewives Federation. But the basic premise must be that consumers have the sort of information upon which they can make the right choice and take responsibility for it, Yoshioka said. At present, the system is insufficient. In a nod to such concerns, a securities reform panel which drew up part of the reform blueprint urged better disclosure and investor protection, while a banking reform panel urged a decision by the end of next March on the need for a law to protect all financial consumers from fraud and other misdeeds.

onsumer advocates say better disclosure and more reliable data are the real key to informed risk-taking. They dont need to slow down the Big Bang, they need to speed up the process of making reliable information available, Yoshioka said.

($1 =114 yen)