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Servicers are professionals that reliably and rapidly conduct the complex business of recovering loans.
Servicers emerged for the purpose of disposing of non-performing loans held by financial institutions. Presently, the range of loans and services that servicers cover has expanded to include primary services for various types of loans (performing loans) as well as securitization and liquidization activities. Servicers are thus evolving to play an indispensable role in many finance-related processes.Servicers (Servicing Companies)
Servicers are a group of professionals that provide services for the administration and recovery of loans. In Japan, servicers were formed following the enforcement of the Law Concerning Special Measures for the Servicing Business (the Servicer Law) from 1999. This law was enacted to enable the rapid disposal of the enormous volume of bad debt held by financial institutions. The Servicer Law allowed private sector companies licensed by the Minister of Justice (servicers) to conduct servicing operations, a business that was until then only legally consignable to lawyers.
The recovery of loans requires advanced expertise to ensure this complex business, which involves such facets as the administration of creditor information, review of repayment plans, and auctions, is conducted in a legal and appropriate manner. The deregulation of the servicing business in Japan has enabled financial institutions and other companies, which had provided servicing services internally until then, to achieve significant cost reductions by consigning this business to servicers.
Servicers have been established under the auspices of banks, nonbanks, real estate companies, investment funds and other financial institutions with business models that maximize the strengths of these various parent companies. The legal revisions of 2001 expanded the range of loans handled by servicers. Presently, servicers are involved in a diverse array of activities, including the servicing of performing loans, the administration of the securitization and liquidization of loans, the recovery of loans, as well as the formation of business revitalization plans.
The Servicer Law
The Servicer Law was enacted in October 1998 and enforced in February of the following year with the goal of facilitating the disposal of bad debt.
Prior to the enactment of the Servicer Law and the deregulation of the servicing business, only lawyers were legally permitted to collect debt on behalf of third-party creditors. The Servicer Law was enacted to allow the private sector to play a crucial role in swiftly and effectively resolving debts as a result of the crisis in Asian financial markets and the massive volume of non-performing loans held by Japanese financial institutions in the early 1990s. The law was established as a rider to the Attorney Law requiring certification by the Minister of Justice.
The Servicer Law places stringent requirements on servicers to ensure their proper management and to protect all interested parties. These requirements include the presence of at least one attorney on the companys board of directors, the exclusion of anti-social forces, and a Code of Conduct pertaining to borrowers.
The original Servicer Law limited servicer activities to the management and collection of non-performing loans. However, revisions to the Servicer Law enacted in September 2001 expanded the scope of loan types and business activities servicers could handle to include work incidental to servicing operations such as bankruptcy processing, the revitalization of companies, and the securitization and liquidization of assets. Servicers now play instrumental roles in a variety of fields and have a significant impact on the sound development of the Japanese economy.
