The Supreme Court ruled Thursday that lending contracts extended by a consumer loan firm that used so-called revolving repayments were invalid because the lender failed to provide documentation to the borrower on the terms of the loans each time credit was extended.
A five-judge panel of the top court's No. 1 petty bench rejected the appeal from Tomoe Corp. and upheld decisions by the Nagoya District Court and Nagoya High Court ordering Tomoe to return 1.2 million yen to the borrower.
The lawsuit involved the revolving-repayment method, a practice widely used by consumer credit firms that allows consumers to repay a fixed amount of money every month, while taking out additional loans.
Presiding Judge Niro Shimada said the lender was required to inform the borrower of the minimum payment due and interest charges, as well as the repayment period, each time a loan was made.
The lawsuit was filed by a man who repeatedly borrowed and repaid loans at an annual interest rate of 43.8 percent over a period of 10 years.
The plaintiff demanded the lender return the interest it charged in excess of a law that restricts interest rates.
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