Bottom-Feeding at the Bar: Usury Law and Value-Dissipating Attorneys in Japan

Abstract

Critics have long complained that lawyers dissipate value. Some do, of course. Some legal work dissipates more value than others, and the lawyers who focus on the most notorious rent-seeking sectors extract a heavy toll in the U.S. Whether lawyers choose to focus on value-dissipating or value-enhancing work depends on the institutional structure in place, and the American legal system apparently generates high returns to value-dissipating work. The Japanese legal system traditionally holds down such returns, and Japanese attorneys have invested much less in those sectors.

In 2006, the Japanese Supreme Court unilaterally invented an entirely new field of rent-seeking: it construed usury law to let borrowers sue for refunds of "excessive" interest they had explicitly and knowingly -- and with statutory authorization -- agreed to pay. Although borrowers swamped the courts with refund claims, the field did not attract either experienced or talented attorneys. Instead, it attracted two groups: new lawyers who had entered the bar under the relaxed licensing standards, and the least talented lawyers. At least in this sector of the rent-seeking field, the returns to experience and talent in Japan apparently remain lower than in value-enhancing sectors of the bar.