Let's Japan.org Debunking Eikaiwa and Ramblings in Japan

Internet forums and blogs are now rife with speculation about Nova's fate. Will it survive, will it get a government bailout, or will is go bankrupt? At this point in time, all anyone can do is speculate.

METI's punishment aside, Nova's problem now is the beating it is taking in the Japanese media. The media is spinning the Nova story as a betrayal of the public trust and the outrage is palpable. Editorials in the June 15th editions of the Nikkei, Asahi, Mainichi and Sankei newspapers were about NOVA.

NOVA's president, Nozomu Sahashi, isn't very smart by acting defiant. He was asked at the press conference the other day if he was considering stepping down and he said no. He also doesn't think METI's punishment is that serious. What he should be doing is getting on his knees begging for forgiveness while promising to do everything possible to make things right. Public perception matters and the revelation of Nova's shady dealings has made them very wary of handing over hundreds of thousands of yen to a questionable company.

Let's take a look at the editorials. First, the Sankei Shimbun:

Bogus advertising leads to suspension for Nova

The largest English conversation school in Japan, Nova, has been ordered by METI to partially suspend its operations. For the next six months, Nova is prohibited from soliciting and concluding new contracts for courses longer than one year and courses totaling more than 70 hours.

The decision is based on the Specific Commercial Transaction Law that protects consumers who use services such English conversation schools and esthetic salons which rely to a certain extent on door-to-door sales and telemarketing for renewals. The law not withstanding, Nova's actions are appalling.

Nova makes students pay their lesson fees up front by having them purchase packages of points (one point is equivalent to a 40-minutes lesson). If a students cancels their contract, Nova uses a rate different from the rate used to purchase the points to reduce the amount of the refund. Since points expire after a certain time, when students can't use them because there aren't enough instructors or can't book lessons, those points aren't refunded.

There's more. Despite an eight-day cooling off period when a contract can be unconditionally canceled, the start of the period isn't the date the contract was signed, but the date one registers their name with Nova which allows them to say that the cooling off period has expired. Other violations have come to light one after another, and the company has been shown to have acted systematically.

Nova expanded rapidly by offering low prices and a flexible product that let students take classes at their own convenience. However, even if the reality was its advertisements were bogus, there was nothing that could be done.

In using its hit commercials featuring the popular Nova bunny and the catch phrase Ekimae ryuugaku, Nova was able to sway consumers, which makes its crimes extremely serious. It goes without saying that Nova must turn over a new leaf and do everything it can to make things right.

Paying large sums of money up front and trouble with refunds when canceling contracts are frequent occurrences at other language schools, computer schools, and esthetic salons. These are businesses in which thinking that "English is necessary," "everyone is into computers," and "looks are important in both work and play" are much-hyped and drive consumer attitudes in society.

There are pitfalls that reproduce themselves leading to fresh victims. Nobody is immune to them.

We hope that consumers carefully check the details beforehand, and that regulators show no tolerance for and punish those who engage in false advertising.

The editorial from the Mainichi Shimbun:

Strengthen the system to prevent Nova's illegal dealings

Consumers were lured in with the claim that they could book lessons at their convenience even though lessons couldn't be booked for the shortage of instructors. They were approached with "no admission fees only if you sign up now" although there never were any fees. Even after signing up and during the cooling off period when a contract could be ended with no penalty, they were told the period had expired. These business practices that they got away with can only be seen as fraud. This is Nova, the largest English conversation school in Japan.

Under the Specific Commercial Transaction Law, METI has ordered that Nova cannot sell any new contracts for courses longer than one year for the next six months. It's illegal activities include 18 violations such as false explanations and misleading advertising, all of which were carried out under the manuals and directions created by head office.

Nova must show remorse for its actions, apologize to all involved, and ensure that all money owed is returned in good faith. It also had to improve its business practices across the board. It should also take steps to remove any anxieties and confusion felt by its more than 400 thousand students not affected by METI's punishment.

According to METI, in aiming for one thousand schools across Japan, Nova grew from 687 schools in March 2005 to 994 schools in March 2006, but the number of instructors fell from 6,121 to 5,384. It's no surprise there was an increase in trouble with booking lessons. Nova's drive for commercial gain in its failed expansion set the stage for the current state of affairs.

There were also problems with contracts. Since long-term contracts lend themselves to trouble, the Japan Association for the Promotion of Foreign Language Education, whose members are language school operators, limits contracts to one year or less. Nova, who is not a member of the association, sold three-year contracts payable up front and made sure refunds were small for those who canceled their contracts. Risky long-term contracts need to be immediately reviewed.

There are also issues with the government's handling of this matter. In 2002, in its investigation over contract problems, the Tokyo Metropolitan government, in cooperation with METI, ordered Nova to provide documentation about its refund system when concluding contracts, but accepted Nova's explanation that consumers voluntarily canceled their contracts without pressing Nova to change the way it gave refunds. This scheme remained in place until April of this year when the Supreme Court rendered Nova's scheme invalid. The problem could have been contained if METI had taken the lead at an early stage and offered guidance.

Since 2002 consumer information centers across Japan have been receiving more than 800 to 1,000 complaints a year about Nova, but it wasn't until February of this year that METI raided Nova. The government needs to be more aware of consumer issues and be in a position to quickly launch an investigation.

From a consumer standpoint, despite the eight-day cooling off period for transactions with businesses such as language school and esthetic salons, the period is difficult to nail down and it would make sense to lengthen it. Consumers, of course, need to become more aware so as not to be taken in by shady practices, but we would also like to see the government strengthen its consumer protection system.

UPDATE The Asahi editorial in English can be found here.

And finally, the editorial from the Nikkei.

Nova's conspicuous malice

The Ministry of Economy, Trade and Industry has ordered major English conversation school operator Nova to suspend concluding new long-term contracts. Nova, with its commercials featuring cartoon characters, has grown rapidly with over 900 schools across the country. The violations Nova was cited for demonstrate that its compliance with the law is tenuous.

Nova's malice cannot be overlooked. Throughout the year is attracts students with free admission fees while its advertisements say "During the campaign period only." Even during periods when a contract can be backed out of, Nova lies and says the period has lapsed. And when one asks to cancel their contract, deductions are made from the refund.

The company has been the focus of complaints and calls to consumer centers across Japan for some time, and a spate of lawsuits over lesson fees have been filed. METI raided Nova in February, and in April, the Supreme Court slapped down Nova's appeal over refunds.

Businesses such an English language conversation schools and esthetic salon where large sums of money are paid up front for long-term services are susceptible to consumer problems. This is why the Specific Commercial Transaction Law strictly defines the rules businesses should abide by. Nova president Nozumu Sahashi's excuse during the press conference that his understanding was lacking since the law was new doesn't hold water.

The need for language learning is increasing. In a survey by the private Yano Research Institute, language learning is a 640 trillion yen business. Nova used its cheap lessons as a weapon over its rivals to attract students. But because of business, Nova lied to consumers who were thinking of their children's future and betrayed them by not providing the expected services. It is also a blow to the instructors. Nova's social responsibility is extremely serious.

The government has gone from regulating in advance to checking after the fact, and while is has become easier for businesses to set up, the activities of the crooked one stand out. METI's punishment is a clear stance that protects consumers that sends a message to crooked businesses that illegal activities are not tolerated. It is vital that the system be enhanced to quickly address consumer complaints and requests for advice and maintain a fair marketplace that shuts out malicious behavior and businesses.