The bad people who protect Nova

This is a quick and dirty translation of an article in the September issue of FACTA that pretty much writes off Nova. The article pulls no punches taking swipes at Nova's sleazy business practices and the political interference to save Nova.

The bad people who protect Nova

The truth behind the six thousand complaints swept under the carpet

Known for its eikimae ryuugaku, Nova, the largest English conversation school in Japan, is foundering and in danger of failing in the wake of the sanction in June from the Ministry of Economy, Trade and Industry that suspended part of Nova's operations. Nova ran afoul of the Specific Commercial Transaction Law in offering long-term contracts with attractive terms and conditions to students and then charging cancellation fees and calculating refunds at higher price rates for students who canceled their contracts.

With more than six thousands complaints about Nova lodged at consumer affairs centers and other bodies over the past five years, the administrative sanction was long overdue. But in tracing the events leading up to the sanction, it has come to light that METI, the ministry in charge, worked to avoid punishing Nova in sending documentation to regional ministry offices stating that Nova's illegal calculation method was "legitimate."

The Supreme Court's decision in April that rejected Nova's appeal regarding refunds for canceled contracts turned the tide in the administration of consumer affairs in favor of punishment, but behind METI's inaction, backing Nova's rapid growth through school expansion and a low-cost business model is a Liberal Democratic Party politician who repeatedly intervened in the administration. The preservation of Nova's shady business practices is a blot on the administration.

From students signing three-year or other long-term contracts and then canceling contracts after being unable to book lessons at the requested time to Nova's practice of charging a lesson price higher than that was paid when giving refunds, complaints about Nova have sharply risen in the past 10 years to the extent that in fiscal 2006, complaints about Nova lodged at consumer affairs centers across Japan accounted for 53%, or 1967 cases, of all complaints about English language conversation schools.

The political "seal of approval"

In June 2002, despite the Tokyo government's administrative guidance aimed at cleaning up Nova's act, METI issued a memorandum to regional ministerial offices across the nation expressing the view that Nova's method of calculating refunds do not restrict students' rights to terminate their contracts and "cannot be deemed to be not legitimate." This amounted to a "seal of approval" and effectively pulled the rug out from under prefectural and city governments and consumer groups in their efforts to provide administrative guidance and negotiations with Nova to improve its business.

The man responsible for repeatedly putting pressure on METI to stop its administrative sanction of Nova for violating the Specific Commercial Transaction Law is LDP Lower House member Yasuhide Nakayama.

In February, after Nova had been raided by METI, Nakayama met with Akira Amari, the minister in charge of METI, to request that the Specific Commercial Transaction Law be revised saying that it was out of step with business activities. In April 2006, when he got involved in mediating a dispute between Nova and the Osaka Consumer Affairs Center, he requested a meeting with the mayor of Osaka, Junichi Seki, together with Nova president Nozomu Sahashi to make the case for Nova.

The political intervention behind METI's "seal of approval" memorandum comes to light considering that Sahashi, who has close ties with Nakayama's father, former construction minister Masaaki Nakayama, is a member of Nakayama the Younger's political support group.

Nova was established in 1981 by Sahashi, a native of Osaka who had been studying in France, and some friends. Under the catch phrase ekimae ryuugaku, the company expanded across the country, and is listed on the JASDAQ stock exchange. Said to be the largest in its industry with 925 schools and over 410 thousand students, the numerous opaque aspects of its business have lead to rumours that a cult is connected to its rapid growth.

Sahashi was at one point involved in running an international business school in Japan opened by one of France's oldest Grandes Écoles, the École Nationale des Ponts et Chaussées ("National school of Bridges and Roads").

He also worked as a director of the Intercultural Communication Foundation, a Ministry of Foreign Affairs approved NPO, with Nakayama serving as a trustee. With its stated purpose to "improve international cross-cultural communication skills," the foundation provides certification exams for the main languages of the world such as English. The foundation's predecessor was the Nanyou kyoukai, established during World War I with the aim of "contributing to the peace and civilization of Pacific rim countries" and served by successive presidents from the family of former prime minister Fumimaro Konoe.

Did Sahashi's impatience over wanting to expand to be more than a language school lead to close ties with politicians thus creating the stumbling block for Nova's business practices?

At the heart of Nova's partial suspension of business for violating the Specific Commercial Transaction Law is the National Consumer Affairs Center of Japan.

The NCACJ compiled information about consumer complaints from centers across Japan and lead in resolving disputes between consumers. In providing ministries with information, it played a role in administrative sanctions and criminal punishments, but since it did not have any regulatory authority, there were many instances where administrative red tape left it helpless in protecting consumers.

METI's disregard for consumer protection

In Nova's case, the NCACJ requested that action be taken after giving METI the consumer complaint information it has collected from consumer affairs centers across Japan. However, the memorandum that METI had made public stating that Nova's methods were legitimate left its hands tied and made dealing with disputes even more difficult.

According to an impromptu questionnaire conducted by the NCACJ in June, when asked what made resolving disputes with Nova during negotiations difficult, the majority of respondents (129) said that it was Nova's unilateral application of its rules followed by 66 respondents who said that it was Nova's assertion that they had permission from METI. The interests of the ministry in charge are are susceptible to political pressure, and this impeded the processing and resolution of consumer complaints.

The easing of regulations has allowed numerous businesses to participate in a variety of different fields, primarily in the service sector. Using existing regulations to cover the widening scope of businesses in order to maintain the quality of services and mitigate risk to consumers is difficult.

Instead, what it being called for is a framework to deal with shady practices and high-risk businesses that strictly enforces checks retroactively and penalizes or forces them out of the market.

There has been a series of legal revisions with the aim of offering consumers retroactive redress. Examples include revision of the Specific Commercial Transaction Law, which applies to all types of businesses concerning misleading advertising and false explanations; revision of the Installment Sales Law, which obligates consumer credit companies to register in advance so as to prohibit contracts that exceed a person's ability to pay; and revision of the Consumer Product Safety Law, which mandates manufacturers to conduct safety inspections and report serious incidents to prevent accidents caused by consumer products.

METI at one point was going to give a Nova a pass due to political pressure, but even though it ultimately reversed its stance and issued a severe sanction that suspended part of Nova's business for six months, it is indicative of change in the administration of consumer affairs.

Nova is in dire financial straits after being prohibited from signing new long-term contracts, its main source of income, and being cut off from student retraining subsidies from the Ministry of Health, Labour and Welfare. Companies such as travel agency H.I.S considered tie-ups with Nova but decided against it. Although Nova has announced as part of its improvement plan that it will increase the number of instructors over the fall by 700 in response to student demands, the outlook for Nova rebuilding its business is bleak.