In December 2006 the government revised the law for consumer loans making it more difficult for certain people to borrow cash and reducing the amount of interest moneylenders could charge. Over the past 3½ years the law went into effect in stages, and as a result a number of consumer loan companies went out of business, since many were forced to pay back excessive interest they had charged their customers in the past. The main aim of the law is to curtail the occurrence of spiraling debt spread out among multiple companies.
Last month the last element of the revised law went into effect. From now on, a customer will not be able to borrow more than the equivalent of one-third of his or her annual income, and will have to submit documentation as proof of income. Though the law was conceived to save people from crushing debt, it may effectively drive more people to bankruptcy or to underground loan sharks.
Unfortunately, a lot of people don’t seem to know about the law. According to the Mainichi Shimbun, the Financial Services Agency found that less than 50 percent of the people it asked had ever even heard about the new law.
Housewives make up a good portion of consumer loan customers, and it seems they will be shut out of the system because of the new rules. Many housewives turn to consumer loan companies to pay the monthly bills when their husbands’ paychecks aren’t enough, and a good portion of them will not be able to borrow any more money from now on. The main reason is that they do not have jobs themselves and so have to submit their husband’s employment information. However, in many cases the husbands don’t even know their wives are borrowing money and the wives don’t want them to know. Even if they did get their husband’s information, because of the one-third limitation, they may not be able to borrow what they need. Much of the money that these women borrowed from consumer credit companies was used to pay off credit card debt.
The moneylenders industry association, Japan Financial Services Association, surveyed 4,000 customers in 2009 and found that half of them had debts that exceeded one-third of their annual income. It also estimates that there were 14.2 million people with outstanding loans at consumer credit companies, such as Acom, Promise and Aiful, when the law went into full effect June 1, and that about 4.9 million are housewives. (Many others are small businesses, which also rely on consumer credit to keep their companies operating on a daily basis.)
In addition, 85 percent of existing consumer loan companies have said they will no longer cater to housewives because the cost of developing systems that can handle their special needs under the revised law is prohibitive. A survey of 500 housewives conducted by JFSA found that 37 percent “know something” about the revised law, and the rest either “don’t know” about it or “don’t understand” what it means.
Josei Jiritsu no Kai (Women’s Independence Group) and other non-profit organizations have set up services to help these women who are now stuck with multiple debts and no way to refinance them, but the main problem right now is getting the word out. Though the government revised the law it didn’t take into consideration publicizing the fact and giving people enough time to prepare for the change. The JFSA, realizing the government’s neglect, started running TV commercials and other advertisements last month, but they may be too little too late. It’s likely that in the near future the personal bankruptcy rate will skyrocket, not to mention the divorce rate.