Re-Regulating Unsecured Consumer Credit in Japan: Over-Indebted Borrowers, the Supreme Court, and New Legislation

Abstract:     
This paper begins to fill a gaping void in the English-language literature on a pressing socio-economic problem in Japan - the rise in unsecured consumer lending particularly since the early 1990s, followed by a partial fall due primarily to stricter enforcement recently of interest rate restrictions. Parts I and II reveal broad parallels with consumer over-indebtedness and lenders' business models in other post-industrial capitalist societies, although for example cash loans remain distinctively more common in Japan than credit card based lending. Part III outlines the statutory regime until 2005, and the caps and other reforms introduced in late 2006 that are having a major impact on Japan's consumer credit providers - as well as other financial institutions. The reforms were pushed along by judgments from Japan's highest Court, which has deployed sometimes purposive and sometimes literalist interpretations to benefit consumers. Such phenomena pose challenges for certain longstanding paradigms advanced by commentators outside Japan to explain the country's law and society. Those perspectives and several others are outlined in Part IV, the Interim Conclusions, along with other implications for consumer law generally, which are pursued in a companion paper.

Keywords: Japan, Asian law, consumer law and policy, consumer credit, contracts

JEL Classifications: D18, K23, N25, O16, P11

Working Paper Series