Research on the Consumer Finance Market from the Funding Side before and after the Revision of the Money Lending Business Law

Abstract

In Japan, the Money Lending Business Law (MLBL) was amended in December 2006 and was fully enforced in June 2010. The impact of the newly imposed strict regulations was enormous, and many consumer finance companies went out of business in a short period of time. For example, Takefuji (2nd in the industry) went bankrupt in September 2010, and Sanyo Shinpan (7th in the industry) was merged into Promise (4th in the industry) in the following month. At the same time, the credit crunch in the consumer finance market accelerated at a stretch. After all, the market size continued to decline after that, and the shrinking trend of the market subsided in 2012. It had remained generally stable from 2012 until before the COVID-19 pandemic. And today, the COVID-19 pandemic is disrupting the consumer finance market.

Therefore, this paper first focused on the consumer finance market before and after the revision of MLBL, and analyzed changes in the situation such as balances, new contract rates, and overpayment refunds, etc. As a result, it was confirmed that not only the request for refunds of overpaid interest increased at a stretch, but also the size of the consumer finance market had shrunk, because the consumers who had difficulty in borrowing due to the cap interest rate reduction went to debt consolidation, and in addition claimed a refund of their overpayment. In other words, the cap interest rate reduction as well as the introduction of the total amount regulation due to the revision of the law forced some users at that time into difficult situations of borrowing. Rapid increase in the number of users facing borrowing difficulties prompted the request for refunds of overpaid interest to money lenders at once, and gradually worsened the performance of lenders.

Next, this paper analyzed the impact of the economic environment of the COVID-19 pandemic on the consumer finance market. Recently, it has been reported that the number of consumers who have been in financial difficulty under the COVID-19 pandemic has increased, and some of them may have been leaked to loan sharks (Yamikin). So, the author investigated the financial situation of consumers from the transaction data in the consumer finance market under such an economy. Consequently, it was suggested that the number of consumers who are refused loans from consumer finance companies may be increasing as economic activity is shrinking.