How Stricter Money-Lending Regulations Gained Legitimacy

A Social Movement by Legal Professionals and Debtors in Japan

Abstract

This essay analyzes the history of Japanese money-lending regulations from the emergence of consumer finance companies in the late 1970s to the enactment of the Money Lenders Law of 2006, which imposed powerful regulations on lenders. The documents clearly show that the dynamic social movement led by legal professionals and debtors working together in a mutually complementary manner was a driving force in historical change.

In the late 1970s, 15 lawyers formed an association to correct an overwhelming gap in bargaining power between lenders and borrowers. They represented the overindebted borrowers, negotiated with and took legal action against the lenders, witnessed first-hand the unreasonable suffering of the debtors and their families, and concluded that the debtors were victims of unfair and unjust lending and collecting practices. Legal professionals, researchers, and concerned citizens organized a group, and credit victims formed groups in major cities with the help of legal professionals. These groups formed a coalition and pressed for stricter regulations, and nearly three decades later, the Money Lenders Law of 2006 was enacted.

Consequently, from FY 2006 to 2019, the number of debtors indebted to five or more lenders dropped by 94.4％; personal bankruptcies dropped by 50.7％; and the loan balance of the money lenders decreased by 42.2％. Illegal lending also fell sharply, and the total amount of money lent or extorted by loan sharks decreased by 77.9％ from 2007 to 2019.

Over the past decade, Japanese money lenders have expanded their business to other Asian countries, and major banks that are not regulated by the 2006 law have become the leading market players in Japan. It is more than worthwhile to revisit this unique history of social actions so that society can cope with these changes in Japan and other countries.