Le crédit à la consommation au Japon (document en anglais)

CFJ

In 2000, Citigroup acquired Associates -> launched them into Japan's highly competitive consumer lending market. Since then, had consolidated multiple acquisition through associates into a single entity, CFJ. They have also aggressively rationalized: reducing workforce, closing more than half of their manned retail outlets, and streamlining and centralizing approvals and collections procedures.

In 2006, CFJ wanted to expanded further.

Japanese Financial Industry Overview

Credit industry classified in 2 categories: - sales on credit (allow defer payment when purchasing products).

- consumer finance ( provided in the form of cash loaned directly to customers. )

The major payer Japanese financial system had been the commercial banks (the securities market was still under dvpmt.). These banks provided financial support to heavy industries. And due to their role, they were protected by government and strictly regulated.

Maximum IR banks could charge was controlled between 15-20%; considered to be too low to be applied to uncollateralized consumer loans. Banks were not interested in the smaller consumer loans demand.

Thus, consumer lending sector dvped outside the formal banking sector and with little regulatory oversight. First formal regulation was the IR cap of 109.5% per annum in 1954.

For most postwar period, consumer loans were expensive, but they were convenient!

Japanese culture -> personal debt was embarrassing and socially unacceptable. Here within 5minutes you could have cash in hand. Also with the system of automated loan application (don't have to be in front of a person), that made it no popular. No bill sent at home too...

Consumer Credit – The early years.

After WWII, lots of pawnbroker shops. However, when the rapid dynamic growth begun, possessions held as security could lose their value quickly over time, and this put the pawnbrokers at greater risk from defaults. By the 1960s, consumer lenders (CL) had largely taken over from pawnbrokers.

The BIG challenge for CL was to manage default risk. They used a popular business model “condominium finance”. Accept only clients from there, as to live their they were required to submit their income statement (informal way to make a selection).

As the business dvped, increased cases of debtors who became insolvent because they had borrowed loans from multiple CL.

To overcome this pb, in 1969, Japan Consumer Finance Association (CFJA) was created to promote exchange of customer information. Also enabled the companies to share databases in order to dvp more effective credit administration systems.

Competition and regulation – 1970s to 1980s

The industry rapidly expanded from the late 70s. By 1978, Japan had estimated 22000 CL. Competition became severe, new playes came in as credit card companies. Also in 70s they saw loosening of restrictions on foreign capital ownership. By early 80s 11 US CL. This influx of foreign operators had been encouraged by Jap. Government which hope that it would drive down the IR and thus reduce the interest burden for borrowers. As a condition, foreigners were not allowed to charge IR in excess of 48%.

Did not work as well as expected. Foreigners were not able to gain access to credit information from Zenjoren. This made loan processing a lengthy operation. To differentiate, they targeted customers with higher creditworthiness but this resulted in narrowing the customer base. Without info, US CL accumulated bad debts while japanese responded by lowering IR (73% cap in 1983). By 1986, no more US.

Loose regulation and IR caps also attracted criminal groups -> the industry gained a negative image.

Restructuring and the New Era – 1980 and 1990s

Stricter regulation and lower IR cap, lots of small CL went out of business/

Bursting of the real estate bubble 1998 damaged severely the commercial banks who had fixed property as collateral, but business opportunity for CL. Those in immediate need of funds turned to CL coz didn't require security. Growing demand, and CL made important innovations.

1993, automatic loan application and contract machine. If the applicant passed the examination, then a loan card would be issued with which the custmoer would withdraw cash from ATMs. Machine were highly popular, coz customers were afraid to be rejected in front of a person. Attracted new customers for whom anonymity was especially important.

The largest firms began to aggressively to reduce their IR. Although IR cap was 40%, the bigger reduced their IR below 29.2% to be able to become publicly traded. Some of them went public such as ACOM in 1993.

Also continued their investment expansion, with ATM networks, and also their own retail networks.

Realignment and New Entrants – 2000 and beyond.

In

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