Credit Cards Undermine Japanese Saving Habit : Banking: The number of consumers who abuse the plastic has jumped--and so have personal bankruptcies.
The propensity of the Japanese to save is one of the major reasons for their country’s economic miracle.
But the rapid spread of credit cards is changing those frugal habits.
Thousands of people, especially in their 20s and 30s, have gone bankrupt using credit cards to buy houses, vacations and expensive audio equipment and to pay back debts. This has lead to thefts, divorces, neuroses and even suicides.
The biggest debt racked up by one person, according to a telephone consulting service set up by lawyers for two days last month, was $625,000.
Kenji Utsunomiya, a Tokyo lawyer who helped organize the service, said credit companies are accomplices to such situations.
“Leasing firms must strengthen their investigation (of the credit standing of their customers) and share the information they gather with other leasing firms,” he said.
Laws regulating the industry are lax--such as one that prohibits lending people more than they can afford but provides no penalties for companies that do, he said.
Supreme court figures show that there were about 12,861 personal bankruptcies in the first eight months of 1991, the latest period for which figures are available. Of those, 9,895 were related to consumer financing by leasing firms.
In 1990, there were 11,273 personal bankruptcies, 8,388 related to leasing firms.
Alarmed by increasing bankruptcies of cardholders, the Japan Consumer Credit Industry Assn. has decided, in response to a request by Japan’s Ministry of International Trade and Industry, to increase monitoring of credit card use.
Starting in June, the association’s 780 consumer credit card company members will have to register customers’ debts with affiliated credit research firms every month.
Other measures under consideration are expanding the industry’s network of credit authorization terminals and educating consumers about proper use of credit cards.
The government has been studying the industry but is unlikely to introduce any major legal revisions.
“In terms of social responsibility, we feel self-restrictive measures by the companies are more appropriate than government regulations,” a MITI official said.
According to the association, there are about 160 million credit cards in Japan, compared to about 1 billion in the United States.
Elderly Japanese who grew up amid the poverty and rationing of World War II and its aftermath prefer cash to credit.
But the number of users is likely to grow rapidly, especially among the young, as credit card companies compete for customers.
“Bankruptcies have not yet driven down revenues of credit firms. But firms need to tackle the problem seriously, since it leads to bad loans,” an association official said.
The MITI official said legal penalties for lending to unsuitable customers would be difficult to apply because every case is different.
A better way is to let each credit firm decide on a customer’s solvency through a better information network, he said.
A problem with that, however, is protecting cardholders’ privacy. The association has established a committee to address the issue.
Down and Out Down Under
Unemployment in Australia rose in December to the highest rate in 26 years after starting 1991 at uncomfortable levels, according to statistics issued last week. The government and private economists expect the labor market to deteriorate further before Australia grinds its way out of the worst recession since the 1930s. The record unemployment is a major political hurdle facing new Prime Minister Paul Keating, below, in his struggle to win over voters before next year’s election.
Source: DRI/McGraw Hill Inc.
