Payday Loans – Some Japanese Cannot Live Without Them
TOKYO – It’s been a tough decade for Masami Fujino, 48, since he lost his job as a regular employee at a Japanese food and beverage company. He had no savings to save and had to look for part-time jobs that paid by the day or by the week.
A decade later, Fujino is still jumping from job to job, hauling furniture one day and setting up a concert stage another.
“I even have trouble paying for transportation, so I choose jobs that allow me to be paid daily or up front,” he said.
Workers like Fujino are increasingly turning to companies that offer payday loans – a method of allowing employees to receive pay for days already worked but before payday.
One of the reasons Fujino didn’t choose to join a company as a regular employee is because he doesn’t have the luxury of waiting 30 days for the next paycheck.
According to the Ministry of Health, Labor and Welfare, 27% of Japanese workers who support their household have temporary jobs. The number of such people increased from 1.3 million in just four years to 9.2 million in 2014. One in seven households has no savings.
In early September, an official at the Financial Services Agency was surprised to learn how many companies in Japan are offering to help businesses set up payday lending schemes.
“I never imagined there would be so many,” said the official, looking at a list of around 20 companies. The list includes several FinTech or FinTech companies.
In Japan, it is customary to be paid once a month. Many employees are paid on the 25th of each month for the work they did in the previous month. So anyone who starts a new job on the first day of a month may have to spend 56 days before being paid.
Another trend in Japanese companies is to hire workers through temp agencies and pay them less than regular employees. Many of these workers are paid on the 16th of each month for the previous month’s work.
The new services allow employees to use their smartphones to request advances. On payday, workers who have taken advances receive the balance of their wages. A popular service is available to over a million people.
Consumer credit on the decline
“The number of temporary workers who cannot survive without receiving money every day has increased,” said Haruki Konno, who heads an incorporated nonprofit that offers advice on labor issues.
Banq, based in the Chiyoda district of Tokyo, offers a system that helps companies push workers up part of their wages. She recently conducted a survey of her corporate clients to see how workers are using their advances. The results show that 48.6% of those who use the service do so to cover their living expenses. In addition, 80% of workers who receive advances are between 20 and 30 years old, said Banq chairman Munetaka Takahashi.
The proliferation of these payday credit specialists has been accelerated by the tightening of consumer finance regulations.
Consumer loans have spread rapidly in Japan over the past decade due to their simple filtering and the ease of obtaining cash. Yet exorbitant interest rates became a social problem and the government began to regulate pawn shops by introducing a loan cap.
Statistics from the Bank of Japan, FSA and other parties show that the total consumer loan balance fell by more than 6 trillion yen ($ 52.7 billion) from more than 15 Trillion yen in 2007.
The breakdown services intervened quickly to fill the void.
219% interest rate
Breakdown services are also popular with employers. In a context of growing labor shortages, companies are looking for ways to attract workers. More and more companies are agreeing to pay wages daily in order to recruit workers, according to Toru Ueno, president of Payment Technology, a payday advance service provider based in Tokyo’s Bunkyo Ward.
In July and August, the ratio of job vacancies to applicants stood at 1.52. It is now more difficult to find and retain talent than at the height of the economic bubble of the late 1980s.
Shidax, a chain of karaoke parlors, began in 2015 paying workers every day and has since seen the number of job seekers double.
“Entrepreneurs have recognized this trend and are cramming into the market to help businesses pay their workers more often,” Ueno said.
Experts say some of the financial technology-based payday advance services are in a legal gray area.
The economic models of services can be divided into two types. In one, corporate clients pool a certain amount of money that they can use when employees request advances. The system provider receives commissions which vary in size depending on variables such as how often the service is used.
In the other business model, the system provider temporarily pays an employee’s salary and later receives the same amount of money from the client company. This is the business model in question: employees who take advantage of it are charged fees ranging from 3% to 6% of their advances.
This practice amounts to wear and tear, said one reviewer.
Suppose an employee uses an ATM to withdraw money from their bank account by a payday lender-like service 10 days before payday and pays a fee of 6%. If the fees are considered interest, the annualized rate is exorbitantly 219%, which is about 11 times higher than the legal limit of 20% imposed on money lenders.
“Illegal in principle”
Many of these payday advance services are not registered as money lenders, claiming that they are only paying wages up front and in doing so provide a social benefit to their corporate clients.
But Osamu Mikami, a lawyer who takes care of clients who juggle multiple debts, said some of the companies “appear to be loan sharks around the law.”
These services could also be in violation of the Labor Standards Act, which requires employers to pay wages to their employees directly and as a lump sum in order to avoid exploitation by intermediaries.
An official from the Department of Health, Labor and Welfare said advancing employees’ wages was “illegal in principle” and warned that companies that introduced payday advance systems could face penalties .
An FSA official said the agency will determine on a case-by-case basis whether those services lend money.
“There are different system providers,” said the FSA official. “It is impossible to determine that they are all legal or illegal. But it is necessary to understand what is going on.”
Akenobu Hayakawa, an attorney who works with startups, said the number of “finance service providers who take advantage of loopholes in laws and regulations” will continue to increase.
With so many vulnerable, low-wage workers in need of cash advances, it is imperative that the rules be clarified.