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What is the difference between credit cards, consumer finance, and banks? And 'why does Mitsubishi UFJ operate a consumer finance company?'

AI時代のクレカ・仕事・決済術

Whether it is a credit card, consumer finance, or a bank card loan, we can 'borrow money.' At first glance, they all look the same. However, the laws that govern them behind the scenes are completely different, and once you understand that, you can immediately understand the industry structure and the news.

In this article, I will organize the three worlds of the Installment Sales Act, the Money Lending Business Act, and the Banking Act with specific company names, and finally answer a question that many people think of at least once: 'Why do megabanks like Mitsubishi UFJ go out of their way to own a consumer finance company (Acom)?'

First, a major premise: There are two types of 'credit'

Although they are often lumped together as 'credit' or 'creditworthiness,' the content is broadly divided into two categories.

  • Advance payment (Tatekae)：The company covers the cost of the product, and the user pays it back later, such as in installments. = Credit card shopping

  • Loan (Kashitsuke)：Lending cash itself. = cashing, card loans, and consumer finance

'Covering the cost of a product' and 'lending cash.' This initial fork in the road determines the applicable law.

1. The world of the Installment Sales Act: Credit card shopping

The Installment Sales Act regulates 'advance payments' made when shopping with a credit card. It is under the jurisdiction of the Ministry of Economy, Trade and Industry.

The point is that the company is not lending money here. They are just paying the store on your behalf and collecting it later. Therefore,

  • it is exempt from the so-called total volume regulation (up to 1/3 of annual income)

  • The focus of the regulation is on clarifying contract terms, investigating payment ability, and managing affiliated stores.

Representative players include Mitsubishi UFJ NICOS, Sumitomo Mitsui Card, JCB, AEON Card, Rakuten Card, and au PAY Card (au Financial Service). (In the 2021 amendment, new categories such as 'Registered Small-Amount Comprehensive Credit Purchase Intermediary' were established for small-amount, fintech-based operators that use technology for credit assessment.)

2. The world of the Money Lending Business Act: Consumer finance and card cashing

The Money Lending Business Act regulates non-bank institutions that 'lend cash.' It is under the jurisdiction of the Financial Services Agency (Local Finance Bureaus), and entry is registration-based.

This is the world that is most strictly bound after the past multi-debt problems.

  • Total volume regulation: Borrowing from money lenders is generally up to 1/3 of annual income (this is the most important part)

  • Maximum interest rate: Interest Rate Restriction Act (15-20% per year depending on the principal) and Investment Deposit and Interest Rate Act (20% per year)

  • Representative players include Acom (Mitsubishi UFJ group), Promise (SMBC Consumer Finance = Sumitomo Mitsui group), Aiful (independent), and Lake (SBI Shinsei group)

Also, it is easy to overlook, but credit card cash advance limits are also part of this Money Lending Business Act world . In other words, credit card companies hold both signs: shopping (Installment Sales Act) and cash advances (Money Lending Business Act).

In fact, the Japan Financial Services Association also clearly organizes this by stating, "Shopping is outside the scope of the Money Lending Business Act, while cash advances are subject to the total volume regulation."

③ The world of the Banking Act: Bank card loans

The last one is banks. They are regulated by the Banking Act and overseen by the Financial Services Agency. However, banks operate under a licensing system rather than just "registration," making the hurdles significantly higher.

There are two unique characteristics of banks:

  • Only banks can collect deposits (neither consumer finance companies nor credit card companies can collect deposits)

  • Since banks are not money lenders, they are exempt from total volume regulation

This point, that "bank card loans are not subject to total volume regulation," becomes relevant in the later discussion about Mitsubishi UFJ.

Representative players include MUFG Bank (Banki), Sumitomo Mitsui Banking Corporation, Mizuho Bank, Rakuten Bank, au Jibun Bank, and others.

Incidentally, around 2017, there was criticism that "bank card loans not subject to total volume regulation were leading to excessive lending," which led to each bank voluntarily placing caps on their lending amounts.

The three in one summary

※ The interest rate caps under the Interest Rate Restriction Act and the Investment Deposit and Interest Rate Act are rules that apply to "general lending," and banks are also subject to them. To avoid confusion, keep in mind that the decisive difference separating the money lending business from others is the presence or absence of total volume regulation.

Main topic: Why does Mitsubishi UFJ operate a consumer finance company (Acom)?

By now, you might be thinking, "Mega banks can issue their own bank card loans, so why do they keep a separate consumer finance company on the side?"

First, the facts: Acom is a consolidated subsidiary of MUFG

Although Acom appears to be an independent listed company, it is actually a consolidated subsidiary in which Mitsubishi UFJ Financial Group (MUFG) holds approximately 40% of the voting rights (a so-called parent-subsidiary listing).

The catalyst was 2008. Amidst the industry-wide culling caused by the revised Money Lending Business Act and the overpayment refund issue, MUFG increased its stake from approximately 15.8% to over 40% through a TOB (takeover bid) and other means, making Acom a consolidated subsidiary. Roughly speaking, this was a restructuring where "consumer finance companies survived by entering the umbrella of mega banks" and "mega banks incorporated core non-bank personal loan providers.""Consumer finance companies survived by entering the umbrella of mega banks" and "mega banks incorporated core non-bank personal loan providers." is the restructuring.

The core: This is a story about the "guarantee business"

However, "survival" alone does not explain why the two are still so tightly linked today. The real benefit lies in the credit guarantee business.

The mechanism is as follows.

  1. Banks (Mitsubishi UFJ Bank) are exempt from the total volume regulation and can offer the small-lot, unsecured card loan 'Bankiic'.

  2. However, banks lack the know-how for credit, screening, and collection required to process small-lot loans at high speed.

  3. Therefore, Acom 'guarantees' Bankiic and takes on the screening and debt management.

As a result, a division of labor is established where the loan is a bank product (Banking Act, no total volume regulation), while the risk and operations are handled by Acom is established. Banks can capture the personal loan market without their own know-how, and Acom earns stable revenue from guarantee fees. This is why Acom has expanded its guarantee partnerships to Mitsubishi UFJ Bank and numerous regional banks, starting with Hokkaido Bank, reaching a scale of dozens of partners.

In other words, it is a division of labor that utilizes the boundaries of regulation.

To summarize, there are mainly three reasons why MUFG owns a consumer finance company:

  • Guarantee business: A division of labor where the bank (no total volume regulation) lends, and the consumer finance company handles screening, guarantees, and collection. This is the biggest benefit.

  • Customer base and profitability: Consumer finance companies can cover segments that banks cannot fully reach with higher interest rates, allowing for portfolio diversification.

  • Know-how and data: Decades of accumulated small-lot credit data is an asset that banks cannot build overnight.

And this is not unique to MUFG. Sumitomo Mitsui (SMBC) also has Promise (SMBC Consumer Finance), and has the exact same 'bank x consumer finance' structure.

Takeaways

  • 'Borrowing money' involves two distinct things: advancement (Installment Sales Act) and lending (Money Lending Business Act/Banking Act).

  • Only money lenders are subject to the total volume regulation (1/3 of annual income). Bank card loans and credit card shopping are not subject to it.

  • Mega banks own consumer finance companies because of a division of labor centered on the guarantee business. It is a structure that cleverly uses regulatory boundaries, not just a random collection.

Even if it looks like the same act of 'lending money,' knowing who is doing it, under which law, and under what constraints makes a difference. Once you can distinguish those, the organizational charts of financial groups start to look much more three-dimensional.

Reference links

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