Case Study on Damages of Illegal Lending (Yamikin) Disguised as Factoring

<p>Since the revision of the MLBL in Japan in 2006, occasions where Yamikin-related crimes came to surface seem to have decreased. However, when perusing the recent media report, we found Yamikin had been expanding the high interest rate damages by developing its scheme into varied and sophisticated ways that are difficult for the police to crackdown. For example, according to the Nikkei article on September 26, 2018, titled “Risky Financing Behind Bankrupt Companies”, a highly-illegal bilateral factoring, utilizing a traditionally-used factoring scheme, has been permeated behind the scenes as a new Yamikin, which resulted in spreading damages to more medium and small companies (SMEs) in financial needs. What is concerned on bilateral factoring is not only the difficulty of crackdown by the police, but there is no consistency in the court judgements over its illegality in several compensation claims filed by SMEs against their factoring agencies.</p> <p>According to the article by Kyodo News on March 3, 2017, titled “Receivables Transaction is ‘Actually a Moneylending’ - the District Court Ordered the Refund of Overcharged Interest”, a judgment admitting the illegality of bilateral factoring was delivered. On the other hand, in my interview survey of SMEs that used bilateral factoring, there are cases where the courts did not admit illegality of bilateral factoring but on the contrary SMEs were ordered to pay a large penalty to factoring agents.</p> <p>In light of limitedness in these judicial holdings, it is getting difficult to regulate bilateral factoring under the current laws. In addition, the enforcement of the Civil Law to be revised in 2020 will basically deregulate receivable assignments, which may conversely establish the environment for bilateral factoring. Also, from such perspective, the MLBL should be revised after careful consideration of the reality of fund needs by SMEs and micro-entities, and adequate money loan market should be established in Japan.</p>