Research Report on Consumer Issues Related to
Credit Card Transactions and Outline of
Recommendations

The Consumer Commission
August 2014
The Consumer Commission

Table of Contents

1. Background of issues・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・1
2. Damage arising from malicious acts by member stores・・・・・・・・・・・・・・・・・・・・・・・・・4
3. Damage arising from transactions in which a lump-sum payment is made one month after
the purchase (monthly clear card transactions)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・6
4. Consumer education and information provision in relation to credit card transactions・・8
5. Recommendations・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・9

1. Background of issues(1) Expansion of credit card (CD) transactions
・The number of CDs issued exceeded 300 million in 2008 and each
adult possesses 3 or more CDs on average.
・The amount of credit granted in CD transactions increased byapprox. 1.8 times between 2004 and 2012, exceeding 50 trillion yen.

(2) Increase in the number of consultation cases for CD
transactions
・The number of consultation cases for CD transactions increased by approx.
3.2 times between FY2004 and FY2013 (approx. 2.6 times between FY2004
and FY2012).
・The rate of increase in the number of consultation cases for CD transactions
significantly surpasses the rate of increase of the number of CDs issued andthe number of CD transactions.
・The ratio of consultation cases for CD transactions to all of consultation
cases also increases year after year and accounted for 5.3% of all in FY2013.

Trends in the number of CDs issued and the amount of credit granted
in CD transactions(Note) Compiled using “Consumer Credit Statistics of Japan FY2014 Edition” by the Japan Consumer Credit

Association.

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Trends in the number of consultation cases for CD transactions(Notes) 1. Compiled by the Commission using PIO-NET data. The data registered by July 31, 2014 was used.
2. PIO-NET (Practical Living Information Online Network System) is a system to connect the National Consumer Affairs Center ofJapan and regional Consumer Affairs Centers, etc. across Japan via online networks and to store data on consumer affairs.
3. As for the number of consultation cases for CD transactions recorded in the PIO-NET and shown in this material, CDtransactions falling under credit sales that involve intermediation of comprehensive credit purchases provided for in Article 2,
Paragraph 3 of the Installment Sales Act and whose credit period is less than 2 months were used. As for data in FY2009 andearlier, the number of the cases falling under “comprehensive installments” and “lump-sum payment one month after thepurchase/at the time of bonus payout” is shown.

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(3) More complicated and layered credit card transactions[1] A card issuer enters into a contract witha member store[2] The card issuer and the merchant acquiring
company (acquirer) are different business operators
A card holder can use his/her card even at a store which is not amember store of an issuer of his/her card but which is a member
store of an issuer which has entered into a membership contract
with the same international brand card issuer as for the former
International brandissuer.

Credit card issuer"A comprehensive credit purchaseintermediary" etc. (Note)(Visa, MasterCard, JCB, etc.)(3) Payment(1) Card holder
contract

Member store
contract(4) Payment of
price(3) Temporary
payment forthe card(1) Card holder
contract

Consumer(card holder)(2) Sales contract or service
contract(4) Payment of price

Seller, service provider(member store)

Consumer(card holder)(Note) A comprehensive credit purchase intermediary and a person who performs
intermediation of two months installment purchases as his/her business.

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Merchant acquiring company(acquirer)

Card issuer"A comprehensive credit
purchase intermediary" etc.

The Consumer Commission(2) Sales contract or service
contract(3) Temporary
payment for thecard holder, etc.

Member store
contract

Seller, service provider(member store)

[3] A settlement agency which conducts activities such as temporary payment for card holders intervenes
between a merchant acquiring company (acquirer) and a seller, etc.
(i) Comprehensive contract member store method(ii) Comprehensive agent method

International brand(Visa, MasterCard, JCB, etc.)

International brand(Visa, MasterCard, JCB, etc.)(3) Payment(3) Payment

Merchant acquiring company(acquirer)

Card issuer"A comprehensive credit
purchase intermediary" etc.

(3) Temporary
payment forthe card(1) Card holder
contract(4) Payment of priceSettlement agency(Member store withcomprehensive contract )(3) Temporary
payment forthe card
Consumer(card holder)(2) Sales contract or service
contract

Member store
contract

Merchant acquiring company(acquirer)

Card issuer"A comprehensive credit
purchase intermediary" etc.

(3) Temporary
payment forthe card

加(1) Card holder
contract(4) Payment of price

Seller, service provider(member store)

Settlement agency(Agent with comprehensive
contract )(3) Temporary
payment forthe card

Settlement agent
service contract
Consumer(card holder)

The Consumer Commission(2) Sales contract or service
contract

Comprehensive agent contract

Settlement agent
service contract

Seller, service provider(member store)

Member store
contract2. Damage arising from malicious acts by member stores(1) Content of consultation requests from consumers
The content of consultations for CD transactions relates
to “Signing/termination of contract” and “Sales
method” in many cases.

Of consultation cases for CD transactions, No. of major consultation
cases falling under the category “Signing/termination of contract” or“Sales method” by the content of consultation (FY2013)

No. of consultation cases for CD transactions
by the content of consultation (FY2013)

Content
Signing/termination of contract
Sales method
Price/charge
Customer services
Product quality/function, service quality
Information presented, advertisement
Laws, regulations and standards
Health and safety
Measurement and weight
Packaging and container
No response (no information entered)
Facilities and equipment

No. of cases

Content
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

43,902
26,950
8,823
8,399
6,287
4,651
978
945
61
59
42
33

(Note) Compiled by the Commission using PIO-NET data.
Data registered by July 31, 2014 were used. Multipleanswer question.

Looking closely at the categories “Signing/termination of contract” and “Sales method,”there are many consultation cases about “Cannot get a connection,” “Unfair billing,”“Insufficient explanation,” “Fraud,” “Breach of undertaking,” “False explanation,” “Strongarm and forceful approach,” “Sales practices offering no charges,” “Goods not arrived,” etc.
Thus there are many complaint cases that seem to arise from malicious acts by sellers, etc.

E-commerce
Credit card
Cancellation
RefundCannot get a connection
Unfair billing
Contract form/descriptions
Insufficient explanation
Fraud
Contract
Contract by a minor
Breach of undertaking
False explanation
Unauthorized use of name
Strong-arm and forceful approach
Cooling-off
Sales practices offering no charges
Cancellation fee
Goods have not arrived
Contract without consent

No. of cases
25,78920,86020,446
10,505
5,345
4,494
4,211
4,183
3,684
3,555
2,805
2,630
2,506
2,484
2,454
2,438
2,305
2,064
2,055
1,875

(Note 1) Compiled by the Commission using PIO-NET data. Data registered by July 31, 2014 were used. Multiple-answer question.
(Note 2) “Unfair billing” includes “False billing” and “One-click billing.” “Contract form/descriptions” includes “Form not delivered,” “Falsification ofform,” and “Errors in form.”(Note 3) Top 20 frequently used key words in the content of consultation about “Signing/termination of contract” and “Sales method” are shown inthe descending order.

[Case example] A half year ago, I placed an order for imported furniture and paid the price by credit card but the product was not delivered and the price has not been refundedalthough I gave a cancellation notice.
[Case example] I registered with a side business website that advertises it offers opportunities to earn money by responding to a consultation request. After that, I received an e-mailfrom a man who requested me to give him advice. I made a reply to him and he said “I want to pay you remuneration. Follow my instructions.” I input information according to his
instructions and submitted the information but I was told “The numbers you input are wrong or garbled so you need to deposit money.” I transferred 100,000 yen to their bank accountand then paid 400,000 yen by credit card. But I could not input information successfully although I tried many times. Then, I felt suspicious and decided to stop. I want the money to be
paid back.
(Note) The above two examples were excerpts from consultation cases registered in PIO-NET.

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(2) Investigation of member stores by credit card company, etc.
Under the Installment Sales Act, acquirers and settlement agencies are not required to investigate complaints that arise inconnection with installment sales.
In addition, there are no provisions on the obligation of screening at the time of signing a member store contract and the obligationof monitoring after signing of the contract.
Investigation is required
when a complaint arises

International brand(Visa, MasterCard, JCB, etc.)

Merchant acquiring company(acquirer)

Card issuer"A comprehensive credit
purchase intermediary" etc.

Complaint

Settlement agency

Investigation is not required whena complaint arises
Screening is not required at thetime of signing a member store
contract
Monitoring is not required after
signing of the contract

Occurrence oftroubleConsumer(card holder)

Seller, service provider(member store)

An issuer has no direct contractual relationship with a seller, etc. and there are cases where sufficient investigations and surveys, etc. are
not conducted in regard to malicious sellers, etc.
[Case example] I received a solicitation for drop-shipping business (sales practice where a person posts information about a product on his/her website and if the person receives anoffer to buy the product, the manufacturer or wholesaler ships the product directly to the person who made the offer). I entered into a service contract concerning website development,
etc. and paid the service fees by credit card (in installments). However, it seemed like there was no possibility to earn profits from this arrangement so I gave the seller a cancellation
notice concerning the business opportunity related sales transaction during the cooling-off period. Although the issuer decided to stop billing me, it took no further action other thantelling me to consult with the seller and solve the problem.

2014/10/17

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3. Damage arising from transactions in which a lump-sum payment is made one month after the purchase(monthly clear card transactions)(1) Situation of consumer troubles

The number of consultation cases for transactions in which a lump-sum payment is made one month after the purchase (monthly clear card transactions) has
increased rapidly and, since fiscal 2012, exceeded the number of consultation cases for installment payments, etc., reaching approx. 30,000 in fiscal 2013.
As for installment payments, etc., the number of consultation cases falling under any of the categories “Unfair billing,” “Fraud,” “Breach of undertaking,” “False
explanation,” “Goods not arrived” and “Contract without consent” has moved sideways. On the other hand, as for monthly clear card payments, the number ofsuch cases increased rapidly.

Trends in number of consultation cases by payment method
Installment payments

Monthly clear card payment(Notes) 1. Compiled by the Commission using PIO-NET data. Data registered by July 31, 2014 were used.
2. “Installment payments, etc.” means “intermediation of comprehensive credit purchases” as provided for in Article 2, Paragraph 3 of the Installment Sales Act. As for data in FY2009 and earlier, the number of the cases falling under“comprehensive installments” is shown. Note that in line with the revision of the Installment Sales Act, data in FY2010 and later includes the number of cases falling under “lump-sum payment at the time of bonus payout.”
3. Data for “Monthly clear card payments” in FY2009 and earlier shows the number of cases falling under “lump-sum payment one month after the purchase/at the time of bonus payout.” As for such data in FY2010 and later, thenumber of cases falling under credit sales whose credit period is less than 2 months is shown and the number of cases falling under “lump-sum payment at the time of bonus payout” is included in data of “installment payments, etc.”

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(2) Defense for suspension of payment
The Installment Sales Act stipulates that in cases such as non-delivery of the product from the seller, etc., the consumer
may assert against the comprehensive credit purchase intermediary who demands payment based on the grounds thathave arisen with the seller, etc. (what is called “assertion of defenses against a credit provider based on ground for
defenses asserted against a seller” or “assertion against a credit provider of defenses asserted against a seller”) (In thecases of installment payments, this applies to transactions where the total amount of payment is at least 40,000 yen.

Card issuer"A comprehensive credit
purchase intermediary" etc.

Billing

Refusal of payment
Occurrence of trouble

However, “assertion against a credit provider ofdefenses asserted against a seller” may be madeonly for the case of intermediation ofcomprehensive credit purchase transactions(installment payments, etc.) and may not bemade for the case of monthly clear card
payments.

(Non-delivery of product, etc.)

Consumer(card holder)

Seller, service provider (member
store)

When a complaint arises, the issuer may voluntarily take measures to temporarily suspend the demand for payment, but the issuer demands
the consumer to directly negotiate with the acquirer, settlement agency, seller, etc. If the negotiation does not lead to resolution of the
problem within a period specified by the issuer, the issuer starts to demand the payment again and the consumer has to make the payment.
[Case example] I clicked on “18 or older” on an adult site and I was registered with the site as a result. I said “I had no intention of becoming a member” but they said “ifyou do not pay 98,000 yen, you cannot withdraw.” I said “I cannot pay such big bucks,” and they said “10,000 yen is enough.” They asked for my credit card number andI told the number by telephone. I checked billing statements online the next day and found I was charged with 100,000 yen in total. I want the charge to be cancelled.
I conducted negotiations at the consumer affairs center multiple times and the credit card company said to me “we will temporarily stop billing for 2 months andconduct investigation.” After that, the company answered “the settlement agency has a contract with an overseas bank but the contact information of the agency is
unknown. If the settlement agency does not cancel the charge, we as a credit card company have no choice but to demand the payment from you.”

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4. Consumer education and information provision in relation to credit card transactions
The number of consultation cases for repayment of revolving loans (revolving repayment) increases year after year but there are not manycases where information on revolving repayment is provided to consumers.
There are few cases where information deemed to be useful for consumers to prevent the expansion of damage and to recover fromdamage is provided in an easy-to-understand manner.
Revolving repayment is to repay a fixed amount of money every month
regardless of the amount of loan and the number of loans. Revolving
repayment has the following problems.
- In the case of revolving repayment, the amount of payment is fixed
however much money is used for shopping, and therefore the larger theamount of commission fees becomes, the longer the repayment period
is. Further, the rate for commission fees is set at approx. 10 to 20% on
an annual basis in many cases and if the consumer continues to use
revolving loans while being not aware of such rate, the amount of debt
may become surprisingly large.
- There are cases where at the time of application for card membership,a consumer is not aware that the card is exclusively for revolving
repayment and uses the card without knowing such fact. It is not until
the fixed monthly amount of payment is exceeded that the consumer
becomes aware that the card is only for revolving repayment.
- For some cards exclusively for revolving repayment, the revolving
repayment method is automatically selected even if the customer
chooses a “lump-sum payment” at the time of shopping, or acommission fee is incurred for the balance of payments which does not(Notes) 1. Compiled by the Commission using PIO-NET data. Data registered by July 31, 2014 were used.
2. The number of consultation cases for revolving repayment consists of the number of cases for which it is found that the revolving reach the monthly amount to be paid.

No. of consultation cases for repayment of revolving loans (revolving repayment)

repayment method is or will be used for shopping by credit card and which are described with words such as “Interest rate/interest”“Commission fee” (including “the commission fee for revolving repayments is high”) , “Insufficient explanation” (including “explanation
about revolving repayment is insufficient”) and “Multiple debts” that consumers face difficulty repaying. (Multiple-answer question)(Note) Based on “The shop clerk encouraged me to save lots of money by reward points so I became acard holder but it’s only for revolving repayment” published by the National Consumer Affairs Center(March 27, 2014)[Case example] I became a credit card member as the shop clerk encouraged me to do so. At a later date, when I checked the invoice, I realized thatthe card was only for revolving repayment. If I was aware of that, I would not make the credit card.

Even if the conditions of chargeback rules (*Note) are satisfied, there are cases where the issuer does not make an application willingly
and in some cases the person in charge at the issuer has no knowledge about the chargeback rules.
(Note) Charge-back rules were established by the international brands (Visa, Mastercard, JCB, etc.) and under such rules, if the issuer return funds to a card holder in
response to a complaint made by the holder and if such complaint satisfies the conditions specified by the international brands, the issuer may collect the refundedamount from the acquirer. Chargeback reasons include the signature of the card holder being not given at the time of use of the credit card (theft, etc.), duplicate
billing, overcharging and cancellation due to non-arrival of products.

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The Consumer Commission

5. Recommendations
Issues identified in the light ofactual damages• There are many cases of damages
arising from malicious acts by member
stores.

Recommendations
1 Development of systems for strictly managing member stores
It is recommended that the Ministry of Economy, Trade and Industry (METI) take measures todevelop the following systems.
(1) Take measures to increase the effectiveness of controlling member stores, including
imposing obligations on merchant acquiring companies (acquirers) and settlement agencies
under the Installment Sales Act.
(2) Obligate the above acquirers and settlement agencies to register with the administrative
agency and set out the authority of the administrative agency to conduct investigation.
2 Development of systems for, among others, assertion against a credit provider of defenses
asserted against a seller in the case of monthly clear card transactions• The number of troubles in transactions
in which a lump-sum payment is madeone month after the purchase isincreasing rapidly.

• There are few cases where information
deemed to be useful for consumers toprevent the expansion of damage and to
recover from damage is provided in aneasy-to-understand manner.
• Chargeback rules are not applied
properly in some cases.
• The number of troubles related to
revolving repayment is increasing.

As for intermediation of two months installment purchases (transactions in which a lumpsum payment is made one month after the purchase (monthly clear card transactions)), it
is recommended that the METI take measures to develop systems for, among others, thesame right to assert against a credit provider of defenses asserted against a seller as forintermediation of comprehensive credit purchase transactions.

3 Consumer education and information provision in relation tocredit card (CD) transactions
It is recommended that the Consumer Affairs Agency (CAA) and the METI take thefollowing measures.
(1) The CAA and the METI should further promote the active provision of education andinformation to consumers in regard to use of CDs. At that time, information prepared inan easy-to-follow manner and deemed to be useful for consumers to prevent the
expansion of damage and to recover from damage should be disseminated.
(2) The METI should request CD industry groups to apply chargeback rules properly.
(3) The METI should request CD issuers to provide information on the structure and risksof revolving repayment to consumers in an easier-to-understand fashion at the time ofproviding documents to consumers upon issuance or use of cards.

The Consumer Commission