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Japan: Merchants to Be Required to Have IC Chip Readers for Credit Cards

(Jan. 18, 2017) An amendment to Japan’s Installment Sales Act (Act No. 159 of 1961) was promulgated on December 9, 2016. (Act to Amend the Installment Sales Act, Act No. 99 of 2016, KANPO Extra Edition No. 273 (Dec. 9, 2016), at 3, KANPO website (in Japanese).)  The amendment aims to enhance credit card security.  (Cabinet Decision on “Bill to Amend a Part of Installment Sales Act,” Ministry of Economy, Trade and Industry (METI) website (Oct. 18, 2016).)  The amendment will take effect by June 2018.  (Act No. 99 of 2016, Supp. Provisions, art. 1.)

Many provisions state that specific measures on tightening credit card security will be prescribed by METI ordinances.  Among these provisions, for example, one of the major amendments is that, in order to prevent unauthorized use of credit cards, retailers and retail service providers will have to take measures that will be specified by a METI Ordinance.  (Installment Sales Act, Act No. 159 of 1961, as amended by Act No. 99 of 2016, art. 37-17-15.)  The METI has stated that installation of IC chip readers will be mandatory.  (METI, supra.)  In Japan, only about 20% of credit card readers currently have IC chip readers. (Shops that Participate in Card Systems Obligated to Deal With IC Chips, Installment Sales Act to Be Amended, NIKKEI (May 26, 2016) (in Japanese).)

The amendment will also establish a registration system for credit card companies and credit card acquirers (the financial institutions that solicit merchants to accept credit cards and that offer services to those merchants connected to the use of the cards).  (Installment Sales Act, as amended by Act No. 99 of 2016, art. 35-17-2.)  The credit card companies will be obligated to check whether merchants can properly manage credit card information before allowing them to engage in credit card transactions and periodically thereafter.  (Id. art. 35-17-8.)