Mexican Senate Considers Legislation to Place a Limit on Bank Fees, Reduce Interest Rates

SourceMex Economic News & Analysis on Mexico, March 21, 2007 | Go to article overview
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Mexican Senate Considers Legislation to Place a Limit on Bank Fees, Reduce Interest Rates


The Mexican Senate is considering three pieces of legislation that would impose new restrictions on Mexican banks, including a limit on interest rates for credit cards and a cap on fees charged for cash withdrawals and other services. The initiatives are likely to pass because of strong approval from the three major parties in Congress and at least a partial endorsement from President Felipe Calderon's administration. The Banco de Mexico (central bank), which would play a central role in any regulation, was more cautious about the initiative. The banking sector, in the meantime, is pulling out all the stops in an attempt to prevent the measure from becoming law.

Under the law proposed in the Senate, the Banco de Mexico would set monthly limits for interest rates for credit cards and other kinds of loans. Some members of the opposition Partido Revolucionario Institucional (PRI) have proposed having the banking regulating agency (Comision Nacional Bancaria y de Valores, CNBV) set the limits rather than the central bank.

Proponents say their legislative initiatives would reduce costs for beleaguered banking customers and help expand access to financial services in Mexico, Latin America's second-largest economy. Domestic bank lending equals 11% of Mexico's US$877 billion economy, a third of the percentage in Brazil, the region's largest economy.

The initiatives have thus far only been considered in the Senate finance committee (Comision de Hacienda y Credito Publico), which, if it approves the measures, would then forward them to the full Senate. The upper house would then send the initiative to the Chamber of Deputies.

Proposal has wide support among three major parties

The chances of passage in the Senate appear good because the initiative has strong support from the governing Partido Accion Nacional (PAN) and the opposition Partido de la Revolucion Democratica (PRD) and PRI. "The banks have artificially distorted interest-rate charges," said PAN Sen. Ruben Camarillo, one of three chief sponsors of the bill.

Sen. Camarillo said the committee is investigating charges that the banks are involved in collusion, echoing a concern noted in a study by the Economic Commission for Latin America and the Caribbean (ECLAC). "We have well-founded suspicions that there is an agreement among the banks to fix prices, commissions, and interest rates," said the PAN senator.

The ECLAC study, published in February, charged that banks have purposely channeled the majority of their lending activities to credit cards, to the detriment of other types of loans.

The Calderon administration has stopped short of directly endorsing the limits but has acknowledged that something must be done about the high banking fees. During testimony before the Senate finance committee, deputy finance secretary Guillermo Zamarripa noted that banking fees have come down in recent years, but "there is still room" for banks to reduce excessive charges to consumers.

Similar comments came from Miguel Angel Garza Castaneda, in charge of oversight of financial institutions at the CNBV. Garza said all financial institutions, but particularly banks, need to make an additional effort to reduce or eliminate some fees for services charged to the public.

The government's financial-services consumer-protection agency (Comision Nacional para la Proteccion y Defensa de los Usuarios de los Servicios Financieros, CONDUSEF) offered the strongest criticisms against the banking system. Luis Fabre Brunela, a CONDUSEF vice president, said consumers are facing overall higher fees to conduct financial activities, even though some banking costs have declined. The higher costs, said Fabre, include many increases in fees for credit cards.

Fabre did not, however, endorse placing a limit on fees. Instead, he recommended that banks be forced to provide complete and transparent information to users regarding their costs.

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