100% Credit Card Interest Rates Charged in Mexico

Just when you thought the banks in the United States were really sticking it to consumers, least we forget what is happening in Mexico.

I previously wrote about Wal-Mart de Mexico Plans 100,000 Credit Cards by Year-End — With Interest Rates of 59% to 75%

Well apparently Mexico is now starting to draw some lines about the amount of interest that can be charged. According to the Associated Press, see below. But what is troubling is that language limiting interest rate caps has been removed by the Mexican Senate in committee. Let;s hope it can be put back in. If not, people from Mexico may find themselves fleeing across the border to the United States, just to get more reasonable credit card interest rates.

MEXICO CITY — Millions of first-time credit card holders remade Mexico in recent years, buying everything from diapers to DVD players on credit and spurring a boom in consumer spending and bank profits.

Many now regret it: With interest rates, commissions and fees topping 100 percent a year, delinquencies have soared as the global economic crisis boosts unemployment and leads banks to raise rates even more.

“There’s no way out,” said Manuel Correa, a Mexico City messenger who saw his minimum monthly payments quadruple to 1,500 pesos, or $105, when he missed a few after losing his previous job. That amount is a third of his income.

“I’d have to choose between eating, paying the rent or paying the bank,” he said. He chose to eat.

Congressmen, grass roots activists, one of the world’s richest men and even the Roman Catholic Church are now rebelling against the rates, some of the world’s highest and equal to 10 times the top rate banks pay out on deposits.

“Banks are acting with irresponsible voracity, demanding extremely high interest rates which in the end, people won’t be able to pay,” the Catholic Archdiocese of Mexico said in December. Banks’ “insatiable greed” is speeding an economic crisis that may spark social unrest, the church warned.

So great is the anger that Mexico’s conservative governing party has argued in favor of following in the footsteps of leftist Venezuela, which caps credit card interest rates at 33 percent.

A bill now before the Senate would allow the central bank to limit bank fees and slash interest rates that regulators consider excessive, and to boost transparency by requiring banks to report more detailed information on the rates they charge. A Senate committee last week removed language that would have capped rates.

Among the unlikely suspects supporting rate reductions is Mexican billionaire Carlos Slim, who in December called credit card interest rates “unsustainable, and in the majority of cases, unpayable.”

Slim’s own bank, Inbursa, offers a card for preferred customers that charges 47.7 percent, one of the lower rates around. But the bank is not a big player in the domestic credit card market and critics dismissed Slim’s statements as carping against bigger competitors.

Critics of the bill’s measures warn they will hit the poor hardest, shaving bank margins and making them less likely to lend to anyone with a less than excellent credit history.

“If we set rate ceilings, we are going to leave out a good number of Mexicans, especially poorer people, without access to credit,” said Enrique Castillo, head of the Association of Mexican Banks.

Banks admit that part of the problem was growth in bank and store credit card accounts. Credit had collapsed in the wake of Mexico’s 1994 peso crisis, making it hard to get a card through the end of the decade.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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