Mexico Lower House Passes Bill To Regulate Bank Fees, Rates

Mexico's lower house of Congress has approved legislation that gives the central bank greater authority to regulate the interest rates and commissions that lenders charge, as well as boost competition in the payment processing industry.

The long-delayed bill, which awaits the signature of President Felipe Calderon after it was passed Thursday, says the Bank of Mexico should make sure loans are made under "accessible and reasonable" conditions.

Measures include giving the Bank of Mexico the power to establish the interest rates banks pay on deposits and charge on loans, banning some types of fees altogether, and requiring lenders to offer a basic credit card with a credit limit of no more than 11,500 pesos ($889).

The bill was passed by the Senate in April, but failed to make it to the house floor for a vote last year owing to a heavy legislative backlog.

The Bank of Mexico already enjoys broad powers to regulate the financial system. The central bank last year banned several commissions with a view to boosting competition by giving banks a greater incentive to generate revenue from lending rather than passively collecting commission and fee income.

"We continue to believe and insist that the best way to obtain a reduction in commissions ... is through competition," Enrique Zorrilla, chief executive of Mexico's No. 2 bank Banamex, said at a press conference Friday.

Fees and commissions of close to MXN56.3 billion accounted for about 27% of the banking industry's operating income in 2008.

Banks have attracted congressional scrutiny in recent years due to public outrage over fees and a surge in bad credit-card loans during 2008 and early 2009 as the result of poor lending standards and a recession.

Mexico's economy likely contracted close to 7% last year, its worst downturn since the 1995 peso crisis as the global crisis dried up international trade, especially with the U.S., its largest trading partner.

The recession and spike in unemployment made it harder for businesses and families to pay back their debts, forcing most of the country's largest banks, with prodding from regulators, to restructure the credit card loans of many heavily indebted consumers.

Five of Mexico's top seven banks are foreign-owned. Banco Bilbao Vizcaya Argentaria SA (BBV) and Banco Santander SA (STD) of Spain, Citigroup Inc. (C), HSBC Holdings PLC (HBC) of the U.K., and Canada's Bank of Nova Scotia (BNS) control nearly 70% of loans and deposits.

Another key provision in the bill seeks to bring greater competition to Mexico's electronic payment processing industry, which is controlled by two bank-owned networks, Prosa and e-Global.

The legislation will require all payment networks to request operating approval from the Bank of Mexico and force competing networks to connect with each other free of charge. The central bank will also be tasked with lowering entrance barriers to investors who want to open new processing networks.

Mexico's banks have spent millions of dollars in recent years to provide card payment terminals to businesses of all sizes in a bid to get consumers to make purchases with credit and debit cards instead of cash.

According to data from the Bank of Mexico, the number of card payment terminals rose to 441,107 in the third quarter of 2009 from just 117,787 in the first quarter of 2002.

During the same period, the number of credit cards in circulation rose more than threefold to 22.3 million, while debit cards nearly doubled to 62.5 million.

-By Ken Parks, Dow Jones Newswires; 52-55-5980-5177; ken.parks@dowjones.com

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