By Samuel Peña Guzman
Foreign Investment Coodinator State of Nuevo Leon

A few days ago I was reading a press report regarding interest rates charged to credit card holders in Mexico, which led me to a reflection I would like to share with you.

When, after requesting a credit card, an agreement is entered by and between a bank and another party (which would be you or me); we are stating our agreement with previously established obligations and clauses. This is, even if it is a "lex mercatori" between the parties, it is obvious that de facto and de jure it is an adhesion law where we practically adhere to the clauses imposed by banks; otherwise the card and/or credit requested are not granted. In other words, it is like signing a "coercion" agreement, where citizens like you and I have practically no way to negotiate a single point in interests rates charged to credit card holders.

To a certain extent, this should not surprise us, because this happens in almost every country in the world. What does not happen in most other countries is the huge difference between rates paid by banks on savings accounts and interests rates charged on credit card holders, let alone the difference between rates set by banks and inflation rates in Mexico. Unfortunately, the culture in Mexico is to obtain immediate profit, in some cases over 100% in the short term.

For example, in Mexico there are some credit cards for which up to 45% of annual interest rates are paid - extremely high - when our annual inflation does not even reach 5% and average rate offered to savings account holders barely reaches 9%; of course, depending on the amount invested and the different rates and type of investment or savings account.

In other countries, such as the USA, the average annual rate charged to credit card holders is around 8% to 15%. However, interests are charged using different criteria, because it is based on the customer´s credit history; still, parameters are not as abysmal as in Mexico. That is why our policy about credit cards should be using them as little as possible and with the criterion to pay the balance in full, in order to avoid paying interest rates which, in some cases, are over 40%.

There are also mortgages and automobile credits which, in spite of the increase in the amount of credits granted, rates are still high when compared to other countries, even some developing countries such as Chile or Uruguay, taking into consideration some of the inflationary and banking factors I have already mentioned.

I am convinced that Mexico is advancing on this issue, in spite of the high interest rates charged by financial institutions for the only credit available. However, even if there is an Interbank Equilibrium Interest Rate (Tasa de Interés Interbancaria de Equilibrio TIIE), with which banks compute and later set rates for credit users, interests are still high because said rates are several points over the rates paid to savings customers (banking business) and no incentive to the use of credit is created as it is done in developed countries - a credit culture.

There are some economies which consumption and internal indebtedness is very high, being also the economy´s motor, an example would be the US economy. It is precisely this internal consumption that allows for the generation of internal flows and permanent jobs.

It is clear enough to me that both the situation and economic conditions in Mexico are quite different; however, I am convinced that rates charged to us who make use of credit are not incentives for consumption, and savings goals cannot be achieved when salaries do not allow for it. Therefore, neither consumption - due to interest rates - nor savings - due to low salaries - are fostered, as is indebtedness at a very high cost. This is regrettable for the economic active population striving day by day to make a living amongs the economic policies that rule over Mexico.

Hector Samuel Peña LL.M, MPA Currently works as a Foreign Investment Coordinator for the State Government of Nuevo León, he has LLM Masters in Law from American University, Washington, College of Law, and a Masters in Public Administration from the George Washington University and has advised foreign companies who are expanding operations in to Mexico. He is also a professor at the State University of Nuevo Leon in Monterrey, Mexico and a Member of the Consejo Mexicano de Asuntos Internacionales COMEXI.
The point of view is strictly from the author and does not represent the vision on any of the author institutions relationships.

He can be reached at: samuel.pena@mexicoglobal.com