I OVERVIEW

A historical event key to understanding Mexico's current system and financial consumer protection policy is the 1994 recession often referred to as the ‘Tequila crisis'. The crisis derived, among other factors, from Mexico's lack of international reserves, which prompted local currency to suffer great devaluation. To resolve the crisis, the Mexican government was forced to implement severe measures, including passing several key reforms and new regulations, establishing the autonomy of the Mexican Central Bank, and adopting a floating exchange rate.

During the crisis interest rates sharply increased and on the other hand the value of Mexico's currency fell steeply, resulting in many abusive practices by the financial institutions. As financial institutions grew again and the system recovered, the authorities became aware of the abusive practice and observed the necessity to develop consumer protection policies. This led to the enactment of the Law to Protect and Defend Financial Services Users in 1999 and the creation of the National Commission for the Protection and Defence of Users of Financial Services (CONDUSEF).

Originally CONDUSEF was designed to be an ombudsman in financial consumer protection that could conciliate disputes between institutions and consumers, with the capacity to formulate unbinding recommendations without being authorised to impose any sanctions. But a weak organism without any real enforcement powers could not fully pursue a protection purpose. Therefore, several efforts have been made since then to turn CONDUSEF from an ombudsman into a real authority with specific and full regulation and supervision powers.2

In 2000 Congress passed a reform to require financial institutions to maintain specialised units for the attention of consumers (UNEs). These units were designed to provide answers to requests and claims filed by consumers. In 2002 the Secured Credit Transparency Law was enacted, bringing many useful and protective concepts such as total annual cost (CAT) and implementing mandatory incorporation of certain clauses in adhesion contracts. In 2004, the first Transparency and Financial Order Law was enacted. This was a major step in regulating fees, eradicating some discriminatory practices and implementing an obligation to register fees before the Mexican Central Bank.

In 2007 a new Transparency and Financial Order Law was enacted. It created several registries including those for fees and adhesion contracts. It also required financial institutions to offer some basic products and regulated electronic transactions. In 2009 many consumer protection authorities were transferred from the National Banking and Securities Commission (CNBV) to CONDUSEF, who received regulation, inspection and sanctioning authority. In 2010 the Central Bank was vested with the power to authorise and modify the fees charged by the financial institutions to clients, as well as the applicable procedure and regulation for releasing collateral loans upon payment, and the authority to publish interest rates for comparative purposes.

Finally, the financial reform of 2014 brought about many changes, and it was the most important reform in the evolution of the consumer protection process.3 The key changes from a consumer finance perspective were the following: (1) CONDUSEF was vested with powers to issue and publish recommendations to financial institutions; (2) CONDUSEF was authorised to represent financial users in class actions against financial institutions;
(3) a Bureau for Financial Institutions was created under the supervision of CONDUSEF to provide consumers with information on the performance of financial institutions including claims initiated against them and sanctions imposed; (4) CONDUSEF was vested with powers to determine which clauses are abusive under adhesion contracts and to order institutions to remove them; and (5) a general prohibition against tied sales was included.

Currently, one of the hot topics of consumer finance in Mexico - as in many other parts of the world - is fintech. Mexico is one of Latin America's leaders on the financial technologies market. According to figures of the Mexican Central Bank there are currently 158 fintech platforms operating within our country, of which 30 per cent are focused on payments and virtual currencies; 28 per cent on crowdfunding and online loans; 13 per cent on financial management for companies; 4 per cent on royalty-based crowdfunding; and 25 per cent dedicated to other activities.4

However, while this market continues to grow Mexico does not have any specific regulation for these entities. Financial authorities consider these technologies as important for financial inclusion and continue to seek their regulation in order to promote competition with other financial institutions but the quest for financial inclusion clashes with the need to ensure consumer safety and to address anti-money laundering concerns. The regulator is reviewing how best to balance the goals of financial inclusion and consumer protection in forthcoming regulation.

II LEGISLATIVE AND REGULATORY FRAMEWORK

i Legislation

The main statutes governing payment, deposit and lending services are the following:

a The Law to Protect and Defend Financial Services Users (LPDUSF), the main objective of which is to protect and defend the rights and interests of the public users of financial services rendered by public, social and private institutions and also provides all the powers and authorities granted to CONDUSEF.

b The Credit Institutions Law (LIC), the main objective of which is to regulate the banking and credit services and the organisation and functioning of all credit institutions as well as all operations that such institutions can perform, the protection of the public's interests and the terms on which the Mexican State will exercise its supervision of the Mexican Banking System.

c The Transparency and Financial Order Law (LTOSF), the main objective of which is to regulate all fees, exchange rates and all other aspects related to financial services, including the granting of facilities by financial institutions and by non-financial institutions.

d The Secured Credit Transparency Law (LTFCCG), the main objective of which is to regulate all financial activities and services provided for the granting of secured loans for housing purposes (facilities for the acquisition, construction, refurbishment or refinancing of housing).

e The General Law of Negotiable Instruments and Credit Transactions (LGTOC), the main objective of which is to regulate all negotiable instruments and credit transactions including, among other things, deposits and lending transactions.

ii Regulators

The Mexican financial system is a well-developed system in which several regulators take part.

The first regulator that needs to be mentioned is the Ministry of Finance and Public Credit (SHCP). It is in charge of planning, coordinating, evaluating and protecting the financial system.

There are two supervisory Commissions. The first one is the CNBV, which has general powers of regulation and supervision over most financial entities. The CNBV regulates capital requirements, mandatory reserves, anti-money laundering and know-your-customer policies and generally the operations of credit institutions. The second one is CONDUSEF, which primarily acts to protect financial consumers. It pursues financial education and financial transparency for consumers to make informed decisions on the products offered on the Mexican financial system. It also protects consumers' interests through regulation and supervision of the financial institutions and provides assessment and legal services for the defence of their rights.5

In order for CONDUSEF to reach its objectives, it has been vested with powers that can be classified into three categories:

a regulation powers over: adhesion contracts; account statements; marketing and advertisement; transaction receipts; sound financial practices; offering and commercialisation of products; and supervision, inspection and surveillance;

b consumer protection powers over: the complaint process; corrective and sanctioning measures; initiating class actions; the conciliation process; legal assessment and defence; and the arbitration procedure; and

c transparency powers over: comparison of fees; evaluations regarding adhesion contracts, cover letters of contracts, web pages, account statements, brochures, information and advertisements; comparison of products and services; publishing fines and reports of evaluations; and overseeing several registries for public consultation.

There are five kinds of complaint processes regulated by CONDUSEF. These are in addition to court procedures. Two may be filed first before the financial institution (for example, banks, investment funds, bonding institutions, general bonded warehouses):

a claims filed before UNEs, in terms of the procedure foreseen by Article 50 bis of the LPDUSF; and

b claims filed before the financial institutions, in terms of Article 23 of the LTOSF on which the consumer has 90 days to file the claim, the financial institution has 45 days to submit their answer and 45 days to submit documentation.6

The other three may be filed directly before CONDUSEF:

c Electronic procedure. The costumer makes a visit to CONDUSEF's offices and files its printed claim. Later on CONDUSEF notifies and makes the corresponding requirements to the financial institution through a homologated electronic system.

d Conciliation procedure. In terms of Article 60 and followings of the LPDUSF, the procedure starts by filing a claim to CONDUSEF and within the next 20 days a hearing is scheduled to be held. After the hearing an opinion is issued by CONDUSEF. If required, CONDUSEF can also issue a technical opinion depending on whether the contractual obligation not complied with by the financial institution is considered to be valid and enforceable and this report may later be submitted to the competent courts.

e Arbitration. In terms of Article 73 of LPDUSF, this is a voluntary procedure that must be agreed by both parties to appoint CONDUSEF or a third party to act as an arbitrator to finally settle their dispute.

Separately and acting as an independent and autonomous entity, we have the Mexican Central Bank in charge of monetary policy, issuing currency, promoting and developing a sound financial system, regulating intermediation and financial services and determining alongside SHCP the Mexican exchange policy. The Mexican Central Bank has two types of powers regarding consumer protection.7 The most important is regulation over fees charged, interest rates, exchange rates, credit cards and banking operations. The second regards transparency, specifically the power to publish comparative studies of economic terms among the different products offered.

Finally, alternative lenders (i.e., non-financial institutions) are supervised and regulated by the Consumer Protection Agency (PROFECO). The LTOSF grants PROFECO fewer powers and authorities than those granted to CONDUSEF and only with respect to non-financial institutions. PROFECO has issued its own regulations on adhesion contracts that are applicable to alternative lenders (non-financial institutions).

III PAYMENTS

i Overview

Cash continues to be the most important payment method in Mexico. The number of people who do not have their own bank account in Mexico is significant. According to the statistics of the most recent financial inclusion report published by the CNBV, only 62 per cent of the Mexican adult population holds an account with a financial institution.8 The CNBV and the Mexican Central Bank are very much concerned with this and over the last decade have made considerable efforts to increase banking penetration in Mexico. Some of these measures have included launching simplified bank accounts with transactional and balance limits but that may be opened remotely, such as first and second level accounts that are addressed in Section IV, infra. Others regard facilitating mobile payments. At the same time, cash payments are being limited and controlled under anti-money laundering and counterterrorism provisions.

Credit and debit cards are also recognised payment methods but their penetration level is still very far from that of cash. Credit cards may be issued by almost any lending financial institution (banks and multiple purpose financial entities) while debit cards may only be issued by banks and in a limited manner by other financial institutions authorised to take retail deposits.

Non-financial institutions may only issue closed-loop prepaid cards that are not cash-redeemable. Open-loop cards (i.e., those that may be used with different merchants) and cash-redeemable cards may be deemed to be retail-deposit-taking activities, which are limited to banks and a limited number of financial institutions.

Electronic transfers are also common payment methods. Banks are required to offer this service to their clients. Certain fees may be charged for interbank transfers. The Electronic Interbank Payment System (SPEI) is the most-used system for these means.9 SPEI is a system developed and managed by the Mexican Central Bank that allows the public to generate online transfers almost instantly. The Mexican Central Bank clears and settles these transactions and it works very efficiently. To use the SPEI platform, users must have a standardised bank key (CLABE) and the account number of the receiver's debit card or their mobile phone number (if the account has been previously linked).

Checks are also used as payment methods although the new banked generation is relying more on electronic payments and card payments. In Mexico the number of transactions involving checks suffered a 7.5 per cent decrease between 2009 and 2014 according to the information published by Tecnocom on its 2015 trends in payment instruments report.10

Mobile banking is a recently introduced payment method regulated under the General Provisions Applicable to Credit Institutions (the General Provisions) issued by CNBV, which defines it as the electronic banking service accessed through a mobile phone number linked with the account.11 This payment method is subject to the limitations set forth on account levels referred to in Section IV, infra. Mobile banking is highly regulated in terms of authentication, identification and security procedures, among others.

The General Provisions contain several provisions that ensure credit institutions establish sufficient safety measures and security controls for the information used through electronic devices, such as the express consent of the user for hiring this service, a provision in the agreement specifying the maximum amounts allowed per operation, mechanisms to identify the user and grant access, and procedures to cancel the service, among others.

Under the same regulations, mobile payments are defined as those performed through a mobile limited to an equivalent of 1,500 unidades de inversión (UDIs) per day (approximately 8,400 pesos). The regulation of mobile payments is lighter than the regulation of mobile banking to foster financial inclusion by simplifying low-value payments.

ii Recent developments

As a result of the current regulation and according to CNBV's figures the use of mobile banking and mobile payments is on the rise. During December 2013 the accounts linked with a mobile number were 2.7 million, whereas by June 2015 the accounts linked with mobile hit 6.07 million. These figures showed substantial growth equivalent to a 124.9 per cent.12

Another recent development was the establishment of security measures applicable to both credit and debit cards to avoid their cloning by replacing the use of the magnetic stripe on cards with a chip. This led to the issuance of new cards and several modifications made by the institutions in order to adapt all their ATMs and points of sale (POS) nationwide. As a consequence of the above, any institution that agrees to perform operations with cards without a chip at their ATMs or POS assumes liability for all risks and must bear any costs arising from cloning such unrecognised charges reported by the cardholder.

Another key development was the issuance of the General Rules for Payment Networks. Before the issuance of these rules, card payment networks were mainly unregulated. These rules regulate the following:13

a The terms and conditions of the payment networks, which among other things (1) permit the inclusion of new participants in networks on a non-discriminatory and competitive basis in respect to pricing, operational, technical and contractual conditions; (2) permit the resolution of conflicts of interest between the participants in networks; (3) allow transparency of the content available to potential participants in networks; and (4) guarantee the integrity of the payment networks, the continuity of the operation and security of the information without creating barriers to entry.

b Participants in networks, by establishing the inclusion of certain provisions on the agreements executed among them, such as: (1) an itemised description of the services, conditions and standards of the services provision; (2) terms and conditions (including economic terms and consideration) of the services provided in the agreement; (3) equal and non-discriminatory treatment; and (4) production of account statements.

c Interchange fees, which shall be included in the conditions for the participants and duly registered with the Mexican Central Bank observing the procedure and requirements set forth for such means.

Also related to payment networks, a few years ago several complaints from the participants of the credit and debit card payment market over the lack of transparency and competition regulation in clearing houses were filed. A clearing house (switch) is an entity authorised by the Mexican Central Bank to act as the central entity or operator of a centralised processing mechanism through which authorisation requests, payments authorisations, payment rejections, returns, adjustments or other financial obligations related to card payments are exchanged exchange between acquirers and issuers, including clearing.

In response the Mexican Central Bank, seeking to ensure competition within the sector, issued the Rules applicable to Clearing Houses for Card Payments with the objective of combating barriers to entry, avoiding price distortions and improving security systems. Among the prohibitions set forth in such regulations all exclusivities, discriminatory practices and charging of fees not authorised by the Mexican Central Bank were forbidden.14

Finally, we should mention that non-traditional players like PayPal are also bringing new payment systems into Mexico. The regulation of these systems that are linked to traditional debit and credit cards but allow electronic transactions is still very underdeveloped.

IV DEPOSIT ACCOUNTS AND OVERDRAFTS

i Overview

The Mexican Central Bank in exercise of its regulatory powers issued the general provisions contained in Disposition 3/2012.15 Four types of local-currency deposit accounts are identified and regulated. Each represents a different level that depends on the balance and transactional amounts in the account. This classification is relevant to determine the different means available to withdraw them from such accounts and requirements to open them, including know-your-customer requirements. The higher the level the more difficult it is to open and access such accounts.

The first level belongs to those accounts in which the amount of resources deposited over a monthly period is limited to be under 750 UDIs (approximately 4,200 pesos). The balance of these accounts can never exceed 1,000 UDIs (approximately 5,600 pesos). The holders of these accounts are only able to withdraw their resources using debit cards. All other transactions through mobile phones or electronic devices other than ATMs or POS remain prohibited for level 1.

The second level belongs to those accounts in which the amount of resources deposited over a monthly period is limited to under 3,000 UDIs (approximately 16,800 Mexican pesos) without any limit on the balance in the account. The key feature of these accounts is that according to anti-money laundering regulations they may be opened remotely (i.e., without the need to visit a branch).

The third level belongs to those accounts in which the amount of resources deposited over a monthly period is limited to under 10,000 UDIs (approximately 56,000 pesos) without any limit on their balance. These have fewer know-your-customer requirements than level-four accounts but more than level-two accounts.

Accounts in levels 2, 3 and 4 are entitled to use all withdrawal means except checks.

The last level has no limit on deposits or balance but the level of scrutiny and the requirements to open these accounts is the highest. Only these accounts are checking accounts.

Another type of deposit account is the deposit account for foreign currency on sight. These accounts are only available to entities and not to individuals except in limited circumstances.

Deposit insurance with respect to bank accounts is provided by IPAB. IPAB is a decentralised public organism that, subject to certain restrictions, guarantees the amounts of deposits and credits up to 400,000 UDIs per account holder (approximately 2.24 million pesos).

Another important topic is what are known as basic products. Every bank that receives local currency sight deposits is required by law by law to offer individuals a basic deposit account product for sight deposits, savings or payroll that should be free from any fees or charges. These basic products are subject to maximum monthly deposit limits since their main objective is to aid consumers with lower incomes.

ii Recent developments

In an effort to increase banking penetration, a few years ago the CNBV authorised the establishment of bank agents. They are now an important channel to offer payment products. Convenience stores, such as OXXO, are the most remarkable example of bank agents. Bank agents can open bank accounts and perform certain banking services on behalf of banks. To date 18 different banks have agents. Banks require certain authorisations to engage a non-financial institution as an agent.

An important recent development is the option for account holders to link their mobile number to their account. This serves the purpose of expanding electronic transfers by providing a friendly alternative to traditional electronic banking services. Mobile communication penetration is high in Mexico so the rationale behind this change was to increase banking penetration by relying on a tool that is widely known and used by Mexican customers. This has proven beneficial in other jurisdictions. The linking process is determined by each institution, made through SMS and limited to only one account per mobile number.

V REVOLVING CREDIT

i Overview

Credit cards are means to withdraw from a credit facility. An individual or entity that is granted with a credit card needs to execute a credit facility agreement with the bank or lending institution. Credit facility agreements are regulated by the LTOSF and secondary regulation issued by CONDUSEF for financial institutions and PROFECO for non-financial institutions.

Credit cards, as a withdrawal means, are also regulated by the Mexican Central Bank and specifically by the provisions of Disposition 34/2010.16 Important rules for the protection of consumer interests were set out in such Disposition, such as: (1) entities can execute credit facility agreements with banks or lending institutions but credit cards can only be issued by individuals; (2) credit cards are non-transferable and must only be issued and delivered upon request of the holder; (3) all credit cards must be delivered inactivated; (4) the institution issuing the credit card must take out insurance that covers the amount of the debt in case of the holder's death.

Similarly to what occurs with deposit accounts, every financial institution that offers revolving credit facilities linked to credit cards to the public is required by law to offer individuals basic credit card products that shall be free from any fees or charges. These basic products are subject to a certain credit limit and carry special requirements, since their main objective is to aid consumers with lower incomes.

Another topic to be discussed with respect to credit cards is regulation on interest rates contained in the LTOSF and the general provisions contained in Disposition 14/2007 issued by the Mexican Central Bank.17 The main provisions may be summarised as follows:

a all credit must have one interest rate only. This means that only one ordinary interest rate and, if applicable, only one default interest rate can be provided under a credit agreement. As an exception to this rule, different rates are allowed when several interest periods are provided, although each interest period cannot be less than three years;

b the calculation methods for interest rates may be freely determined by the parties using one of the following options: a fixed rate; a variable rate using only the reference of alternate rates mentioned in the Disposition; and a floating band rate with a maximum fixed limit;

c rates can only be unilaterally modified by the credit institution for revolving credit facilities with prior written notice given at least 30 days before it becomes effective, in order that clients may decide whether or not they intend to continue;

d as a general rule, credit interest can only be charged after the contract becomes effective and is in arrears, therefore charging interest in advance is forbidden; and

e for most credit banks must allow anticipated payment of loans and debts.

Similar to the regulations for interest rates mentioned above, according to the general provisions contained in Disposition 22/201018 and 36/201019 issued by the Mexican Central Bank there are also several principals that need to be observed regarding fees:

a institutions can only charge one fee per event;

b alternative fees are forbidden;

c no fees can be charge for the cancelation of financial services;

d fees must be properly registered and published; and

e in order to modify fees a special process has to be observed.

ii Recent developments

In 2009 the LTOSF was amended to include regulators against predatory lending. For instance, loans may only be granted based on the borrower's borrowing capacity; transactions that overdraw the credit limit shall not be authorised; credit cards can only be issued upon request; the credit card limit can only be raised upon the client's authorisation or request; and the minimum payment shall be calculated with a method that excludes the possibility of negative amortisation.

According to CONDUSEF figures, both credit and debit cards currently hold 90 per cent of all banking-related claims; as the credit card is the product related to most claims with 56 per cent of the total. These figures show a 39 per cent increase compared with 2015.20

In addition, the Mexican Supreme Court recently granted judges discretionary powers to modify interest rates. This will be discussed in Section IX, infra.

VI INSTALMENT CREDIT

i Overview

A few decades ago, granting instalment credit was only based on the amount of assets or collateral that the borrower had. This was an unhealthy practice that hindered most people's access to credit and resulted in institutions wasting considerable time, effort and money on collection practices because many of the credits defaulted.

As a result of the above new regulation was issued to determine eligibility criteria that have to be met by the borrower in order to access credit. Relevant factors to take into account for lenders are: (1) the borrower's payment capacity; (2) the borrower's solvency and assets; (3) level of debt; (4) credit history; and (5) job stability. 21

The LTOSF and secondary regulation issued by CONDUSEF for financial institutions and PROFECO for non-financial institutions regulates installment credit from a consumer perspective. Some of the main rules are described below.

Loan agreements executed through an adhesion contract (as such term is defined in Section VIII, infra) must have a cover letter that contains the total annual cost (CAT). CAT is defined as an annual percentage indicator obtained after measuring the ‘all-in' financing cost. In other words, it needs to include all costs, expenses and applying fees, helping consumers to compare the different products offered by institutions. This provision is also applicable to credit card facility agreements.

An amortisation schedule must be provided by the lender, which details the balance of principal and interest, the date and amount for each payment to be made bearing in mind that interest can only be charged for the duration of contracts and any charges in advance are forbidden for most credits. This statute also introduced the obligation of institutions to receive anticipated payments as amounts destined to reduce principal and early payments that are exhibitions made in advance to avoid default. If prepayments are made the institution has the obligation to issue a new amortisation schedule.

Also as result of the reforms passed and early discussed, the Unregulated Financial Company for Multiple Purposes (SOFOM ENR), which is one of the most-used vehicles for micro-financing purposes, was placed under new regulation that required it to be registered under CONDUSEF supervision. Therefore, these entities changed from being ‘unregulated' to being ‘lightly regulated'.

ii Recent developments

As a result of the new supervision powers of CONDUSEF over the multiple SOFOM ENR companies, CONDUSEF revoked 1,449 registries of these institutions for violations to transparency and anti-money laundering regulations.22 This proves that CONDUSEF is taking its enforcement and regulatory powers seriously with respect to SOFOM ENRs.

Regarding mortgages, the overall interest rate was of 10.19 per cent for June 2016, which meant a new historical minimum for these types of credit, considering that the overall interest rate for June 2009 was of 12.8 per cent, meaning a reduction of 20 per cent.23 Interest rates increased at the end of 2016 following concerns of inflation by the Mexican Central Bank derived from the significant devaluation of the Mexican peso and they are expected to continue increasing during 2017.

Mortgage credit in Mexico has greatly increased over the 2009-2015 period; in 2009 around 83,000 credits were granted, which were estimated to be worth around 59.356 billion pesos, while for 2015 the total number was approximately 114,000 credits granted, estimated to be worth 112.693 billion pesos. This comparison shows 90 per cent growth in this sector. As for 2016 the statistics for the first semester show that credits granted exceed 55.68 billion pesos, thus by the end of the year they are expected to overtake 2015 results.24

Regarding personal loans, CONDUSEF revealed that until April 2016 around 11.3 million personal credit contracts had been entered into worth approximately 188 billion pesos. Twenty-five banking institutions offer this type of credit and among those there are eight banks that concentrate 80 per cent of all personal loans.25

For car loans there are 18 banking institutions offering this product, among which seven of them concentrate 80 per cent of the total number of credits. As a result of CONDUSEF evaluations those banks received an overall result of 5.7 out of a 10-point scale, the highest ranking institution for this evaluation was BBVA Bancomer, which received a 7.1, and the lowest-ranking institutions were Scotiabank and HSBC, which each received 4.26

VII OTHER AREAS

Consumer protection laws have implemented several registration requirements to make information publicly available to consumers. Below is a description of some of these registration requirements.

a SIPRES - The registry in charge of providing public access to corporate and general information of the financial institutions under CONDUSEF supervision, such as their domicile and minimum capital stock.

b RECA - The registry implemented for financial institutions to submit all their adhesion contracts so that consumers can be informed and have access to the content of the different contracts used by them.

c REUS - A registry to which consumers submit their information when they do not desire to be disturbed by any merchandising or advertisement communications from financial entities.

d RECO - The registry of all fees that institutions under CONDUSEF supervision charge, it was established for transparency purposes and it functions in a parallel way to that under the supervision of the Central Bank.

e REUNE - This registry serves as a directory of all UNEs.

f REDECO - The registry providing information regarding collection agencies that assist financial institutions on the collection process and it was created as a database to include all of their relevant information so that anyone could easily file a complaint for abusive practices.

Collection practices were recently regulated by the issuance of rules for collection agencies by the CONDUSEF.

VIII UNFAIR PRACTICES

Deriving from the 2014 reform, CONDUSEF now has the power to determine which clauses are considered to be abusive in the adhesion contracts of financial institutions and to order financial institutions to remove them. For such effects CONDUSEF defines: (1) an adhesion contract as a document unilaterally drafted by a financial institution for the purpose of implementing non-negotiable consistent general terms and conditions to be applicable for one or several products, operations or services with consumers; and (2) an abusive clause is a clause that brings imbalance between the rights or obligations of the parties harming the consumer.

The following are some of the abusive clauses detected and banned by CONDUSEF's General Provisions:27

a clauses establishing early termination if borrower defaults an obligation unrelated to the contract (cross-defaults);

b clauses allowing the institution to terminate the contract early without prior notification;

c clauses that unreasonably restrict consumers' rights;

d clauses that impose a penalty, charge or fee for early or anticipated payments; and

e clauses allowing the modification or restriction of the contract without the prior consent of the consumer, unless such modification is in consumers' favour.

In collection practices, it was observed that collection agencies often used names that resembled public institutions, used confidential or private numbers that rendered it difficult to identify them, threatened and intimidated debtors or their relatives, and tried to collect debts from third parties. In response, the authority prohibited those practices, created the aforementioned REDECO and implemented a system to file claims to impose sanctions for these types of abuses and practices.

IX RECENT CASES

i Enforcement actions

According to figures of CONDUSEF for the first 11 months of this year, 5,220 sanctions were imposed on financial institutions with an estimated total amount of 161 million pesos, from which: (1) 88.5 million pesos were imposed as a result of violations to LPDUSF; (2) 72.9 million pesos were imposed as a result of violations to LTOSF; and (3) 40,000 pesos were imposed as a result of violations of the LIC.28

Regarding remote banking (internet, telephone, mobile and similar transactions) the figures for the first semester of 2016 show that 1.1 million claims were filed for an estimated total of 2.95 billion pesos, most of the claims were filed for fraud, cloning, theft and identity theft issues and the amount recovered was 1.108 billion pesos.

Also regarding abusive clauses29 around 900 clauses have been detected from which 647 have been already eliminated, while the Bureau for Financial Institutions shows that currently 289 other abusive clauses are in the elimination process. For the first time insurance institutions were included.

ii Disputes before the regulator

In the first semester of 2016 a total amount of 3.742213 million claims were filed regarding the financial sector, which meant a 46 per cent increase compared the previous year. Of that total, the institutions receiving more claims were banks, with 3.690142 million of which 90 per cent of such claims concerned credit and debit cards.

During the first 11 months of this year, CONDUSEF performed 1.559370 million defence actions, of which 1.332222 million consisted of legal assessment and 1,848 were free legal defences.

Regarding the free legal defence programme conducted by CONDUSEF for the period January-September 2016, the results show that 99.23 per cent of the trials were resolved in favour of consumers. There were a total of 1,030 trials, of which 1,021 were won and only nine trials were lost. Such actions resulted in the recovery of almost 47.1 million pesos for such consumers.30

iii Litigation

The Mexican Supreme Court of Justice recently ruled31 that judges may discretionally reduce interest rates considered inequitable and notoriously usury to them, on such precedent the Supreme Court determined that the usury financing prohibition foreseen by the third paragraph of Article 21 of the American Convention on Human Rights allow Mexican judges to use their discretion and criteria to order the reduction of any interest rate considered as excessive or abusive, even if the reduction is not requested by the parties involved in the procedure.

This resolution also establishes several elements that judges need to review in every case, such as the interest rate used by other banks in similar operations. Nevertheless, this resolution does not limit the capacity of judges to reduce interest rates.

X OUTLOOK

Even though interest rates are expected to increase and while the future of NAFTA remains uncertain, we can expect the Mexican financing sector to continue to grow. As for consumer protection, we can expect CONDUSEF to increase its supervision of insurance entities and to extend its regulation.

According to the aforementioned figures we also expect the free legal defence programme of CONDUSEF to increase its scope and ensure positive results. This authority also has an active role regarding identity theft and phishing, which will be some of the things we should be on the lookout for.

We also expect upcoming regulation on fintech that is sure to have an impact on web-based lending, electronic payments, crowdfunding and other alternative sources of financing.


1 Federico De Noriega Olea is a partner, Maria Aldonza Sakar Almirante is a senior associate and Carlos Eduardo Romero Sotelo is a law clerk at Hogan Lovells.

2 www.centerforfinancialinclusion.org/publications-a-resources/client-protection-library/107-summary-of-client-protection-in-mexico.

3 Full text at: www.dof.gob.mx/nota_detalle.php?codigo=5329408&fecha=10/01/2014. A brief summary of such reform is available at: www.banxico.org.mx/disposiciones/marco-juridico/resumen-de-las-principales-reformas-al-sistema-fin/%7BCC6BFD8E-D1F9-474F-2E20-DFC2434432E9%7D.pdf.

4 Figures obtained from the 2016 Financial System Report issued by the Mexican Central Bank, full text is available at: www.banxico.org.mx/publicaciones-y-discursos/publicaciones/informes-periodicos/reporte-sf/%7B14D26AD1-8933-0713-B7D6-59CBBC13ECEA%7D.pdf.

5 Full text of the LPDUSF that regulates CONDUSEF is available at: www.diputados.gob.mx/LeyesBiblio/pdf/64.pdf.

6 Full text of the LTOSF can be found at www.diputados.gob.mx/LeyesBiblio/pdf/LTOSF.pdf.

7 All of the Mexican Central Bank's authorities are regulated under the Law of the Bank of Mexico, available at: www.diputados.gob.mx/LeyesBiblio/pdf/74.pdf.

8 The full text of the CNBV's 7th financial inclusion report is available at: www.cnbv.gob.mx/Inclusi%C3%B3n/Documents/Reportes%20de%20IF/Reporte%20de%20Inclusion%20Financiera%207.pdf.

9 More information on SPEI available at: www.banxico.org.mx/sistemas-de-pago/servicios/sistema-de-pagos-electronicos-interbancarios-spei/.

10 The full text of Tecnocom's trends in payment instruments report for 2015 is available at: www.tecnocom.es/documents/10181/6646636/Tecnocom15_esp.pdf.

11 Full text of General Provisions Applicable to Credit Institutions issued by CNBV is available at: www.cnbv.gob.mx/Normatividad/Disposiciones%20de%20car%C3%A1cter%20general%20aplicables%20a%20las%20instituciones%20de%20cr%C3%A9dito.pdf.

12 Full text of the CNBV's financial institution report found at: www.cnbv.gob.mx/Inclusi%C3%B3n/Documents/Reportes%20de%20IF/Reporte%20de%20Inclusion%20Financiera%207.pdf.

13 Full text of the General Rules for Payment Networks is available at: www.cnbv.gob.mx/Normatividad/Disposiciones%20de%20car%C3%A1cter%20general%20aplicables%20a%20las%20Redes%20de%20Medios%20de%20Disposici%C3%B3n.pdf.

14 Full text of the Rules applicable to Clearing Houses for Card Payments available at: www.banxico.org.mx/disposiciones/normativa/circular-4-2014/%7BA29B4521-A321-6047-0D7C-B074C58C03F9%7D.pdf.

15 Full text available at www.banxico.org.mx/disposiciones/normativa/circular-3-2012/%7B60333E30-FC8B-94D3-E1D0-4AF8E3C75E90%7D.pdf.

16 Full text available at: www.banxico.org.mx/disposiciones/normativa/circular-34-2010/%7B8589E2C1-0350-4469-94DE-DC929B400C2F%7D.pdf.

17 Full text available at: www.banxico.org.mx/disposiciones/normativa/circular-14-2007/%7B02420422-590D-BF48-356D-E25E6AB76656%7D.pdf.

18 Full text available at: www.banxico.org.mx/disposiciones/normativa/circular-22-2010/%7B0000032C-5C42-98A8-C852-DAAD11A0FE57%7D.pdf.

19 Full text available at: www.banxico.org.mx/disposiciones/normativa/circular-36-2010/%7BBF11D750-CA4B-E981-49AF-239F94F9FAF4%7D.pdf.

20 Figures available at: www.gob.mx/condusef/prensa/se-incorporan-al-buro-de-entidades-
financieras-reclamaciones-por-posible-fraude-robo-de-identidad-banca-remotay-
comercio-electronico.

21 Article 65 of LIC, full text available at: www.diputados.gob.mx/LeyesBiblio/pdf/43_170616.pdf.

22 Full Article is available at: www.gob.mx/condusef/prensa/1-449-sofom-enr-no-
renovaron-su-registro-ante-condusef?idiom=es.

23 Statistics available at: www.gob.mx/condusef/prensa/reprueban-bancos-en-
supervision-de-credito-hiportario.

24 Idem.

25 Statistics available at: www.gob.mx/cms/uploads/attachment/file/118517/supervision-credito-al-consumo.pdf.

26 Statistics available at: www.gob.mx/condusef/prensa/presenta-condusef-resultados-
de-la-supervision-de-credito-al-consumo?idiom=es.

27 Full text of the General Provisions available at: www.dof.gob.mx/nota_detalle.php?codigo=5368784&fecha=19/11/2014.

28 Figures available at: www.gob.mx/cms/uploads/attachment/file/173832/multasporley.pdf.

29 Figures available at: www.gob.mx/condusef/prensa/se-incorporan-al-buro-de-entidades-financieras-reclamaciones-por-posible-fraude-robo-de-identidad-banca-remotay-comercio-electronico.

30 www.gob.mx/condusef/prensa/recupera-condusef-47-1-mdp-a-favor-de-usuarios-de-enero-a-septiembre.

31 Resolution by the First Chamber of the Mexican Supreme Court issued regarding the contradiction between two precedents number 350/2013.