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 238 fintech platforms operating within Mexico. These platforms increased their activities by over 50 per cent during the past year, and from the period between August 2016 and July 2017, the number of organisations offering innovations on the granting of online loans and peer-to-peer crowdfunding increased from 39 per cent to 60 per cent.4
However, while this market continues to grow, Mexico still lacks specific regulation for these entities. Financial authorities have developed a bill to regulate fintech. This bill was recently presented to Congress; it has already been approved by the Senate and is now undergoing review by the House of Representatives.
The bill foresees the regulation of two new types of entities under the fintech definition: (1) crowdfunding institutions; and (2) institutions dedicated to e-money. This bill also regulates the possibility for financial institutions and fintech to perform operations with virtual assets once the prior authorisation from the Mexican Central Bank has been obtained.
Finally, this bill introduces a temporary authorisation plan for entities wishing to perform financial services under new methods, theses temporary authorisations aim to promote a low-risk environment for investors using tactics similar to the sandbox schemes that have been deployed in other locations such as the UK, Australia and Singapore.
II LEGISLATIVE AND REGULATORY FRAMEWORK
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); and
- 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.
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:
- a 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.
- b 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.
- c 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).
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 (1) 46 per cent of the Mexican male population, and (2) 42 per cent of the Mexican female population hold 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. It is expected that the new fintech bill will increase bank penetration by introducing consumers to simple technology to save and raise money, which may eventually lead unbanked population to trust banking institutions and open bank accounts.
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.
To date, 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. Once the fintech bill is approved, e-money fintechs will be authorised to issue other cards and electronic money-storage instruments.
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 7.1 per cent decrease between 2010 and 2015 according to the information published by Tecnocom on its 2016 trends in payment instruments report.10
Mobile banking is 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 8,880 Mexican 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 June 2015, the accounts linked with a mobile number were 6.07 million, whereas by June 2016 the accounts linked with mobile hit 8.89 million. These figures showed substantial growth equivalent to a 46 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; and
- 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
But without a doubt the most recent development that will change consumer finance dramatically has been the Fintech Bill. Once approved by the House of Representatives, the law will regulate the organisation, operation, functioning and authorisation of companies that offer alternative means of access to finance and investment (namely, crowdfunding institutions) and the issuance and management of electronic payment funds (namely, e-money companies).
IV DEPOSIT ACCOUNTS AND OVERDRAFTS
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 4,440 pesos). The balance of these accounts can never exceed 1,000 UDIs (approximately 5,920 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 17,760 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 59,220 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 2.37 million Mexican 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.
Finally, it is noteworthy that during 2017 the provisions regarding basic deposit products, contained in Disposition 22/2010 issued by the Mexican Central Bank, were amended to include a procedure to cancel accounts on which the minimum amounts are not being observed, and certain know-your-customer requirements.
V REVOLVING CREDIT
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.
Similar 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.
Mexico has been rated by private institutions as having one of the highest rates of credit card fraud in the world. The number of claims in this regard has rapidly increased, and despite preventative efforts, the reported number of cases is still high. In 2016, more than 78,000 identity theft claims were filed before the National CONDUSEF.20
At present, identity theft is prosecuted as criminal fraud under the Federal Criminal Code. However, a bill that will introduce special rules and distinguish identity theft from fraud has been approved by the House of Representatives and is now undergoing review by the Senate. This bill contemplates a penalty of one to six years in prison and a fine of 400 to 600 times the minimum daily wage for persons found guilty of identity theft.
Furthermore, on 29 August 2017, the CNBV published the Resolutions that Modify the General Rules Applicable to Financial Institutions. These resolutions require financial institutions to verify information and documentation filed by users and customers with different government bodies in order to assure the identity of each prospective customer.
The modified rules provide the criteria for customer identification. These know-your-customer guidelines are independent from existing anti-money laundering regulations.
The modified rules are divided into:
- a Section A, which contains provisions regarding the identification and performance of on-site transactions;
- b Section B, which contains provisions regarding identification means for remote transactions; and
- c Section C, which contains supplementary provisions regarding the general identification of transactions.21
VI INSTALMENT CREDIT
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.22
The LTOSF and secondary regulation issued by CONDUSEF for financial institutions and PROFECO for non-financial institutions regulates instalment 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, last year CONDUSEF revoked 1,449 registries of these institutions for violations to transparency and anti-money laundering regulations, while during the whole 2016 period CONDUSEF issued 652 sanctioning resolutions against SOFOM ENR companies and money-exchange centres. These prove that CONDUSEF is taking its enforcement and regulatory powers seriously with respect to SOFOM ENRs.23, 24
During the past year, the number of credits granted by financial institutions under the supervision of the CNBV slightly decreased. In contrast, for the period ending June 2016, the total number of executed agreements was 52.8 million, whereas for the period ending June 2015, this number was of 53.5 million. These figures show a 1 per cent decrease.25
Mortgage credit in Mexico has greatly increased over the 2009–2016 period; during 2016, almost 777,000 mortgage credits were granted, with a credit portfolio estimated to be worth around 464,829 million pesos, whereas the mortgage credit portfolio for 2009 was estimated to be worth around 105,601 million pesos. These figures show an increase of 340 per cent. It is also noteworthy that not only did the numbers increase, but the results of the evaluations of the financial institutions with regard to transparency matters for these products improved – the overall result for the period went from a 5.0 to an 8.2.26
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 10 months of this year, 4,273 sanctions were imposed on financial institutions with an estimated total amount of 172.2 million pesos, from which: (1) 79.8 million pesos were imposed as a result of violations to LPDUSF; (2) 92.1 million pesos were imposed as a result of violations to LTOSF; and (3) 300,000 pesos were imposed as a result of violations of the LIC.28
Regarding online banking, the figures for the first semester of 2017 show that 882 claims were filed before CONDUSEF by users arguing unrecognised charges, from which 51.4 per cent received a favourable resolution, while 1.45 million claims were filed by users directly before financial institutions for the same issue and from which 94.8 per cent received a favourable resolution.29
Regarding abusive clauses, figures obtained from the Bureau for Financial Institutions show that around 1,398 abusive clauses were detected until November 2017, from which 1,310 have already been eliminated, while only 88 are currently in the elimination process.30
Finally, on 19 September an earthquake shook Mexico, affecting several states and municipalities and leaving thousands without homes. As part of the protection activities from the regulator, consultation and advising duties were performed regarding insurance and credits issues to aid those who became affected, and to counteract false information that was circulating through social media.
ii Disputes before the regulator
In the first quarter of 2017, CONDUSEF performed around 421,739 defence actions, which shows a 2.9 per cent increase in contrast with the figures obtained during last year. From the grand total of defence actions performed during such period, 358,229 were related to advisory actions and 63,510 were related to claims.31
During the same period, arbitrations increased on a 21 per cent rate reaching a grand total of 12,381. Likewise, the results obtained for the first quarter of 2017 regarding free legal counsel show that 410 procedures were concluded, from which 397 were won in favour of the users, which were worth an estimated 19 million pesos.
The Mexican Supreme Court of Justice recently ruled32 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.
Even though an earthquake shook Mexico during September, elections are close, 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 defence actions specifically to aid those who became affected by natural disasters, continue its supervision duties and extend its regulation.
According to the aforementioned figures, we also expect the free legal defence programme of CONDUSEF to keep increasing its scope and ensuring positive results.
CONDUSEF also has an active role regarding identity theft and phishing, and with the forthcoming approval of the bills, these topics will be some of the things we should be on the lookout for.
Finally, with the continuous growth of fintech, there is an emerging need for a regulation that will ensure protection to users. We definitely hope that the current proposal serves this purpose, but this issue will be subject to further analysis if the bill ever gets approved by the House of Representatives. Once the bill is approved by the House of Representatives and enacted, it will be up to the governmental agencies to issue secondary regulation for this law to become effective from a practical perspective.
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.
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 2017 Financial System Report issued by the Mexican Central Bank, full text is available at: http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/informes-periodicos/
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 8th financial inclusion report is available at: http://www.cnbv.gob.mx/Inclusi%C3%B3n/Documents/Reportes%20de%20IF/Reporte%20de%20Inclusion%20Financiera%208.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: http://www.afi.es/afi/libre/pdfs/grupo/documentos/Informe_Tecnocom16_WEB.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: http://www.cnbv.gob.mx/Inclusi%C3%B3n/Documents/Reportes%20de%20IF/Reporte%20de%20Inclusion%20Financiera%208.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-
19 Full text available at: www.banxico.org.mx/disposiciones/normativa/circular-36-2010/%7BBF11D750-
20 Full text of the 2016 Global Consumer Card Fraud study is available at: https://www.aciworldwide.com/-/media/files/collateral/trends/2016-global-consumer-card-fraud-where-card-fraud-is-coming-from.pdf.
21 Further information regarding these modifications can be found at: http://www.internationallawoffice.com/Newsletters/Banking/Mexico/Hogan-Lovells-BSTL-SC/National-Banking-and-Securities-Commission-amends-general-rules-for-credit-institutions-to-curb-identity-theft.
22 Article 65 of LIC, full text available at: www.diputados.gob.mx/LeyesBiblio/pdf/43_170616.pdf.
23 Full Article is available at: www.gob.mx/condusef/prensa/1-449-sofom-enr-no-renovaron-su-registro-ante-
24 Full Article is available at: http://www.elfinanciero.com.mx/economia/sofomes-y-centros-cambiarios-los-
25 Statistics available at: http://www.cnbv.gob.mx/Inclusi%C3%B3n/Documents/Reportes%20de%20IF/Reporte%20de%20Inclusion%20Financiera%208.pdf.
26 Statistics available at: https://www.gob.mx/condusef/prensa/supervisa-condusef-a-bancos-en-tres-productos-
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: http://www.condusef.gob.mx/gbmx/documentos/estadistica/estad2017/multasporley2017.pdf.
29 Figures available at: http://www.condusef.gob.mx/gbmx/?p=estadisticas.
30 Figures available at: http://www.condusef.gob.mx/gbmx/documentos/clausulas/acumulado_nov2017.pdf.
31 Figures available at: https://www.gob.mx/condusef/prensa/condusef-alcanza-cifra-historica-de-acciones-de-
32 Resolution by the First Chamber of the Mexican Supreme Court issued regarding the contradiction between two precedents number 350/2013.