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Executive Summary

Since the Mexican economic crisis of 1994, commonly referred to as the Tequila Crisis, Mexico's financial system has grown increasingly integrated into global markets. Authorities in Mexico have become increasingly aware of client-protection issues in the financial industry. They have enacted a series of laws and regulations, enforced by strong institutions with the authority to sanction non-compliant organizations. As well, client associations and microfinance networks contribute to the improvement of the client protection framework in the financial sector. Overall, the support of influential players and backing by the political and economic sectors strenthen the status of client protection in Mexico.  

• Mexico has a robust legal framework that provides banks and customers with clearly defined rules and regulations. 
• Finance Secretary Agustin Carstens is taking steps to tackle the issues of over-indebtedness and client protection.
• Client associations, federal client protection institutions like PROFECO and CONDUSEF are working alongside microfinance networks to extend client rights within the financial services industry in Mexico.

Introduction

The Mexican economic crisis of 1994, commonly referred to as the Tequila Crisis, was a rude awakening for Mexican financial authorities who realized that lax banking and corrupt practices were partially responsible for the debacle. As the North American Free Trade Agreement (NAFTA) came into effect, Mexican authorities opportunely enacted tight fiscal measures. NAFTA ushered in to the Mexican banking system remarkable amounts of foreign direct investment, allowing Mexican banking to grow significantly. Today, the Mexican financial and banking systems are increasingly dominated by foreign companies with its largest financial institutions, namely Bancomer and Banamex owned or partially owned by BBVA and Citigroup respectively.

As the Mexican financial system grows increasingly integrated into global markets, authorities have become increasingly aware of client-protection issues in the financial industry, though not exclusively in microfinance. They have enacted a series of laws and regulations, enforced by strong institutions with the authority to sanction non-compliant organizations. 

Legal Framework

The Transparency and Financial Order Law of 2007 amended the National Banking Law with the following notable provisions:

• Interest can only be charged for the duration of contracts.
• Banks must calculate the APR of each loan and present it to the customers in contracts and loan documents. (This is a consumer protection measure as well as a measure to promote competition among banks.)  
• Banks banks must declare any fees, charges or surcharges and include such information in contracts and loan documents.
• Banks must allow anticipated payment of loans/debts

The Law of Protection and Defense of the Financial Consumer of January 1999, as amended on June 15, 2007, establishes the CONDUSEF, the financial organism in charge of protecting and defending consumers of financial services. Its main objectives are to promote, advise, protect and defend the rights of people who use financial services offered by institutions operating within Mexico. CONDUSEF, under the authority of the Department of Finance and Public Credit,  is in charge of creating a culture of respect for financial services and operations. It is the premier consumer protection organization in Mexico. 

According to the law, CONDUSEF must do the following:

• Inform the public about the services of financial institutions and provide the number of complaints received from each;
• Establish and maintain a database of reported charges and surcharges accessible to the public;
• Strengthen the capacity of financial institutions to gather information necessary for reporting to CONDUSEF;
• Establish and maintain a registry of users who do not want their information to be used for marketing or advertising purposes to which users can subscribe for free; and
• Impose sanctions on institutions who violate the rights of consumers.

The decree forbids financial institutions to use consumer information for advertising or marketing purposes unless previously authorized by consumers.

The Ministry of Finance and Public Credit oversees all financial institutions in the country and all financial regulatory institutions including: CONDUSEF, Comisión Nacional del Sistema de Ahorro para el Retiro (CONSAR), Banco de Mexico (BANIXCO), Comision Nacional Bancaria y de Valores (CNBV),Comision Nacional de Seguros y Finanzas (CNSF), and Instituto para la Proteccion del Ahorro Bancario(IPAB). Alongside the Ministry, the Procuraduria Federal del Consumidor (PROFECO)oversees all consumer protection initiatives in the country.

Dr. Agustin Carstens Carstens leads the Mexican Ministry of Finance and Public Credit.  Consumer protection is among the concerns presently facing the Ministry. In a speech on July 11, 2008 made before an audience of bankers, the Minister expressed concern regarding overindebtedness. He vowed that the Ministry of Finance and CONDUSEF would take the following actions:

• Lead a media campaign to strengthen the image of CONDUSEF and promote reasonable credit consumption and the prevention of overindebtedness;
• Achieve a strategic alliance with the Interactive Museum of Economics (MIDE) in Mexico in order to establish a permanent CONDUSEF exhibit displaying the concepts of credit, savings and insurance;
• Organize the First National Week of Financial Culture to take place in the month of October; and
• Design a financial education strategy that reorients and unifies all of the previous efforts undertaken by financial authorities and intermediaries.

Delivering the closing words in the conference, the Ministry of Finance and Public Credit Deputy Alejandro Warner reiterated the Secretary’s commitment to consumer protection and provided a tentative working agenda for the Ministry. The plan includes the following:

• Promote awareness on the part of the general population regarding the implications and prevention of overindebtedness;
• Strengthen the status of consumer protection by working with CONDUSEF;
• Establish stronger transparency mechanisms so that consumers can rely on accurate and clear information necessary for comparing products and risks associated with financial services;
• Increase competition in the system in order to improve financial services and increase penetration;
• Provide financial education programs that include consumer protection

This plan demonstrates an explicit commitment on the part of Mexican financial authorities to advance consumer protection.  

Networks

Asociación de Bancos de México 

The Association of Mexican Banks (ABM for its Spanish acronym) was founded in 1928 with the purpose of representing the general interests of the Banking Industry and providing specialized technical services to banks. 

Since its inception, the Association has been the premier organization for credit institutions in Mexico. Its purpose is to provide its members with services of common interest such as representation, information, research, contact with authorities and communication with international banking bodies.  

The Association is not an authority. Therefore, adoption of and compliance with ABM recommendations are voluntary, even for member institutions.

Some of the objectives of the Association are to:

• Represent and defend the general interest of members before public and private organizations;
• Facilitate the communication among members, creating consensus on issues that require it in order to maximize the efficiency of the industry;
• Promote the innovation of banking activities and capacity of bank personnel through banking conferences and seminars that highlight national and international best practices and innovations;
• Perform research dedicated to the development and functioning of the banking system and improvement of operating practices;
• Provide information about products, services, agreements, and topics on the national agenda of common interest to the members; and

Though this network has a best practices guide for governance, it does not mention consumer protection. The social responsibility component of the association's website lists several social responsibility goals that guide the association: 

• Provide services of savings, credit and salaries and the investments that are needed to provide such services; 
• Meet employee labor standards and rights and promote cultural activities for employees and their families;
• Activities should promote environmental conservation;
• Activies should preserve Mexican culture; and
• Collaborate with the Fundacion Quiera, an organization that works with street children. 

 Network Details:

*Associates are banks that operate in Mexico and affiliates are banks that have offices of representation in Mexico.
**Honorees are the international institutions that have a presence in Mexico, like the IADB and the World Bank.
Source

Federación de Instituciones y Organismos Financieros Rural (FEDRURAL, previously AMUCSS)

FEDRURAL, established in the Popular Credit and Savings Law in June 2003, is an intermediary agency offering supervision and technical assistance to financial institutions.  

In Mexico, the popular savings and credit sector provides services to thousands of partners, especially those from low-income communities. Though access to this sector is robust in urban areas, individuals in rural regions have little access to the savings and credit services it provides. Many of the popular savings and credit institutions are not regulated or supervised by the country’s financial authorities. They do not possess access to the economic, legal, operational, technological, and human resources necessary to meet their clients’ needs. Furthermore, they do not possess the resources to consolidate themselves as credit and savings institutions.

The objectives of FEDRURAL are:

• Participate in the construction of a solid and reliable financial system promoting the access to safe financial services;
• Contribute to the regulation and development of popular savings and credit institutions in the rural parts of the country; and
• Attend to the needs of institutions committed to bringing adapted financial services to rural, indigenous and marginalized areas of the country.

 Network Details:

Source (2007)

ProDesarrollo

ProDesarrollo is a national network of MFIs, indivduals and academic institutions dedicated to economic development and poverty eradication. ProDesarrollo represents a diverse set of actors within the industry, each applying different methodologies, operating within different institutional structures and working in different markets (urban, rural, indigenous, small and microenterprise). The network supports sustainable development by providing the disadvantaged with credit and savings services, as well as financial education.

ProDesarrollo and its affiliates have signed a code of ethics. The code holds as its main objective the promotion of transparency, quality and competition among institutions. It establishes the principles, values and commitments that the signing parties agree to in relation to one other as well as among shareholders, clients, employees, donors, society and the regulating authorities. The agreement, signed during the Associates’ Assembly on September 6, 2007 in Mexico City, includes 16 commitments that specifically address consumer protection and competition standards. Commitments include:

• Fair and honest competition based on good faith, integrity and respect towards competing institutions;
• The promotion of network virtues and avoidance of competitor defamation;
• Price transparency and price fairness;
• Avoidance of overindebtedness; and
• Implementation of Pro-Consumer policies like financial literacy campaigns, employee incentives and client satisfaction, among others.

This document is intended to serve as a model, not only for the consumer protection policies of ProDesarrollo affiliates, but across the industry as a whole. They already have the support of Don Lorenzo Servitje, one of Mexico’s most prominent billionaires and philanthropists and the founder of Grupo Bimbo.

The ProDesarrollo website contains a section designed for consumers to voice their complaints regarding non-compliance of the ethics code on the part of affiliates.

Network Details:

Source (2007)

Conclusions

Both Mexican financial authorities and banking networks understand that consumer protection is an important, yet largely unaddressed, component of the microfinance industry. Remarks by the Secretary of Finance highlight the government’s interest to address the issue immediately. 

While networks like ProDesarrollo have proactively worked to enact client protection initiatives, other networks have not. Though the latter have largely stated that they will adhere to existing regulations, they do not pledge an additional binding commitment. Institutions like the CONDUSEF should be strengthened within the existing legal framework so they may sanction non-compliant institutions.

On paper, the Mexican consumer protection regime is strong on issues of transparency, overindebtedness, competition and fairness.  With time, consumer protection in practice could be as strong as it is on paper.

These profiles are not exhaustive and have not been reviewed by country experts. If you notice a gap or error in any of the profiles, we would very much appreciate your comments about how they can be improved. In this way we can work together to expand our understanding of the variety of client protection strategies and initiatives that are being pursued in different parts of the world.

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