December 10, 2008 / 4:13 AM / 10 years ago

Mexico toughens consumer credit rules for banks

MEXICO CITY, Dec 9 (Reuters) - Mexico’s Congress passed a law on Tuesday that will stop banks sending clients pre-approved credit cards, automatically extending credit limits and other practices that can tempt people to get into debt over their heads.

The law will make it illegal to send credit cards to minors and outlaws other procedures deemed abusive, such as charging a commission for not using a credit card.

“The reform will prevent irregular or abusive practices by financial service providers,” said lawmaker Jorge Estefan, head of the lower house finance committee.

Banks in Mexico, which are mostly foreign-owned, have been criticized for charging excessively high interest rates and service fees that consumers often complain about.

Under the new law, banks authorizing new credit cards would have to ensure clients can put 30 percent of their income toward monthly payments. Banks would also be banned from pre-approving credit cards or extending credit limits without written consent.

Mexican banks are well capitalized and have avoided the worst of the global financial crisis. The main players, such as BBVA (BBVA.MC), Citigroup (C.N) and Santander (SAN.MC), have focused on traditional businesses rather than risky markets like subprime mortgage lending.

But an aggressive expansion in consumer credit in the last few years has led to a jump in defaults. Nearly 10 percent of consumer credit in October was non-performing. (Reporting by Miguel Angel Gutierrez; Editing by Lincoln Feast)

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