Mexicans discover how easy, and hard, plastic is

Times Staff Writer

mexico city -- A few years ago, Valeria Sanchez Marin didn’t have a credit card in her wallet. Now, she’s wielding plastic like a pro. She has two Visas and two department store cards, and she’s making room for more.

“They almost chase you down to give you one,” the 32-year-old Mexico City homemaker said of credit card solicitors.

“Carguelo a mi cuenta!,” or “Charge it!,” is the cry of a consumer revolution rattling store shelves south of the border. Mexican shoppers such as Sanchez are finding it easier than ever to snag a car loan, finance a dinette set or buy movie tickets with plastic.

The number of credit cards in circulation in Mexico has tripled since 2002, to about 22 million. Total consumer credit has doubled in the last two years alone, according to the central bank, reaching a record $39.1 billion in June.


That’s chump change compared with the U.S., where shoppers have racked up more than $2.4 trillion in consumer debt. But it’s significant in Mexico, whose financial institutions long have catered to elites.

No more. Emboldened by Mexico’s economic stability in recent years and seeking fat returns, lenders and retailers are moving aggressively to extend credit to working people.

Electronics retailer Grupo Elektra, which pioneered in-store financing to low-income consumers, now operates a bank to provide them with credit cards, personal loans and car notes. The Mexican unit of Wal-Mart Stores Inc. will soon open its own bank and is granting charge cards to customers who earn as little as $182 a month. Banamex, Mexico’s largest bank, recently introduced a card for people who can’t prove any income at all.

Despite annual interest rates that can top 75%, some consumers are thrilled at the convenience -- and the perceived prestige -- of carrying plastic.


“I was so excited to get my first card,” said Mexico City graphic designer Marcela Gomez. “To have a credit card from a bank gave me more class.”

She and others have helped propel the Mexican economy by pumping up sales of cars, clothing and other consumer goods.

But they’re also finding that easy credit has a price. Gomez’s dad had to bail her out when her credit card debt reached nearly $15,000 last year. Her spending spree included a computer, furnishings for her apartment and a getaway to Cancun.

“At first I felt like . . . I was at a high economic level just because I had a wallet full of credit cards,” said Gomez, 30. “It turned into a nightmare because . . . I charged and charged.”


She isn’t alone. Past-due credit card debt in Mexico has almost doubled over the last year as the nation’s economy has slowed. Growth in remittances from the U.S. has stagnated because of a slowdown in housing construction, a field that employs an estimated 1 in 5 Mexican immigrants.

In June, tardy balances accounted for 6.1% of Mexico’s total credit card debt. That’s the highest percentage in 5 1/2 years. And it tops the U.S. rate of 4.41% tallied by the American Bankers Assn. in the first quarter of 2007.

Analysts say Mexico’s late payments are still manageable and a far cry from the 40% delinquency rates on consumer credit that followed the nation’s 1994 peso devaluation.

Despite the recent surge in credit, Mexico’s economy still runs largely on cash. And it remains one of the most poorly served nations in Latin America with respect to personal and business loans. Domestic credit as a percentage of gross domestic product is just 17% in Mexico, compared with 63% in Chile and 35% in Brazil, according to data compiled last year by Morgan Stanley.


Mexico’s economy needs more credit, not less, experts say, to reach its potential.

Still, the recent sharp growth in late payments could be a harbinger of trouble.

Mexico’s economy is tied closely to that of the U.S., the destination for 80% of Mexico’s exports and millions of its workers. If the U.S. tumbles into recession stemming from its sub-prime mortgage debacle, Mexico could end up with a hangover from its own credit binge.

“If people lose their jobs . . . they can’t pay off their credit card debts and we’re going to see the problem accelerate,” said Alfredo Coutino, senior economist at Moody’s “Monetary and financial authorities need to pay attention.”


Analysts trace Mexico’s credit boom to the recovery of its economy and its banking sector from the mid-'90s financial meltdown, and the gusher of liquidity that has juiced financial markets worldwide the last few years.

Falling rates on mortgages and commercial loans and low returns on government securities led Mexican banks to seek more lucrative business. Many turned to consumer credit, specifically credit cards, from which they could reap big profits.

Mexico’s government, plagued by tax evasion, is pushing consumers to use plastic because it’s easy to collect tax on electronic sales. It sponsors cash giveaways, raffles -- even a prize-laden game show -- for people who make credit card purchases.

Meanwhile, officials have done little to regulate lenders. The average annual interest rate on Mexican credit cards in June was 31.72%, according to the Bank of Mexico. That’s more than double the latest U.S. average of 14.21% cited by


Lenders charge that much because they can; there is little competition and no laws capping rates and fees. Mexico’s banks are among the most profitable in the world and the least efficient, according to a study by Mexico’s Federal Competition Commission. Two-thirds of Mexicans lack a bank account, in part because of hefty fees, long lines and notoriously bad service.

To attract more players and drive down rates, regulators have issued a spate of banking licenses to nontraditional institutions such as Wal-Mart, which has failed in its efforts to get regulatory permission to operate full-service banks in its U.S. stores.

A new law will soon require Mexican banks to disclose the full costs of their products and services, including credit cards. Consumer advocates say borrowers need more education.

Mexican consumers are so hungry for credit that some are grabbing any and every offer that comes their way, often without investigating how much interest they’re paying, according to Marco Carrera Santacruz, director of market studies for CONDUSEF, a consumer protection agency.


Not Jose Contreras Ramirez. The 42-year-old accountant has five credit cards that he pays off every month to avoid interest charges.

“I’m very conscious that having credit cards is a danger,” he said. “That’s why I’m very orderly with my payments and I don’t spend more than I have.”

Miguel Ramirez Solano wishes he had done the same. He has 13 credit cards and is more than $74,000 in debt. The interest and fees have grown so fast that Ramirez’s minimum monthly payment of about $2,900 is now almost equivalent to his monthly salary as a systems analyst. The interest rates on his cards range from 18% to 48%.

Now 31 and the father of three young girls, Ramirez said he developed poor habits as a younger man, slapping nearly every personal expense on his cards. As his debts mounted, he took out extra credit lines on some cards to make payments on others.


“All I was doing was getting deeper into debt,” he said.

Ramirez said he approached one bank that had issued him two credit cards about taking out a mortgage on a family property that would have allowed him to pay off his card debts and slice his monthly payments by nearly two-thirds. The result, Ramirez said, was a classic Catch-22: He was rejected for having fallen behind on some credit card payments.

Ramirez said another bank put him off repeatedly when he requested a restructuring plan. He says his only recourse now is to stop paying and wait for the banks to come to him.

Ramirez blames himself for bad money management. Still, he says the banks are setting consumers up to default when they grant easy credit, then refuse to work with those like him who get in over their heads.


I “want to recognize my debt and assume it,” Ramirez said. “But they won’t let me.”




Times staff writers Cecilia Sanchez and Maria Antonieta Uribe contributed to this report.