Mexico’s love affair with high-interest credit cards appears to have been a short-term romance.
With average interest rates hovering around 42 percent, and some as high as 75 percent, it shouldn’t be a big surprise that credit card defaults are on the rise in Mexico. Considering that many within the country’s population are new to credit cards, the learning curve on correctly managing credit card debt — especially with such high interest rates — must be a painful one.
As the country deals with its own economic slowdown, Mexican banks are seeing higher rates of credit card default, and several institutions are taking steps to assist overextended cardholders by cutting interest rates in return for a fixed rate repayment plan. As of November 2008, nonperforming consumer loans jumped to 8.49 percent from 8.10 percent in October, according to Reuters.
It was only a few years ago that the credit card ad campaigns — “¡Carguelo a mi cuenta!” or “Charge it!” — in Mexico pushed usage among its credit-neophyte population. The status of becoming a card-carrying (and, I’m sure, soon-to-be large-balance carrying) citizen appeared to be irresistible. In five years, from 2002 to 2007, the number of credit cards in circulation among Mexico’s population tripled to 22 million. Today, delinquent credit card debt in Mexico has almost doubled since 2007, according to the Los Angeles Times.
One of the worst offenders is Wal-Mart. Wal-Mart credit cardholders in Mexico pay an astronomical 69.6 percent APR. Always low prices? Not if you don’t pay the balance in full. According USA Today, “Home Depot, Woolworth and other chains in Mexico” carry interest rates of 35 percent to 70 percent APR. Mexican Costco credit cards charge 53.31 percent.
To Americans, an interest rate hike to anything near 30 percent is met with appall. According to the USA Today article, “Interest rates soar as credit tightens in Mexico,” Rafael Amiel, Latin America director at consulting firm Global Insight, says banks can charge more for credit because capital is scarce. And there are fewer banks, resulting in less competition. Nevertheless, charging anything close to 50 percent interest appears to be much more opportunistic behavior than we’ve seen even in American banks.
With such exorbitant credit card interest rates, perhaps in all the excitement of acquiring plastic for the first time, Mexico’s citizens would have been better off sticking with cash.