Introduction
The Banco de México (Banxico) has proposed significant reforms to Circular 21/2009, which governs the calculation and publication of the Annual Total Cost (CAT). These changes, with a consultation period closing on December 22, aim to increase transparency for consumers by incorporating new components and assumptions. However, there are serious concerns about the feasibility and implementation timelines, particularly for small and medium financial institutions that support microcredit and productive credit in Mexico.
Key Concerns and Challenges
1. Operational Complexity for Large Volumes of Low-Amount Credit Products
For institutions managing a high volume of low-amount credit products, the proposed changes would require extensive system adjustments, operational process modifications, data governance overhauls, and existing advertising model revisions. For instance, implementing the 66th percentile requirement aims to protect consumers from misleading advertisements that only highlight the lowest available rates. However, calculating this percentile for a large volume of products and small credits involves substantial operational and systemic complexity, necessitating detailed monitoring and calculation for each product. This process demands robust and complex technological and data infrastructure development, which takes time and additional resources.
2. Ambiguity in New Concepts
The ambiguity surrounding certain new concepts, such as distinguishing “cash price vs. credit” or incorporating “liquidated guarantee costs,” poses a significant risk of interpretation and arbitration. Without detailed operational guidelines, entities might apply heterogeneous criteria, diluting the intended comparability and generating market uncertainty.
3. CAT for Short-Term Credits
Another crucial issue highlighted by the Asociación Mexicana de Entidades Financieras Especializadas (AMFE) is the nature of CAT for very short-term credits (15 to 90 days). Annualizing costs can create a distorted and excessively high perception. For example, a 30-day credit might display a CAT over 4000%, while its actual annualized cost is much lower. This distortion confuses consumers about the genuine cost of financing, rendering CAT ineffective for short-term credits, which are the primary need for most Mexicans. AMFE proposes a more accurate credit cost calculation for short-term or single-payment products, adjusted to the effective duration and actual payment schedule. This calculation would complement, not replace, CAT, providing more accurate and comprehensible information to consumers.
4. Insufficient Implementation Timeline
Banxico’s proposed 90-business-day implementation period is deemed insufficient. Adapting systems, conducting thorough testing, adjusting models, and training staff require substantial time and resource investments.
Potential Consequences
These changes could create a significant gap, allowing only large institutions with vast resources to adapt, incentivizing market concentration and disadvantaging small and medium entities. This could affect credit access for specific population segments and hinder financial inclusion.
The Path Forward
An open and proactive communication channel with Banxico is crucial. UNIFIMEX (Unión de Instituciones Financieras Mexicanas), an association specializing in credit massification, plays a vital role in constructing a new proposal defining realistic timelines and differentiated options considering the sector’s diversity without hindering financial inclusion.
Key Questions and Answers
- What are the proposed reforms to Circular 21/2009? Banxico aims to increase transparency by incorporating new components and assumptions into the CAT calculation.
- What are the main concerns regarding these reforms? There are concerns about operational complexity, ambiguity in new concepts, distorted CAT for short-term credits, and insufficient implementation timelines.
- How might these reforms impact small and medium financial institutions? These institutions may struggle to adapt due to resource constraints, potentially widening the gap between large and small entities and affecting credit access for specific population segments.
- What role does UNIFIMEX play in this process? UNIFIMEX is essential for constructing a new proposal that considers the sector’s diversity and promotes financial inclusion.
