During the last twenty-five years, there has been a large increase in the opening of pawnshops, as well as many irregularities regarding the way they operate which has been characterized by a lack of regulation and compliance with the law. This constitutes one of the reasons that led to the approval of amendments and additions to the articles concerning the regulation of pawnshops in the Mexican Federal Law of Consumer Protection that took place last Wednesday, January 16th, which seeks to regulate and make their operations more transparent.
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This amendment arose as a result of the injustice and abuse suffered by people who face economic emergencies that force them to go to these institutions. These individuals are obliged to sign contracts with arbitrary conditions characterized by their lack of transparency and imposition of interest rates that sometimes exceed even the thousand percent annual interests to a secured loan. Therefore, instead of contributing to social welfare for solidarity purpose and giving support to those in need, they have taken advantage of them without any kind of limitation or regulation.
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By virtue of these amendments to the Mexican Federal Law of Consumer Protection, the Federal Consumer Protection (Profeco) was empowered to execute a verification program for establishments where credit collateral agreements with interest are held.
Additionally, the ?Pawnshops Registry?, is established as a registration system for organization and control purposes, in which every pawnshop shall be registered along with the general agreement to be held with their clients. The operation of a pawnshop without being registered in the ?Pawnshops Registry? will be considered as a severe infringement and will be punished in accordance to Article 128 with fines that go from $617.41 to $2?414,759.14 Mexican pesos.
Likewise, a transparency mechanism was also implemented, which forces Pawnshops to include in their advertising and all of its establishments, announcements or electronic media, information about the terms and conditions of the contracts with customers. After these modifications of the law, Pawnshops should notify their users about the information of the total daily and monthly costs expressed in percentage interest rates based on the loaned amount.
In this manner, the information elements required for the bonding contract that will formalize the operations will be set out in the national official norms, which will be issued by the Secretary of the Economy. Some of these elements are: the characteristics of the information to be presented to the consumer as well as the methodology for determining the information on all the costs and expenses related to the credit agreement.
Moreover, these institutions shall establish procedures to ensure the restitution of the asset to its owner. In the event that the asset was stolen, lost or damaged, the client may choose between receiving the amount equivalent to the assets value in accordance with the appraisal, or the supply of other goods of the same type, value and quality.
Since the enactment of this Decree, on Thursday January 17th 2013, the Pawnshops will have a term of 180 natural days to comply with the specific provisions contained within.
