What will happen if the interest rate cap is approved?

What will happen if the interest rate cap is approved?

Did you know that you could be harmed if the proposed rate goes into effect?

On the one hand, this seems to distract from reality, as many would see it as a relief to their wallets.

However, the cap could cause you to be one of the people who lose access to credit while there is a decrease in consumption due to lack of credit; therefore, an impact on the economic activity of the country, according to the experts consulted.


AFFECTED


The proposed measure would leave thousands of people without access to credit, (figures affected in thousands, range of income in dollars and low consumption in billions of colonies, according to the Costa Rican Banking Association).

 
Affected725
Income range300 – 750
Low consumption₡ 200

Given this, another option would be a differentiated ceiling according to instruments, variable and subject to some public base rate that the Central Bank chooses, since it must be dynamic with the macroeconomic and monetary policy changes that may exist in the future.

These would be loans for housing, consumption, and collateral, among others.

The project discussed in the Assembly would put the cap of 30% in colones and 15% in dollars, for all credits.


TOP IN FIGURES


A new limit on usury rates is proposed in the Legislative Assembly.

RateInterest
Colones30
Dollarsfifteen

Currently, the annual current interest rate in colones is between 19% and 49%, even a little more than two thirds of cards charge an annual rate in colones between 40% and 49%.

In dollars, the minimum rate is 18% and the maximum is 38%.

However, more than three quarters of the cards charge an annual dollar rate between 30% and 38%, according to data from the Ministry of Economy, Industry and Commerce (MEIC).

Another consequence would be the increase in the use of cash which, in turn, generates a loss of traceability and thus limits the efficiency in the collection of taxes by the Ministry of Finance.

CONSEQUENCES

Putting a limit on interest rates would have consequences for users.

BERNAL ALFARO CHAVES

Credit Card Manager

Banco Promerica

If the rate cap is approved, the bank would be forced to adjust its customer profile, focusing on those that represent the lowest risk.

That is to say, the bank would be in need of excluding all those that represent a higher level of risk than the one associated with the fixed interest rate, without the correction of profiles via a large number of cardholders would become non-creditworthy persons.

MARÍA ISABEL CORTÉS

Executive Director of the

Costa Rican Banking Association

The Costa Rican Banking Association in principle opposes the setting of prices for the harmful effects; However, if there is a political will to legislate to establish interest rate caps, we have reiterated the need for the methodology to be determined by the Central Bank of Costa Rica for the necessary balances to be achieved.

DIEGO MASOLA

General Manager

Scotiabank Costa Rica

Private and government banks have tools to handle these types of situations, but it could definitely be very disruptive for the economy and especially for commerce, which would be deprived of a large volume of buyers who used credit cards before and will then have to buy in cash, and others that would run out of financing in the short term.

BE CAREFUL WHEN ENTERING ARREARS

Upon entering default, your credit card can charge up to 62% in colonies and 45% in dollars per year. Customers have hundreds of credit options for both currencies (range figures show interest rate and amount of the number of cards in each range, according to the Ministry of Economy).

Dollars

RankQuantity
18.3 – 26.932
27.0 – 33.9126
34.0 – 40.977
41.0 – 45.05

MAJOR ISSUERS

Of the total of 31 card issuers in the market, two private banks handle the largest amount (data as of July 31, 2019, according to the Ministry of Economy).

TransmitterQuantity
BAC Credomatic96
Promerica Bank86
popular Bank52
National Bank38
Credit3. 4

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