Mexico Senate passes plan to cap credit card rates

MEXICO CITY, April 21 (Reuters) - Mexico's Senate gave its final approval on Tuesday to legislation that would curb hefty credit card interest rates and limit account maintenance fees and other bank charges.

The proposal, which has yet to reach the lower house, would see the central bank establish "reasonable" ranges on interest rates banks can charge for credit cards and other loans, and has the backing of Mexico's anti-trust commission.

Mexico's mostly foreign-owned banks charge an average credit card interest rate of 42 percent -- much steeper than in their home countries, critics say.

The banks are also often accused of charging excessive fees for cash withdrawals and other services.

"This creates a regulatory framework oriented more toward competition," the anti-trust commission said after the proposal was passed.

The plan, which also eliminates some inter-bank commissions deemed to have distorted competition, may have enough support to be rushed through the lower house before it winds down next week ahead of mid-term elections in July.

Mexico's banks have weathered the global credit crisis reasonably well because their focus has been on traditional businesses, keeping away from the toxic assets that devastated the U.S. financial industry.

Bank executives argue that interest rates in Mexico are higher because of higher risk of defaults and weak laws to help them recover debts.

The proposal could quickly affect Mexico's banking industry, dominated by Citigroup (C.N), Spain's BBVA (BBVA.MC) and Santander (SAN.MC), along with HSBC (HSBA.L) and Canada's Scotiabank (BNS.TO).

Taking on Mexico's mostly foreign-owned banks is seen as politically useful ahead of July's vote, when the entire lower house will be up for grabs.

Banks have warned that imposing artificial controls would lead to less lending and encourage some consumers to borrow from loan sharks.

The proposal was approved in principle by senators last week but still required Tuesday's final sign-off.

While critics say Mexico's banks do not compete between themselves, studies also show that the country's consumers fail to shop between different banks. (Reporting by Noel Randewich; Editing by Gary Hill)