A fundamental principle of economic theory is that the market for goods and services is regulated by the forces of supply and demand. Theoretically at least, prices, quality, volume and the overall supply of goods and services determine the market's prevailing forces, therefore allowing consumers to make free and informed choices.
The State, on the other hand, must ensure that the rules set forth as laws and regulations are enforced. The primary function of the State is to guarantee the rule of law allowing participants freedom to participate under equal conditions.
But this triangle, composed by the State, the merchant and the financial consumer does not always provide for equal conditions and, in some cases, some players seem to be participating in better conditions than others. This is especially true in developing countries in which citizens have not received, through proper education, the tools required to make good financial choices, and in turn confront the market forces and its developed marketing strategies with evident disadvantages.
In an economy like ours, in which the capital markets are virtually nonexistent, common citizens have little understanding of the processes of credit risk management, making them extremely vulnerable to aggressive marketing strategies. The State, then, must decide whether to allow citizens to learn from their mistakes, which may involve a great degree of discomfort and pressure, or to intervene and create an artificial balance to level the game.
Experience shows that in the case of Honduras, the issuance of protective consumer legislation, through the enactment of the 1998 Credit Card Law and further on, the 2006 Credit Card Law, did not resolve these problems. On the contrary, they have, in our opinion, increased the dependence of financial consumers on the State's intervention, giving rise in some cases to political legislative manipulation.
This year Honduras enacted new reforms to the 2006 Credit Card Law, basically trying to reduce interest, fees and transactional costs. Late payments, which in turn generate these charges, are one of the main factors to have incremented credit card costs. The question is whether the State should intervene and prohibit such costs, therefore incentivising irresponsible use of credit. Alternatively, such costs, which should work as negative incentives for financial consumers, could be sustained in the hope that this will give rise to a more responsible behaviour.
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