Lula changes payroll deduction rules for aid beneficiaries

The Brazilian government published an ordinance on Thursday containing new rules on payroll deduction loans for beneficiaries of federal aid programs. Last year, the Jair Bolsonaro administration allowed recipients to commit up to 40 percent of their monthly income to such loans — a rate now capped at 5 percent.

Furthermore, the maximum number of installments has been brought down to six, with interest rates of no more than 2.5 percent a month. Before, loans could be repaid in up to 24 installments, with monthly interests of up to 3.5 percent.

The move contradicts some of President Luiz Inácio Lula da Silva’s campaign rhetoric. Last year, he criticized the offer of payroll deduction loans to an already financially vulnerable demographic, claiming it was an electoral tool that could leave borrowers in an economic “chokehold.”

Prosecutors from Federal Accounts Court last year filed a request to suspend the program, saying its goals were “merely electoral.” Lula’s transition cabinet also recommended ending the program.

The Brazilian Report revealed in October 2022 — just before the second round of elections — that data on millions of federal aid beneficiaries had been illegally leaked and sent to agencies offering payroll deduction loans. There were also cases of loan contracts being aggressively sold to people in line at food banks.

The Lula campaign had announced its intention to forgive debts payroll deduction loans for welfare recipients — which won’t happen, either. 

The new rules only apply from now on, leaving the more than 3.5 million people who took out the loans last year in a gray area. Social Development Minister Wellington Dias said that the measure would help the most vulnerable and that the old rules were “perverse.” But he has not said whether his department will launch a program to renegotiate or forgive debts.

Experts say the new rules are better than the old ones but that the program itself remains highly questionable, to say the least. 

“A payroll deduction loan for this demographic should not even exist. Even though the maximum discount is now 5 percent, that has a big impact on vulnerable people,” says Denise de Sordi, a researcher of wealth distribution policies at the University of São Paulo and the Oswaldo Cruz Foundation.

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