Announcing its first-quarter results — which showed that the financial volume transacted via credit, debit, and prepaid cards grew 12.8 percent from last year to BRL 10.1 billion (USD 2.04 billion) — the association representing the electronic means of the payment industry in Brazil, Abecs, said it is participating in discussions led by the Central Bank to seek “structural alternatives” that could lead to a reduction in credit card interest rates.
The debates have been spurred by high default rates and President Luiz Inácio Lula da Silva, who has publicly blamed credit card and overdraft interest rates for the high indebtedness of Brazilian families — and the monetary authority’s benchmark interest rate Selic for the country’s low growth.
According to Central Bank data, interest rates on revolving credit reached 430.5 percent a year in March, the highest level in six years. Although this also reflects the country’s all-time high benchmark interest rate, credit cards are historically the most expensive loan in Brazil, followed by overdrafts.
A structural solution to this was found in 2017, when interest rates were also higher due to the 2016 financial crisis, at 490.3 percent per annum.
Since that year, banks have been obliged to transfer credit card debt to a personal line of credit with lower interest rates after one month of default. The problem is that this is happening to more and more people — individual defaults on revolving credit reached 48.2 percent in March. In addition, interest rates on personal loans, where these people are directed, have also risen to 192 percent per year.
In March, Finance Minister Fernando Haddad met with Febraban, which represents banks, and the CNF, which comprises Febraban and other financial institutions, to discuss the current credit card model. In April, a working group led by the Central Bank was created to discuss the issue.
“The discussions were very technical. The interlocutors are working with some options. We have to find solutions to this problem structurally but without harming consumption in the country,” Abecs president Giancarlo Greco — who is also CEO of Cielo, the largest card acquirer in Brazil — told journalists this Thursday.
No concrete measures have been announced, but banks have defended the improvement of the legal collateral framework as an essential piece.
A bill passed by the lower house last year and awaiting approval in the Senate does just that. In April, Treasury Secretary Rogério Ceron included the bill among the government’s credit-boosting measures. It improves the rules for the fiduciary alienation of real estate, allows for the extrajudicial liquidation of mortgages, and the extrajudicial recovery of financial assets given as collateral, including cars, among other things.
The simple imposition of a cap on the product’s interest rate, as suggested by some of Lula’s political allies, is not even close to the Central Bank’s plans, as it would bring instability to the financial system given the penetration of credit cards (more than half of what families consume is paid with them) and also the importance of the interest-free installment modality for Brazilian retailers.
Despite the low projections for Brazil’s growth this year, Abecs sees the cards industry expanding between 14 and 18 percent. “We are currently close to the bottom of this growth range, but we will know better in the next quarter. The first half of the year is normally of lower growth than the second half, which has more important sales dates,” said Mr. Greco.
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