Bank can be released to execute debt without going to court – 06/26/2023 – Market

The Senate wants to release banks to execute debts in case of default, including those without a real guarantee (such as property or vehicle), without the need to go to court.

The authorization was included in the so-called Marco das Garantias, which is being processed in the form of a bill and is considered fundamental by the government of Luiz Inácio Lula da Silva (PT) to reduce the cost of loans in the country.

The original proposal was sent at the end of 2021, still under the management of Jair Bolsonaro (PL), but the text is embraced by the current management in view of the expectation of positive effects on the credit market.

The endorsement for a wider use of the route that dispenses with Justice –today, restricted to real estate– was included by the rapporteur of the text, Senator Weverton (PDT-MA), who promoted a series of changes after the text was approved in the Chamber of Deputies .

On another front, he also eliminated the section that sought to break Caixa’s monopoly on pledge, a line of credit in which the bank accepts goods (such as jewelry, watches, valuable pens and works of art) as collateral for loans. In this way, the public bank will continue as the sole operator of the modality —a way to prevent the greater exploitation of this niche from opening up space for abusive practices and loan sharking.

The project is on the agenda of CAE (Economic Affairs Commission) of the Senate next Tuesday (27). If approved, it will still need to go through the plenary of the House – which is scheduled to take place this week as well.

The version coming from the Chamber already contained devices to accelerate the extrajudicial execution of secured debts (as in the case of automobiles), with greater ease in blocking and auctioning of assets through notary offices. Today, the process is more time consuming, especially in the seizure of vehicles.

The rapporteur, however, decided to expand the use of the instrument and allow the execution of loans in a broad way, even if the contracted amounts are not linked to real guarantees.

One of the justifications is to unburden the Judiciary, which today has its biggest bottleneck in enforcement actions. Surveys used by the government indicate that cases of this type represent 43% of legal proceedings in Brazil.

The first version of the report intended to make the execution of the debt through notaries mandatory, but the government disagreed with this model and asked for an adjustment, so that it is an optional path. In this way, the creditor will be able to choose which type of collection to adopt, whether via the Judiciary or via notaries.

The government’s expectation is that the flexibility will facilitate the process of taking goods and carrying out the auction. This should have an impact on reducing bad debt – which is one of the main components of the so-called banking spread, the difference between the funding cost of financial institutions and the interest charged on loans.

“The project is very relevant and will greatly reduce the cost of credit in the country”, he tells Sheet Marcos Barbosa Pinto, Secretary of Economic Reforms at the Ministry of Finance.

During the process, the project received criticism in plenary due to the fear that it would harm more humble people. There is an assessment by the government, however, that extrajudicial collection will not affect small debtors, since banks are usually committed to collecting debts above R$ 100,000. Below that, the costs would not compensate for the effort to recover the values.

In addition, people involved in the discussion point out that the new version of the project excluded a device considered dubious about the so-called family asset – which cannot be pledged to pay debts. In this way, the seizure of the only property that protects people or their property remains prohibited by law.

Senator Weverton claims that the proposal reduces bureaucracy in the guarantee market by changing current rules, which, according to him, increase interest rates and make loans more difficult. He points out that the central point of the project, the easy execution of debts, will be an option for those looking for a loan – and not an imposition.

“Whoever is going to lend in a non-judicialized way will pay cheaper. The judicialized system will not end. But, if you authorize [a via extrajudicial]the operation has risk and lower interest”, says the senator to Sheet.

For him, current laws protect bad debtors. “We have to start a new moment because our laws are still very paternalistic, harming those who do everything right. If you pay your bills on time, what incentive do you have in relation to those who pay late? None, the treatment is the same”, affirm.

Another important point present in the text since it was sent by the Executive is the permission for the same asset to be used as collateral for different loans. Under current rules, for example, a property worth R$ 1 million can only be used as collateral for a single loan until payment is made.

The new model allows the owner to offer the property as collateral in more than one financing, with fractional amounts. The design replicates something that already exists in other countries, in which families manage to contract more than one credit operation until the total amount of the guarantee is used up.

The measure is considered important to expand Brazilians’ access to a cheaper type of financing.

Weverton also excluded from the text the creation of the so-called IGG (Guarantee Guarantee Institution), provided for in the original project sent by Bolsonaro. She would be responsible for managing the guarantees of those interested in loans, with the aim of facilitating their use in multiple operations.

According to those involved in the discussion, the existence of this legal figure bothered financial institutions, which prefer to manage debt guarantees themselves. Its creation was compared to a kind of “new notary” between creditors and debtors.

The Central Bank also demonstrated opposition to the creation of this institution, which would need to be supervised by the monetary authority. It was concluded in the discussions that the IGGs (private companies) would need to follow minimum capital requirements, as with financial institutions —which could increase the cost of credit.

The BC also reported in conversations a “systemic fear” in the event that any management problems at the IGGs lead to insolvency, compromising the quality of the guarantees and putting the financial system at risk.

PLEDGE MONOPOLY FOLLOWS WITH THE BOX

By proposing the new Marco das Garantias, the Bolsonaro government tried to break Caixa’s monopoly in the credit segment via pledge. The change was approved by the Chamber of Deputies, but has now been discarded by the rapporteur in the Federal Senate.

The legal change faced resistance from Caixa itself, which articulated to maintain a market exclusivity created almost 90 years ago. The negotiation also involved representatives of the institution’s employees.

In the government and among parliamentarians, the diagnosis was that the breaking of Caixa’s monopoly on the pledge was an obstacle to the progress of the project, but its maintenance in the text would result in a small gain, given that the market has limited scope in the country .

The change was not considered essential and still entailed risks. Technicians believe that pawning is a service that, in other countries, is closely linked to loan sharking and, in Brazil, its expansion could facilitate the use of illegal gold and even encourage mining. Therefore, those involved chose to keep the segment under a public institution, without evidence of abusive practices in this segment.

To unlock the project, which is one of the government’s bets to boost credit, the government agreed with the withdrawal of the device.