Card revolving: banks and governments move forward in the case – 08/02/2023 – Market

Although they have not yet reached an agreement, Brazilian banks and the government of Luiz Inácio Lula da Silva (PT) are closer to a solution to reduce the interest charged on credit card revolving credit cards. Negotiations have advanced under the fear that the decision will remain in the hands of the National Congress.

According to sources familiar with the discussions, there is a fear that a possible approval of the proposal included in the bill that will receive the content of Desenrola could set a precedent for interest rates also in other modalities.

In an interview this morning (2) to EBC, the Minister of Finance, Fernando Haddad, said that a solution for the rotary will come out in 90 days.

Haddad stated that the federal government will contract with the banking system a transition to a better system than the current one. “We will have a brake,” said the minister.

In the sights of the Lula government, the average interest rate charged by banks to individuals on revolving credit cards in June was 437.3% per year, according to BC data.

As shown to Sheetfinancial institutions are trying to block the advance of the measure, which should begin to be debated this month in the Chamber of Deputies.

The negotiations returned to the debate last Monday (31) in a meeting between members of the Secretariat for Economic Reforms of the Ministry of Finance, of Febraban (Brazilian Federation of Banks), directors of four financial institutions – Bradesco, Itaú Unibanco, Santander and Nubank– and the Central Bank.

The negotiations involve structural changes in revolving credit, which would open up space for self-regulation by the banks themselves regarding the product. With this, there is an expectation of a significant drop in the interest rate charged today in the modality.

One of the possibilities discussed would be to put an end to the revolving credit system, immediately activating automatic installment payments in the event of non-payment of the debt. There is, however, resistance from the banking sector to the measure due to the high level of remuneration obtained with this modality.

Also under discussion is a solution that includes interest-free installment credit. With the significant increase in payments in installments in essential services, such as purchases in supermarkets, the government and banks are looking for a format that prevents the “snowball” effect.

The possibility of imposing sectoral restrictions is also discussed, while the option of limiting the number of installments without charging interest has been rejected.

In comparison with the previous month, when the rate reached 454%, there was a decrease of 16.7 percentage points to the rate of 437.3% per annum in June. However, the monetary authority does not yet see a downward trend in interest rates. According to Fernando Rocha, head of the BC’s Statistics department, it was mainly an impact of weighting between rates.

This is the most expensive line of credit on the market, recommended by experts only in emergency cases. In June, defaults by individuals on revolving credit cards stood at 49.1%, after reaching 53.4% ​​in the previous month.

Despite the high level of interest and high default rates, the granting of credit on the revolving card surpassed R$ 30 billion in June – an amount close to historical highs.

Card revolving is activated when the customer does not pay the full amount of the invoice on the due date. Since 2017, banks have been required to transfer credit card revolving debt to installments, which have lower interest rates, after one month.

Installment of interest-free purchases on credit cards became a topic of debate in the Brazilian financial sector after large banks pointed to this segment as one of the culprits for the high interest rates on revolving cards.

In Congress, a bill authored by deputy Elmar Nascimento (União Brasil-BA), leader of the party in the Chamber and ally of the President of the House, Arthur Lira (PP-AL), determines that the CMN (National Monetary Council) will establish a limit for the charging of such interest by credit cards.

“The remunerative interest rates charged in the modality […] cannot be higher than the limits already stipulated for types of credit with a similar risk profile, as is already the case with the fees charged on the amount used in the overdraft”, says one of the points of the article.

The bill’s rapporteur, Deputy Alencar Santana (PT-SP), still does not have a definition from a technical point of view and is studying options such as stipulating a maximum percentage charged by financial institutions or setting a deadline for the federal government to take concrete measures and establish criteria that limit interest rates.

The high level of interest on the revolving credit has been debated by the Lula government since March. That month, Minister Fernando Haddad (Finance) met with the president of Febraban, Isaac Ferreira, and the president of CNF (National Confederation of Financial Institutions), Rodrigo Maia, to discuss the current model.

“There are many interlocutors, there is the flag, there is the vending machine, there is the bank, there is the shopkeeper, there are many actors in this process”, said Haddad after the meeting.

In April, it was announced that the government and the financial sector would form a working group with the Central Bank to deepen this debate.

In an interview with Sheet, that month, the director of Regulation at the BC, Otávio Damaso, stated that the monetary authority had not yet discussed the possibility of imposing any type of limit on the revolving or interest rate adjustment. According to him, this could bring instability to the market.