Card rotation: understand how the new limit can influence credit supply and default

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For experts interviewed by g1, the decision is positive, but it should not necessarily solve the problem of uncontrolled spending. Credit card Reuters The decision by the National Monetary Council (CMN) to limit interest on revolving credit cards was welcomed by financial education experts. They point out, however, challenges in the supply of credit and the population’s indebtedness (see below). Revolving credit is a type of credit activated automatically when the customer does not pay the full amount of the card bill by the due date. This is the most expensive category in the country, with interest rates that, in October, were 431.6% per year. The Minister of Finance, Fernando Haddad, confirmed on Thursday (21) that the total amount charged by banks in revolving interest cannot exceed the original value of the debt. The measure applies to debts registered from January 2024 onwards. If the outstanding balance is R$100, for example, the total debt, with interest and charges charged, cannot exceed R$200 after one year. The cost of the Tax on Financial Operations (IOF), however, is outside this calculation. According to Haddad, as there was no definition of an alternative rule for the rotation, what was approved by the Senate at the beginning of October will come into effect from January onwards. The text has already been sanctioned by President Lula (PT). FIND OUT MORE ABOUT THE 100% LIMIT FOR REVOLVING INTEREST For experts interviewed by g1, the decision is positive, but it has secondary consequences, including on the offer of credit. The assessment is also that the measure should not necessarily solve the problem of uncontrolled spending — an issue linked to financial education (see tips for balancing the accounts below). Miriam Leitão comments on the negotiations between credit card companies regarding the reduction of revolving interest rates Credit supply and market adaptation FAAP Finance professor Virginia Prestes praises the measure, but considers that “there are always impacts” when the government tries limit interest rates or act more restrictively. “In this case, the effect could be to limit the supply of credit by banks”, she says, remembering that the interest on the card has a reason for being so high: the extremely high default rate. (see below) “As credit cards have a lot of defaults, limiting interest charges may make it not worth it for the bank to lend money to those who have recurring outstanding balances”, explains Virginia. In this sense, the Brazilian Federation of Banks (Febraban) had already signaled its position that limiting revolving interest rates could make cards unviable and reduce the supply of credit. During discussions about the model, the entity stated that creating a ceiling could “make a relevant portion of credit cards economically unviable, affecting the availability of credit in the economy.” This Friday (22), Febraban stated, in a note, that the new regulation “disciplined crucial points for the correct application of the law that limits revolving interest”. But he considered the scenario. “Febraban reinforces its position that the causes of the high revolving interest rates have not been structurally resolved, which directly impacts consumers who need this line of credit,” said the entity, classifying the current solution as “temporary”. “By not resolving the root cause, interest rates will still remain at a high level, harming commerce and those who most need credit to consume”, he concluded. Default Financial educator Carol Stange also classifies the decision to limit interest on the card’s revolving card as positive. She reinforces, however, that the measure will not have direct effects on reducing defaults if the population does not improve control over their accounts. Data from the Central Bank of Brazil (BC) show that default reached 54.9% of revolving operations in October this year. There are R$65 billion in debt in the country, according to the institution. “It is necessary to understand that this initiative will be worth very little if it is not accompanied by financial education, as people will continue to get into debt”, says Stange. The expert also warns that, if the change is not well understood by consumers, there is a chance that they will incur even more debt. “This can happen precisely due to a lack of knowledge”, she reinforces. ‘Pitfalls’ of the revolving system During the discussions about the revolving system, experts were already reinforcing that the reduction in interest rates is welcome for the consumer’s pocket — but that, in isolation, it does not solve the lack of financial control of Brazilians. “The end of the revolving system is not an effective measure to improve account control. Most people lose control of their cards because they consume excessively, because they used the card as an extension of income and not as a payment instrument”, warns the Professor Mauro Calil, founder of the Academia do Dinheiro. Virginia, from FAAP, explains that one of the main reasons for entering the rotary system is being careless when letting yourself be carried away by low installments in credit purchases. “People get into debt without being aware of the total amount owed. And, in the end, they end up in revolving debt. This happens a lot.” “Often, people pay the minimum bill, enter the revolving schedule and are unaware of the snowball that this becomes,” she continues. It is worth mentioning that the revolving interest rates are very high as it is a credit line with a huge default rate (more than 50%). Furthermore, the modality is considered emergency and does not have a guarantee — that is, the bank is at risk of defaulting —, causing rates to skyrocket. Tips for balancing the accounts According to experts, regardless of the change in the revolving account, controlled use of credit cards continues to be essential for good financial health. “Credit can be a great ally if used correctly. Today, we know that there are miles and cashback programs, for example — which have grown a lot. And they are alternatives that can also be used intelligently”, concludes Virginia Prestes, from FAAP. See the experts’ main tips: have few credit cards; maintain disciplined use; have a limit available on the card of a maximum of 50% of your total income; always pay your invoice on time (never opt for the minimum payment); opt, if possible, for cards with points programs; always observe the total value of purchases, whether paid in installments or not; do not fall into the trap of many small installments; remember that a credit card is a means of payment, not an income supplement; Never lend your card to other people.

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