End of interest-free card installments? Banks want tariff – 08/12/2023 – Market

The solution negotiated by the Lula government (PT) with BC (Central Bank) and financial institutions for the high interest charged on revolving credit cards may include measures to discourage purchases in installments without interest. One of the ways suggested by the banks is the creation of a tariff for this type of payment, but the proposal faces resistance.

In this format, financial institutions would make it possible to reduce interest rates by increasing the interchange fee charged to merchants for card transactions. The measure is seen as negative by people involved in trading because traders would be forced to accept such conditions.

The interchange fee is the percentage paid for each transaction to the card issuer by the acquirer of the merchant, that is, by the person who rents the machines to the merchant. The acquirer transfers the cost of the fee to the commercial establishment which, in turn, transfers the expense to the consumer.

The possible creation of a fee to curb interest-free installments was mentioned by BC president Roberto Campos Neto last Thursday (10th) in a special session at the Federal Senate. According to a source familiar with the discussions heard by Sheetthe monetary authority’s own technical team, however, is not in favor of the model.

This is not the only proposal on the table. Another model suggested by the banks makes interest-free installments conditional on the type of consumer good – durable, semi-durable or non-durable.

The definition of the term for each type of product would take into account the average duration of installments that are currently made. For example, an appliance could be sold in a larger number of interest-free installments than a piece of clothing.

However, the practical viability of the model is considered complex. There are questions about how the separation of payments for goods of different categories in establishments would be carried out, in addition to the expectation that the proposal will not please Brazilian retailers.

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.

Financial institutions argue in the negotiations that, by limiting interest-free installments, it would be possible to reduce the revolving card rate –the most expensive credit line on the market– by around 30%.

In June, the average interest rate charged by banks to individuals on the revolving card was 437.3% per year, according to BC data.

A person involved in the debate says, however, that there is no effective commitment from the banks to reduce these interest rates – which has been blocking the progress of the discussions.

In a note, Febraban (Brazilian Federation of Banks) said it is looking for a “constructive solution that goes through a seamless transition, which may include the end of revolving credit and a redesign of purchases in installments on the card.”

On Thursday (10), Campos Neto said that ending the credit card rotation could be the solution to high interest rates and defaults in the modality.

“We have 90 days to present a solution, which is on the way to no longer have revolving credit. The credit goes straight to the installment plan, which is at a rate of around 9% [ao mês]. Extinguish the revolving, those who do not pay the card go straight to installments around 9% “, she said.

Members of the Lula government also say they are willing to put an end to the rotary system. But, if before there was a fear of leaving the decision in the hands of Congress, now there is the understanding that the Legislative interference in the matter will be inevitable.

The discussion is still in its initial embryonic phase in the Chamber of Deputies, according to parliamentarians interviewed by the Sheet. A proposal to limit interest on revolving credit cards was included in the bill on Desenrola, the PT administration’s debt renegotiation program.

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), the project determines that the CMN (National Monetary Council) will establish limits for the collection of those interest.

“The remunerative interest rates charged in the modality […] may not exceed the limits already stipulated for types of credit with a similar risk profile, as is the case with fees charged on the amount used for overdrafts”, says one of the excerpts.

The project’s rapporteur, Deputy Alencar Santana (PT-SP), on the other hand, discusses a path considered by those involved in the debate as less interventionist, with the possibility of the institutions themselves establishing a ceiling to be charged in the rotation in a certain period.

If the banks do not reach an agreement, the limit valid for a similar modality would come into effect, as is the case of overdrafts –which has a ceiling of 8% per month (151.8% per year) and, in June, had an average annual rate of 133.6%. The final decision would also be up to the CMN.

According to the president of BC, the issue should advance in the coming weeks. On August 2, Minister Fernando Haddad (Finance) stated that the solution for the rotary will come out in 90 days.