Institutions propose debt portability in revolving credit – 08/18/2023 – Market

Opposed to changes in interest-free purchases in installments, representatives of payment institutions and the segment of credit card machines presented to Minister Fernando Haddad (Finance), on Thursday (17), alternative proposals to equate the high interest rates of the revolving credit card. .

The main one is credit portability, which allows the customer to transfer a debt from one financial institution to another that offers better payment terms. In Brazil, portability is currently applicable only to other modalities, not to the rotary.

According to reports from people involved in the discussions, this option is seen by proponents as a way to stimulate competition in the system, helping to reduce interest rates on the most expensive line on the market.

A presentation to which Sheet had access uses as an example the case of the United States, where it is possible for the customer to take the outstanding balance to another issuer. She also mentions that this type of portability exists in countries like Australia and the United Kingdom.

Some aspects of self-regulation, however, are considered today as impediments to the operation of this secondary market in Brazil, such as the possibility of a reaction by the institution that owns the operation to a portability request.

Another suggestion made to the government was to encourage competition through data sharing, advancing in the standardization and improvement of the open finance operational process —an ecosystem that allows the sharing of personal, banking and financial data between institutions, upon authorization.

The idea is that there is an exchange of information on granted limits, entries on the card invoice and revolving credit conditions (such as interest rates) between the issuing institutions.

A person involved in the negotiations told Sheet that the suggestions are interesting and can be implemented, but considered that they alone do not solve the problem of high interest rates on the revolving credit.

In June, the average interest rate charged by banks to individuals on revolving credit cards was 437.3% per year, according to Central Bank data. In that month (last data available), default in the modality was 49.1%.

In the meeting with members of Abranet (Brazilian Internet Association) and Abipag (Brazilian Association of Payment Institutions), Haddad sought to better understand the role of the various interlocutors in the debate on revolving credit and interest-free installments.

According to reports heard by the Sheet, the head of the Treasury wanted to know about the functioning of the payment chain, the risks in operations and how they are remunerated. There was also intense discussion about the interchange fee—charged to merchants for card transactions.

Representatives of payment institutions and ATMs also took data from a study to the minister that shows that card rotation presents a very positive result for issuers, around 6% of the total credit card portfolio in the year.

At the meeting, the entities also tried to demystify the default associated with installments, refuting that there is a cross subsidy between interest-free and revolving installments. They also highlighted the importance of this model for Brazilian retailers and the role of interest-free purchases in installments as an instrument of competition in the country.

According to the data presented, half of all financial volume paid by credit card is made in installments — BRL 986 billion in 2022, with 62% of this amount in four installments or more (BRL 611 billion).

Complementary proposals were quickly cited. One was based on the English model, in which interest charges are limited to 100% of the customer’s original debt. This means that, in practice, the amount owed could be at most doubled.

Another possibility would be to reduce the maximum period for using the rotary to a period shorter than the current 30 days. Since 2017, financial institutions are obliged after one month to transfer debt from revolving to installments, which have lower interest rates.

Part of this information was also shared with BC in a meeting with president Roberto Campos Neto and technicians from the institution last Monday (14).

According to the head of the monetary authority, so far no decision has been taken.

“The BC provides the technical aspect, Congress sees what the political viability of that is and the Ministry of Finance is working on the link between what is purely technical and what is feasible to be approved by Congress”, said Campos Neto , in an interview with Poder360 on Thursday.

The discussion is still in its initial 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), the project determines that the CMN (National Monetary Council) will establish limits for the collection of these interests —a measure classified as interventionist and artificial by the sectors involved.

The proposal’s rapporteur, Deputy Alencar Santana (PT-SP), discusses the possibility of the institutions themselves establishing a ceiling to be charged in the revolving service within a given period.

There is an expectation that a consolidated proposal will be drawn up within 90 days, as publicly indicated by Haddad.