Government Wants to Limit Credit Card Interest

After publicly defending the fall of the Selic (basic interest rate) and voting for the reduction of interest on payroll loans (including the revolving credit card), the government opened a new front against high interest rates. The Ministry of Finance set up a study group to find solutions to limit credit card interest rates. The expectation is that technicians will not take long to present an alternative. At the same time, the National Congress is discussing the creation of a ceiling for interest on revolving credit cards. Deputies want to limit the modality to 8% per month.

In February, interest in this modality reached 24.02% per month (417.4% per year), according to Central Bank data.

Banks, however, reacted to the idea. Febraban (Federation of Banks) argued through its president at an event that placing a ceiling on credit card interest would cause distortions in a market where 95% of users only use the interest-free installment method. Limiting revolving interest could, therefore, impact the modality of interest-free purchases in installments or interchange fees (TIC). Interchange fees are defined by the brands and charged to remunerate card issuers and make up the fee paid by merchants.

The president of Febraban, Isaac Sidney, said: “The model of tabulation, with a ceiling, in cardboard is the least advisable possible, as it generates distortions. We have to find mechanisms that attack the causes. And one of the relevant causes for the interest rate on the revolving being high is the so-called interest-free installment on the card. We need to discuss this point”.

Financial institutions also said that:

  • Only 5% of credit card users pay interest:
  • The credit card market moves BRL 2 trillion per year, or 21% of GDP;
  • 40% of household consumption is done by credit card.

To reduce the rates, according to the banks, it is necessary to attack the main cause, which is the high level of risk of the operation, mainly due to the absence of guarantees and collateral (assets given in guarantee) of the modality.

The card’s revolving credit is activated automatically when the account holder is late or pays only part of the invoice on the due date, which does not make him/her in default. But as the interest rates are the most expensive in the Brazilian market, if he doesn’t settle the debt in a very short period of time, it multiplies and becomes unpayable. Wealth managers and analysts recommend that credit card debt be avoided and, if incurred, that it be quickly switched to a cheaper line.

For the Minister of Finance, Fernando Haddad, credit card interest rates are as abusive as those on the payroll credit card for INSS retirees and pensioners, which were limited by the Social Security Council: “It’s another abuse, it’s bad for the banks’ own image. Regardless of the rise in the Selic rate, interest rates on the revolving credit are stratospheric”.

The creation of the study group by the Treasury should give traction to projects already being processed in the Chamber of Deputies to limit the interest on the credit card revolving to 8% per month, as was done with the interest on the overdraft in January 2020.

In parallel with the working group on credit card interest, Haddad discusses with the BC the possibility of installment purchases through the PIX, without explaining, however, what the installment interest would be or if there would be an interest-free modality.

What do the bills presented in the Chamber say?

In February, PT deputy Lindbergh Farias (RJ) presented PL 574/2023. The text foresees a limit of 8% per month (as in the overdraft), for individuals or MEIs. The project awaits dispatch from the Presidency of the Chamber to proceed in the committees.

At the end of last year, the leader of União Brasil, Elmar Nascimento (BA), presented PL 2685/2022, which creates a debt renegotiation program, very similar to Desenrola, and also limits interest on credit card revolving credit cards to 8% per month. The text provides that the limitation is made by the National Monetary Council (CMN) and the interest does not exceed that of the overdraft.

What is the approval scenario?

Deputies from the governing base show support for the idea of ​​limiting interest on the card and the authors have a lot of mobilization power, but there must be debates with the banks. When the CMN limited overdraft interest in November 2020, the council authorized other charges to offset losses.

According to the BC, the credit granted by financial institutions in the revolving credit card totaled R$ 341.7 billion last year, surpassing other types of credit, but being below, in volume, the overdraft. In the same period, the overdraft for individuals added up to R$430 billion, the payroll deduction (payroll deduction) R$199 billion, and non-payroll personal credit R$179 billion.

The solution to limit credit card interest will not necessarily come from the Legislature, but the discussion in Congress tends to put pressure on public opinion and accelerate a discussion on the subject within the CMN, as happened with overdraft interest. . Nothing prevents the projects in Congress from moving faster than the studies carried out by the Treasury. The trend is towards convergence, since support for the reduction of interest on the card comes from political allies.

As the banks reacted negatively to the proposal to simply put a cap on it, it is possible that some alternative solution will be found.

What does Febraban say?

The entity issued a statement, saying that its priority is to reduce the cost of credit, advocating a broad debate for the construction of a solution. He concluded by saying that: “The card pricing model would not be the most advisable, as it generates distortions in price, supply and demand. It is therefore necessary to find mechanisms that can address the causes of the high spread”.

What does Abecs say?

Abecs, the association that represents electronic payment companies, said, also in a note, that it “has been closely following discussions on revolving credit interest and, over time, has been promoting studies with the aim of finding alternatives that allow the practice of increasingly lower rates in the market.

The card industry as a whole is a balanced but complex system with several particularities. This balance allows the card to encourage access by millions of Brazilians to the financial system every year and to be the main consumer financing instrument in the country.

One of the main characteristics of the market is that most of its volume is handled, around 76%, without any interest being charged to the consumer. Added to this, for example, is the impossibility of charging fees for new services made available to consumers and commercial establishments, despite the constant and rapid innovation in the sector.

Abecs understands that any alteration in the balance of the system must be deeply debated, given the relevance of card transactions – which represent about a third of the Brazilian GDP – for the development of the economy and society. The Association reinforces its collaboration commitment and is at the disposal of the regulator and the federal government to contribute in the search for more efficiency and reduction in the cost of credit for consumers”.

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