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Desenrola: A debt renegotiation initiative
The federal government launched the Desenrola program to assist consumers in renegotiating their debts with banks.
On Tuesday (5), the Chamber of Deputies approved the Desenrola bill, which, in addition to focusing on debts, addresses interest rates on revolving credit card balances. The vote took place symbolically, and only the Novo party opposed the proposal.
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Limitations on Interest Rates and Developments in the Financial Sector
Read also: Desenrola Brasil begins second renegotiation phase: Find out who can benefit now
The federal Desenrola program aims to simplify consumers’ renegotiation of debts with financial institutions. During its analysis, there were efforts to establish a cap on revolving credit interest rates, which apply when the bill is not paid in full by the due date.
Representative Alencar Santana (PT-SP), rapporteur for the measure, proposed an article to cap interest on revolving credit card balances and installment credit at 100% if banks do not offer a self-regulation proposal within three months.
However, the document does not discuss ending interest-free installment purchases, a practice that banks attribute as the cause of the high rates – which reached 437% per year in June. There was pressure from banks to include this discussion, but the rapporteur stood firm.
According to the report, “Credit card issuers, in an effort at self-regulation, should propose to the National Monetary Council, through the Central Bank of Brazil, limits on interest and charges on the outstanding balance of statements”.
Reflections and Decisions on Revolving Credit
By June, the revolving rate was 437% per year and the installment rate was 196.1%. Since 2017, after 30 days of revolving credit, banks have been required to transfer the debt to installment credit, but this action has not significantly impacted rates.
Economic experts note that installment credit does not only encompass the renegotiation of revolving debts. If analyzed in isolation, they would have rates similar to those of the most expensive type currently available in the Brazilian market. Therefore, eliminating only revolving credit would not fully resolve the issue of excessive interest rates.
Replacing revolving credit with installment payments on bills is a consensus among experts, and setting a cap on interest rates had already been under discussion. The United Kingdom, for example, limits interest on certain types of credit to a percentage of the total debt.
A source reported that the most likely limitation under discussion is interest of up to 100% of the debt amount. However, that same source sees confusion in the rapporteur’s text and believes this should not be a self-regulation item.
Finally, banks realized that ending revolving credit may minimize defaults, and are now seeking to persuade retailers to restrict interest-free installment payments. In public statements, banking institutions and industry associations deny any intention of eliminating the product. However, Alencar reiterated that limiting installment payments is not the way forward, considering it a “victory for Brazilian society”. This point does not appear in his report.
