(FILE) Photograph of credit cards from different banking institutions. EFE/ Rayner Peña R.

Brazil legislates against abusive interest rates on credit cards

São Paulo, Oct 2 (EFE). – The Brazilian Senate approved on Monday a bill that prohibits abusive interest rates on credit cards, as part of a package of measures that aims to reduce the population’s high level of indebtedness.

From now on, interest rates charged by banks will have to be approved by the Securities Commission, or else the interest will be prohibited from exceeding the original value of the debt.

Currently, the average interest rate on credit cards in Brazil is a shocking 400% per year, although some small institutions charge astronomical figures that reach 1,000% per year.

The Brazilian Banking Federation (Febraban) criticized the bill in September 2022 when it was voted in the Chamber of Deputies, arguing that “artificial limits” on interest rates could make credit cards “economically unsustainable”.

The new law, which awaits presidential approval, also gives legal status to the debt renegotiation program approved by decree by the government of President Luiz Inácio Lula da Silva in July.

The program aims to benefit 70 million people who have no access to credit because of their high debt levels.

In the first three months of the program, banks renegotiated 15.8 billion reais (about $3.12 billion / 2.9 billion euros) of debt, removing nearly 6 million Brazilians from the list of defaulters, according to Febraban data.

About 77% of Brazilian families are in debt and 12% are unable to pay their debts, according to a monthly survey prepared by the National Confederation of Commerce of Goods, Services and Tourism (CNC).EFE