10 years in the making: Brazilian Over-Indebtedness Bill finally approved

The Brazilian Senate has approved a critical Over-Indebtedness Bill, following sustained pressure by Idec and supported by Fair Finance International.

Last week the National Congress in Brazil approved a bill that symbolizes a historic victory for many Brazilian consumers. Senators voted for the Over-indebtedness Law (Bill 1805/21), which updates the Consumer Defense Code for the first time in 31 years. This result was strongly campaigned for by Idec (Brazilian Institute of Consumers Defense) and supported by Fair Finance International. The bill includes a chapter on the prevention of over-indebtedness and on the treatment of over-indebted citizens. 

“It is a historic victory for the consumer. We are able to say that it is the only Bill at the Congress in the last few years to improve the Consumers’ Defense Code. Idec and other organisations celebrate this approval because it will mean fairer and more ethical practices in managing credit concessions for a population suffocated by indebtedness”, says Teresa Liporace, Idec’s Executive Director.

Above: Idec campaign’s banner “Lets restore the economy's health”.

It is estimated that in Brazil there are more than 60 million people indebted, 30 million of whom are over-indebted. To support their economic recovery, the Over-indebtedness Bill originated at the Senate, but took ten years to be passed, including more than five years at the Chamber of Deputies where it was finally approved last month. 

This Bill is extremely important, since it will be the first to address over-indebtedness in the country. During the Covid-19 pandemic, the rate of loan default amongst the Brazilian population worsened. In the first three months of 2021, revolving credit line debt increased by 11%, according to the Brazilian Central Bank. In addition consumers were not assisted in managing their debt burden, and there was difficulty in establishing dialogue channels with banks, because of the absence of unified regulations. 

Notwithstanding that this bill approval is historic, Idec maintains that improvements can still be made in the regulation of this Law in its three pillars: prevention through financial education, credit advertising control, and treatment of people in debt. It is necessary to highlight critical issues that continue to threaten vulnerable consumers, such as payroll-deductible loans. 

“Among the approved measures are provisions for the consumer to withdraw from a credit plan within 7 days and the establishment of criteria for payment in installments.” says Ione Amorim, Financial Services Program Coordinator at Idec. Unfortunately the final text on consumer protection for the elderly against bank harassment underwent unfavorable changes. This will require greater monitoring by representatives of the National Consumer Protection System (SNDC).

Above: Ione Amorim, Financial Services Program Coordinator Idec, at a Special Commission to discuss the Over-Indebtedness Bill.

This approval is a historic victory for consumers as it is the first positive change in the Consumer Defense Code since it was established 31 years ago. The struggle to pass the over-indebtedness bill lasted for over ten years and now after approval by the Senate, it only awaits Presidential sanction - the validation of the Executive's leader, which is expected to take place in two weeks.