Approval of Over-indebtedness Bill by Brazil's Chamber of Deputies crucial for economy

12 May 2021

Following pressure from Fair Finance International to address debt regulation in Brazil, led by consumer association Idec, and against the backdrop of the socio-economic impact of the Covid-19 pandemic, The Chamber of Deputies has finally approved Overindebtedness Bill 3515, supporting more than 30 million over-indebted Brazilians.

Brazil’s Chamber of Deputies approved on Tuesday May 11th, Over Indebtedness Bill (Bill 3515/2015) which updates the national Consumer Defense Code with a chapter addressing the prevention of over-indebtedness and treatment of over-indebted citizens. The measure, which Idec advocated for over many years, will now go to the Senate to be approved. 

It is estimated that Brazil has more than 60 million people in debt, many of whom are women who head approximately 45% of Brazilian households. Of those in debt, 30 million are over indebted, and cannot pay their debts. To support their financial recovery, Bill 3515 proposes a credit concession regulation with an increase in transparency and debt prevention, with regulations on advertising, and evidence of the risks of taking out credit. In addition, it guarantees improved conditions and procedures for debt negotiations with financial institutions. The Bill therefore sets out to tackle the three principle challenges -  regulation, prevention and resolution.

“Bill 3515 will help families in debt and is also good for the economy, since millions of Brazilians will be in the position to return to the economy as consumers”, affirms Teresa Liporace, Idec’s Executive Director.  

Photo (l-r): Ione Amorim, Igor Britto and Michel Souza of Idec, at The Chamber of Deputies delivering advocacy materials.

The Bill was with the Chamber of Deputies where some unfavorable amendments were made, however now the Brazilian Senate will have the opportunity to overturn some of these, especially in relation to payroll deductible loans. In Brazil, this credit modality is often offered as a low interest option, but it has been aggressively marketed by financial institutions to the elderly and social security recipients.

“The text suffered alterations and was worsened at the Chamber of Deputies to serve the banks’ interest. It will be back at the Senate, in which it was already approved in 2015, but now with a chance to revise its content to one more favorable to consumers”, says Ione Amorim, Financial Services Program Coordinator at Idec.

An important advance for Brazilian consumers?

The Covid-19 pandemic has heavily impacted Brazil, and the emergency relief aid approved last year has not continued to the same extent, meaning that thousands of families are now even more exposed to loan default.

The new Bill will address the following issues, important for those in debt or taking on debt: Responsible lending practices for sustainable credit; Regulation of credit lending and promotion of a responsible and sustainable credit; responding to the increase in grievances and defaults during the pandemic; appropriate procedures to manage over-indebtedness; and financial education to prevent over-indebtedness.

A boost for the economy

Bill 3515 is an important measure not only to tackle over-indebtedness but also to stimulate economic recovery. Economist Manuel Eriquez Garcia, president of OEB told Idec that it is likely the economic impact of the pandemic will endure for several years, as government has low investment capacity at present, and companies expect lower revenues.

A study by Ordem dos Economistas do Brasil (OEB) and Instituto do Capitalismo Humanista concluded that with Bill 3515 in place, an average family will have an additional income of $700 Brazilian Reals per month for essential expenditure. Economist Manuel Eriquez Garcia is of the opinion that “the return of families to the consumer market will be a direct outcome of this bill.”