NATHALIA GARCIA
BRASILIA, DF (FOLHAPRESS)
Head of the Central Bank’s Financial Citizenship Promotion Department, Luis Mansur stated this Monday (25) that paying in installments for purchases on credit cards can be “deadly” for the population’s over-indebtedness and associated the excessive use of this instrument with the revolving credit card. -line with highest interest rates on the market.
“Nowadays, the gateway to revolving payments is excessive installments or uncontrolled installments,” said the technician on the BC’s live broadcast about over-indebtedness.
Mansur highlighted that the credit card has become a payment instrument for recurring purchases in Brazil, such as those made in supermarkets and pharmacies, and warned of the risk of default.
“Credit card installments are something that can be deadly. People don’t control the installments, they accumulate and become a snowball,” he said, without making a distinction between purchases in installments with or without interest.
Revolving credit is a type of credit activated when the customer does not pay the full amount of the card bill on the due date. It is a pre-approved line recommended by experts only for emergency cases.
In July, the average interest rate charged by banks to individuals on revolving credit cards reached 445.7% per year, according to the latest data released by the BC.
Mansur advised consumers to write down the installments for purchases made on their credit cards and to work with a bill payment schedule to avoid accumulating debt.
“Give preference to paying in installments for those large purchases, a refrigerator, a stove, an appliance, a trip, a plane ticket, something that has a high installment value”, he recommended.
The BC technician’s statements were made amid the discussion about limiting interest on credit card revolving and a possible redesign of interest-free installments for purchases.
Banks talk about cross-subsidization between modalities due to default. This means that the same customer who has made several purchases in installments may eventually face financial difficulties in the future and, due to the accumulated volume of purchases, be unable to honor the full payment of the credit card bill, thus falling into the revolving credit card.
On the other hand, part of the credit card sector rejects a causal relationship between the two modalities and denies that defaults are higher in longer terms than in cash payments.
As Folha de S.Paulo showed, Cade (Administrative Council for Economic Defense) began a preliminary investigation into an alleged joint action by financial institutions to link changes in interest-free purchase installments to the debate on the revolving system.
The competition defense body seeks to know whether two or more banks have come together to create a joint strategy and act in a coordinated manner to create a market situation.
Changes to interest-free installments for purchases were not included in the text being processed in the National Congress regarding the card rotation, but there is an expectation that the dispute will continue to be fought behind the scenes.
The Desenrola Brasil PL (bill), which deals with the issue of rotation, was approved by the Chamber of Deputies and is being processed in the Federal Senate.
The text provides a period of 90 days for financial institutions themselves to define an interest limit for the revolving card and for the payment of the outstanding balance of the invoice in installments.
If there is no agreement with the endorsement of the CMN (National Monetary Council) within this period, a ceiling will apply that limits the debt to double the original amount.
Rapporteur of the project in the Senate, Rodrigo Cunha (Podemos-AL) stated in an interview with Folha de S.Paulo that he would still study the issue, but that he saw distortions in the use of interest-free installment purchases.
After a meeting with the president of the BC, Roberto Campos Neto, the senator said in a statement that he would “fight so that the practice of interest-free installments is not changed or extinguished.”
If Cunha makes changes to the text, a new assessment of the proposal by the Chamber of Deputies will be necessary.
The obstacle is that the text needs to be assessed by senators and sanctioned by President Luiz Inácio Lula da Silva (PT) by October 3, when the MP (provisional measure) that created the debt renegotiation program launched by the federal government expires. Delays in voting on the project could compromise the continuity of the program.
The post Uncontrolled installments is a gateway to revolving, says BC technician appeared first in Jornal de Brasília.
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