On November 27, the Central Bank’s National Monetary Council approved Resolution 4765, which limits interest rates charged on special checks to a maximum of 8% per month. The Resolution also establishes that financial institutions may charge commissions when establishing a special limit on the checks available. The measure will enter into force on January 6, 2020.
In the Brazilian financial system, the term special check is used to refer to the automatic overdraft credit offered by a bank to its clients if they need to make payments or transfers from their account without the necessary balance. According to the bank, this type of credit is now one of the most expensive in the country and as there is no limit on interest rates, banks are free to set this rate as they wish. The objective of the measure is to correct the “market failures” of special checks, so as to reduce costs and regressiveness, taking into account that “this facility tends to be used by customers with less purchasing power and financial education.”
Data previously published by the Central Bank show that the average rate of the special check reached 305.9% per annum in October, equivalent to a monthly interest rate of 12%. The new limits mean that the annual interest rate will be halved to some 150% per year.
In exchange for capping the interest rates, the Central Bank announced that banks will be able to charge their customers a commission for making the special checks available, which does not currently exist. “It is important to note that international experience shows that the definition of interest rate limits and the collection of emergency line rates are present in the regulation of advanced and emerging economies,” explained the Central Bank.