Reuters logo
Brazil judge bars banks from deducting loan installments amid state woes
March 9, 2017 / 10:32 PM / 9 months ago

Brazil judge bars banks from deducting loan installments amid state woes

RIO DE JANEIRO, March 9 (Reuters) - A Brazilian judge barred commercial banks from deducting loan installments from the accounts of state civil servants who are yet to be paid their wages, in the latest episode of a deep fiscal crisis ensnaring debt-laden state governments.

The ruling, which Rio de Janeiro state judge Maria Christina Berardo Rucker released on Thursday, affects 26 lenders who have payroll-deductible loan contracts with civil servants in the state. The ruling applies nationwide, blocking deductions where states remain in arrears with their employees.

The ruling came after some civil servants claimed installments were being deducted directly from their accounts and not from the state’s payroll. Rucker said in her ruling that it is the state, and not the borrower, who must take responsibility for the payroll deductions.

The decision underscores Brazil’s unstable legal framework for credit markets, where for decades the rights of borrowers have been protected in spite of a legacy of high delinquencies. Brazilians pay the highest borrowing costs among the world’s major 20 economies, in part because of legal and regulatory uncertainty across credit segments.

“Financial institutions are getting their money at ‘manu military’,” or by force, the ruling said. “That has aggravated the situation of civil servants who have been deprived of their salaries and are also being literally torn away by banks.”

Some of the banks affected by the ruling include Banco Bradesco SA and a consumer financing unit known as Bradesco Financiamento; state-controlled Banco do Brasil SA ; Banco Alfa SA; Banco BMG SA; Banco Votorantim SA; Banco do Estado do Rio Grande do Sul SA; Banco Safra SA, and Banco Santander Brasil SA.

None of the banks commented on the ruling.

The decision mirrors the depth of Rio de Janeiro’s crisis, where administrations increased expenses unsustainably in the past decade. A plunge in tax collections and royalties amid Brazil’s worst recession left Rio de Janeiro with no cash and waiting for a federal government-led bailout. (Writing by Tatiana Bautzer and Guillermo Parra-Bernal; editing by Grant McCool)

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below