July 11, 2018 / 10:31 PM / 3 months ago

Brazil Senate panel recommends lifting ban on bank overdraft fees

SAO PAULO, July 11 (Reuters) - A Brazilian Senate committee investigating credit card interest rates on Wednesday recommended that the central bank lift a ban on overdraft protection and revolving credit fees, a move advocates say would give lenders greater latitude to cut rates.

The committee’s vote on the matter came as Brazil’s largest banks, through their lobbying groups Febraban and Abecs, are considering a formal request that the industry be allowed to charge such fees, three sources with knowledge of the matter told Reuters.

The central bank has also independently been looking for ways to reduce credit costs to consumers in the country’s highly concentrated banking sector, dominated by Itaú Unibanco Holding SA, Banco Bradesco SA and Banco do Brasil SA.

Febraban and Central Bank declined to comment on the matter. Abecs did not respond to requests for comment.

Even after multiple reductions in Brazil’s benchmark Selic rate to multiyear lows, lenders still charge average annual interest rates higher than 300 percent on overdraft and revolving credit lines, according to central bank data.

Last year, Brazil’s central bank imposed new rules on credit card companies obliging them to reclassify debt as lower interest personal loans payable in installments after a month.

Largely used in countries such as the United States and in the United Kingdom, fees to use overdraft and revolving credit lines have been forbidden by Brazil’s central bank since a series of consumer complaints about a decade ago.

Brazilian banks have argued that they should be allowed to charge consumers monthly fees for access to overdraft protection whether or not they use it, one of the sources said. In the case of revolving credit lines, the banks want to be allowed to charge consumers fees for usage.

The banks have said the increased fee income would allow them to lower rates for those who use the credit lines, an argument that Brazilian Senate committee also supported.

One of the three sources said that interest rates could be reduced by up to one third as a result.

In June, the central bank released a study showing that interest rates could fall to 10.6 percent per month from 14 percent if clients were charged 21 reais when they failed to make the minimum payment on credit card lines. (Editing by Christian Plumb, David Gregorio and Tom Brown)

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