November 27, 2019 / 11:42 PM / 6 months ago

Brazil caps interest rates on overdraft credit and allows banks to charge fees

BRASILIA, Nov 27 (Reuters) - The Brazilian central bank’s monetary policy committee on Wednesday decided to cap interest rates on credit extended by banks via overdrafts, as part of its efforts to reduce credit costs to consumers in a concentrated banking sector.

Banks will not be allowed to charge interest rates over 8% per month on overdraft credit, or 150% annually, the committee said. Currently the average annual interest rate is roughly 306%.

To offset lower interest rates, Brazilian banks will be allowed to charge consumers a monthly fee of 0.25% for overdraft credit limits above 500 reais starting on Jan. 6 for new contracts. For consumers who already have overdraft credit, fees will be charged starting in June 2020.

In October, balances outstanding on overdraft lines of credit totaled 26 billion reais ($6.20 billion) and capacity of the overdraft lines totaled 350 billion reais, according to the central bank. Banks are required to maintain capital reserves in excess of the draws even clients do not use the full credit lines.

The Brazilian central bank has taken a series of measures in an effort to reduce costs for consumers. Last year, it imposed a cap on debit card fees paid by merchants to card issuers and it also adjusted rules on revolving credit lines.

$1 = 4.1964 reais Reporting by Marcela Ayres, Writing by Carolina Mandl; Editing by Cynthia Osterman

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