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Overview

i Introduction

Monetary inclusion-oriented insurance policies and the mixing of know-how into monetary companies and merchandise by way of monetary know-how (fintech) corporations have introduced shopper safety into the highlight.

Growing the general public’s entry to important monetary companies² and, extra typically, bettering the degrees of monetary inclusion, grew to become a driver for the monetary insurance policies and programmes of latest administrations.

Shopper safety requirements play an essential function in these discussions, because the federal authorities and regulatory businesses intention not solely to extend the monetary inclusion indexes by accessing a bigger a part of the inhabitants but additionally to enhance the standard of monetary schooling of these people already collaborating within the banking system.

Within the wake of those authorities programmes and insurance policies on monetary inclusion, new services arising from the fintech motion, akin to on-line lending, peer-to-peer lending, on-line and cellular cost options, and digital checking accounts, amongst others, have additionally contributed to the more and more distinguished function of shopper safety requirements given the excessive penetration of those services available in the market.

Because of this, the authorized and regulatory framework relevant each to shopper financing and to all monetary services provided to customers has been topic to fixed modifications and enhancements in recent times, leading to clearer requirements and an more and more beneficial regulatory setting for shopper financing practices in Brazil.

ii Overview

In recent times, the federal authorities and Central Financial institution have been implementing public insurance policies and actions to foster shopper financing actions as one method to enhance monetary inclusion and monetary citizenship in Brazil.

By extension, shopper empowerment and market conduct, shopper safety, dispute decision involving customers, and the connection between the regulatory authorities (particularly the Central Financial institution), monetary establishments and the customers have obtained rising consideration from the federal authorities and the regulatory businesses.

All through 2016 and 2017, for instance, the Central Financial institution prioritised monetary inclusion, and organised debates and boards to debate with students and trade individuals measures supposed to develop Brazil’s ranges of monetary citizenship and monetary inclusion.³

In December 2016, in accordance with pronouncements from the federal authorities, the Central Financial institution launched a tentative agenda of actions and factors of curiosity for the upcoming years (Agenda BC+). Agenda BC+ provided a glimpse of the short-, medium- and long-term actions that have been to be anticipated from the regulators and it was structured round 4 predominant pillars:

1. extra monetary citizenship;
2. extra trendy legal guidelines;
3. a extra environment friendly monetary system; and
4. cheaper credit score.⁴

Every pillar was based mostly on a central focal point and contemplated each inside and exterior measures to be taken by the Central Financial institution within the coming years. All through 2017, the Central Financial institution acted on a number of of the factors listed in Agenda BC+.

In 2019, the Central Financial institution launched Agenda BC#, including new dimensions to the unique pillars of Agenda BC+. Along with pursuing the discount of the price of credit score, the enhancement of banking regulation and the effectivity and competitiveness of the nationwide monetary system, Agenda BC# began to concentrate on three extra dimensions: inclusion, competitiveness and transparency. In 2020, one other pillar was added to Agenda BC#: sustainability. As such, the principal aims of Agenda BC# can now be summarised as follows:

1. inclusion: to bolster total entry to monetary markets;
2. competitiveness: to foster competitors inside each the nationwide monetary system and the funds system;
3. transparency: to extend the standard and circulation of data offered by the monetary markets and the Central Financial institution;
4. schooling: to encourage financial savings and promote percipient participation within the monetary markets; and
5. sustainability: to facilitate the discount of socio-environmental and local weather dangers inside the monetary markets and the broader financial system, by selling sustainable finance.

Legislative and regulatory framework

Shopper financing actions are extremely regulated in Brazil, being topic to each banking and shopper legal guidelines and laws.

i Banking authorized and regulatory frameworkGeneral features

Brazil has a complicated and stable banking system, though it’s topic to a comparatively pro-consumer regulatory framework.

The Brazilian monetary system in its present format was established in 1964 by federal Legislation No. 4,595/64 (the Banking Legislation), which units out the bottom guidelines for its infrastructure and regulatory framework. The Banking Legislation assigned the authority to manage and oversee native monetary establishments, in addition to to outline regulatory coverage, to the Nationwide Financial Council (CMN),⁵ the Central Financial institution of Brazil (the Central Financial institution)⁶ and the Securities Trade Fee (CVM).⁷ The Banking Legislation established the premise for the Central Financial institution’s function as the first regulatory authority governing the monetary system, and this was later confirmed and expanded by the Brazilian Structure of 1988.⁸

Regardless of the a number of legislative enactments that adopted the Federal Structure, the Banking Legislation stays essentially the most vital legislation within the regulatory construction of the Brazilian monetary system. Among the many vital legal guidelines integrating the regulatory framework of the Brazilian monetary system are:

1. Legislation No. 4,728/65 – the Capital Markets Legislation;
2. Legislation No. 6,385/76 – the Securities Legislation;
3. Legislation No. 7,492/86 – the White Collar Crime Legislation;
4. Legislation No. 9,613/98 – the Anti-Cash Laundering Legislation;
5. Legislation No. 6,024/74 – the Liquidation Legislation;
6. Decree-Legislation No. 2,321/87 – the RAET Legislation;
7. Legislation No. 9,447/97 – the Joint-Legal responsibility Legislation; and
8. Legislation No. 13,506/17 – the Administrative Procedures Legislation.

Along with the aforementioned authorized framework, the Brazilian banking system is certain to implementing resolutions issued by the CMN in its function as regulatory authority, and supplementary laws issued by the Central Financial institution in its function as regulatory and supervising authority. Whereas the CMN resolutions set the insurance policies and pointers for the monetary system, the Central Financial institution laws serve to ascertain the technical particulars for implementation of the CMN resolutions.⁹

Efficiency of shopper financing actions

The Banking Legislation and ancillary authorized and regulatory framework don’t present a authorized definition of the phrase ‘financial institution’. The people or authorized entities (both non-public or public) which have as their major or ancillary exercise the elevating, intermediation or funding, or custody of their very own or third-party funds are thought to be ‘monetary establishments’. The efficiency of such actions is unique to monetary establishments and topic to prior and categorical authorisation by the Central Financial institution on a case-by-case foundation.

Because of this, banks are outlined by way of their permissible capabilities. The Brazilian banking authorized and regulatory framework recognises 4 classes of banks:

1. industrial banks;
2. multiservice banks;
3. funding banks; and
4. improvement banks.

Shopper financing actions are typically carried out by industrial banks or multiservice banks with a industrial financial institution licence. The actions of business banks (which additionally apply to multiservice banks with a industrial financial institution licence) are typically in step with the capabilities of such banks worldwide and embody granting of rural credit and private loans (together with shopper financing), receipt of deposits, providing checking accounts, offering short-term lending, assortment of commerce acceptance payments and different credit score paperwork, and accepting and processing utility invoice funds.

Shopper credit score corporations are additionally extensively engaged in shopper financing. Shopper credit score corporations, though not thought to be banks, are deemed monetary establishments beneath Brazilian legislation and, subsequently, are topic to the CMN’s and the Central Financial institution’s regulatory authority. These entities have the first objective of financing working capital and the acquisition of products and companies and, consequently, are sometimes shaped with the particular objective of partaking in shopper financing practices.

The opposite entities which will often interact in shopper financing or comparable actions are credit score unions and leasing corporations, each additionally deemed monetary establishments albeit not categorized as banks. Credit score unions are monetary establishments organised as non-profit autonomous associations of individuals (people or authorized entities) for the primary objective of extending credit score and offering companies to their members. Leasing corporations primarily interact within the leasing of movable belongings and actual property.

Moreover, in 2018, the Central Financial institution issued the primary fintech regulatory framework in Brazil, pursuant to which it created two new forms of monetary establishments designed to grant credit score by way of on-line channels: the direct credit score corporations (SCDs) and the credit-among-individuals corporations (SEPs). The principle distinction between the entities is that SCDs function within the credit score market utilizing their very own capital, whereas the SEPs function as peer-to-peer platforms linking lenders and debtors. None of those monetary establishments are authorised to obtain deposits from the general public.

The excessive ranges of acceptance of this new regulatory framework resulted within the Central Financial institution taking extra steps in the direction of discussing, reviewing and updating monetary companies regulatory frameworks affected by new applied sciences. In 2020, the Central Financial institution issued laws implementing Pix, an on the spot funds system that makes use of know-how to impact and clear cost transactions 24/7.

All through 2021, the Central Financial institution additionally applied different laws geared toward strengthening competitiveness and monetary inclusion within the nationwide monetary system, together with:

1. open banking and open finance (together with a slew of associated monetary merchandise, akin to capital markets investments provided by way of the Brazilian securities distribution system and insurance coverage and reinsurance) rules and regulatory pointers and obligations supposed to empower prospects in respect of their monetary knowledge and to permit sharing of buyer knowledge between establishments upon the shopper’s request; and
2. a regulatory sandbox infrastructure that works as an experimental setting for revolutionary fashions utilizing know-how which will require regulatory waivers for applicable testing.

Shopper protection-oriented banking regulation

In 2021, the CMN and the Central Financial institution issued the next resolutions, establishing the insurance policies and procedures to be adopted by monetary establishments and different regulated entities of their relationship with customers, and which got here into drive in 2022: CMN Decision No. 4,949/21, relevant to monetary establishments and different establishments authorised to function by the Central Financial institution, and revoking CMN Resolutions Nos. 3,694/09 and 4,539/21 (previously the primary resolutions on this topic); and Central Financial institution Decision No. 155/21, establishing virtually an identical rules and procedures to be adopted by cost establishments and consortium directors regulated and supervised solely by the Central Financial institution (i.e., not by the CMN).

The brand new Resolutions set out new pointers and necessities with the objective of making certain honest and equitable remedy in any respect levels of the connection between customers and establishments offering monetary and funds companies, coupled with an alignment of the pursuits of those establishments with these of their customers.

Pursuant to CMN Decision No. 4,949/21 and Central Financial institution Decision No. 155/21, Central Financial institution-regulated entities should put together and implement an institutional coverage on relations with customers. This new coverage has the aim of unifying pointers, strategic aims and organisational values, in order that the conduct of the establishment’s actions is oriented by core rules akin to duty, diligence, ethics and transparency, in step with the institutional aims of Agenda BC#. Additionally they present that the regulated establishments should point out to the Central Financial institution a selected statutory officer liable for complying with the obligations offered beneath the brand new guidelines, which can allow the Central Financial institution to sanction the indicated officer, in addition to the establishment, for non-compliance with the brand new pointers.

Lastly, the foundations may also impose different obligations on the regulated entities inside their scope, akin to compliance with suitability and transparency guidelines.

On this sense, the Central Financial institution applied, all through 2021, an open banking and open finance regulatory framework and pointers, with the target of empowering the purchasers in respect of the possession, use and switch of their knowledge. This regulation follows the enactment of the Brazilian Common Knowledge Privateness Act in 2018.

ii Shopper authorized and regulatory framework

As a rule, shopper relations in Brazil are ruled by Legislation No. 8,078/90, referred to as the Shopper Safety Code. The principles of the Shopper Safety Code apply solely to cases the place, on the one hand, there’s a provider, supplying a product or offering a service beneath a contract and, however, an finish person. In contrast to in different jurisdictions, in Brazil the legislation doesn’t present a transparent definition of the time period ‘shopper’.

At the moment, there are two totally different faculties of thought concerning the idea of the ‘finish person’ as adopted by the Shopper Safety Code. The primary, referred to as the maximalist college, advocates that this idea assumes, in impact, a sensible perspective, which means that an entity or one who acquires a services or products and isn’t going to resell it to a 3rd get together ought to be thought-about an finish person of the services or products for authorized functions.

Thus, even when an entity or particular person acquires the services or products as enter for additional use in a producing course of, the entity or particular person ought to be thought to be the tip person of the provided services or products. The Shopper Safety Code and its related provisions would, subsequently, govern the connection between the tip person and the provider of the products or service.

The second college, the finalist college, holds that the idea of the tip person is financial in nature, to the extent that if the particular person or entity acquires inputs for additional use within the manufacturing course of, it shouldn’t be handled as the tip person of the provides.

Based on this second college, this relationship ought to be thought-about to be industrial in nature and, thus, ruled by Legislation No. 10,406/02 (the Civil Code). That is the place adopted by most Brazilian students.¹⁰

After quite a few conflicting choices on the matter, the Superior Court docket of Justice reached the conclusion that, as a rule, the person who acquires items or companies for use in its manufacturing chain in a for-profit exercise isn’t a shopper within the authorized sense of the phrase. However this, the Court docket has offered for exceptions to this rule; for example, in circumstances the place the tip person is susceptible in contrast with the provider (i.e., a taxi driver who acquires a automobile to make use of as his or her personal taxi), the unbalanced relationship ought to set off the protecting rule set out within the Shopper Safety Code.

Moreover, after intensive debates, the Brazilian courts have held that monetary services are topic to the Shopper Safety Code, so long as the counterparty to the settlement is thought to be an finish person, as described above.

On 15 March 2013, the federal authorities enacted Decree No. 7,962, offering normal steerage for e-commerce in Brazil. Equally to the Shopper Safety Code, Decree No. 7,962/13 units out very broad and high-level guidelines relevant to any type of services or products offered over the web.

Based on Decree No. 7,962/13, if a consumer-financing product is obtainable by way of digital means, the monetary establishment may also be required to make accessible an digital channel to deal with any requests or complaints regarding this product. As well as, the monetary establishment can be required to grant a statutory trial interval of seven days, throughout which the patron will be capable of forfeit the settlement with none price or cost.

On 2 July 2021, Legislation No. 14,181 was enacted, amending the Shopper Safety Code and the Senior Citizen Statute¹¹ to enhance provisions on the providing of shopper credit score and the prevention and remedy of over-indebtedness. The brand new Legislation created a chapter within the Shopper Safety Code devoted to accountable credit score provision and monetary schooling, stipulating particular info to be introduced to the patron within the context of providing credit score or instalment gross sales and together with the efficient month-to-month rate of interest, late cost curiosity and the full prices foreseen within the occasion of late cost. In one other innovation, the Legislation set out guidelines on info obligations for suppliers concerning the character and sort of credit score being granted, and taking account of the age of the patron.

The Legislation additionally created a chapter within the Shopper Safety Code coping with conciliation procedures in circumstances of over-indebtedness, whereby the over-indebted shopper might request the initiation of a debt renegotiation course of, with the patron being liable for submitting a cost plan proposal that preserves the patron’s minimal primary revenue. Unjustified non-attendance of the creditor or his or her lawyer on the conciliation listening to might droop the cost of the mortgage and interrupt the late cost prices. In circumstances of conciliation, the courtroom determination ratifying the settlement will set out the debt cost plan, which the courtroom may also implement. The debt renegotiation request could also be repeated solely after two years, counted from the date of the settlement of the obligations offered for within the cost plan. If the settlement course of is unsuccessful, the decide will, on the request of the patron, provoke proceedings for evaluate, consolidate the contracts involved and renegotiate the excellent money owed by way of a obligatory judicial plan.

In 2022, the federal authorities enacted Decree No. 11,150,¹² which lastly regulated the Shopper Safety Code in regard to the problem of preserving or discounting the minimal primary revenue, for the needs of prevention, remedy and conciliation in claims involving over-indebtedness.

Decree No. 11,150 established the minimal primary revenue of the patron as being equal to 25 per cent of the minimal wage in impact on the date the Decree was enacted (1,212 reais); nevertheless, the Decree additionally said that this quantity isn’t topic to vary in step with the annual adjustment of the minimal wage. Moreover, beneath the Decree, preservation of the essential minimal revenue shall not be thought-about an obstacle to the grant of a mortgage that’s supposed to exchange one other transaction or transactions beforehand contracted by the patron, so long as this substitution is geared toward bettering the patron’s monetary situation.

The Decree additionally units out primary shopper rights encompassing ensures of monetary schooling, accountable credit score practices and measures each to forestall and to treatment over-indebtedness, which can be enforced by way of mechanisms akin to debt renegotiation and judicial revision.

Ombudsman, complaints and dispute decision

Customers have a set of channels by way of which they’ll pursue complaints about monetary companies and merchandise, in each the regulatory and shopper spheres. The first and extra direct channels are the monetary establishment’s customer support division (SAC) and the ombudsman.

In accordance with Decree No. 11,034/22 (the SAC Decree),¹³ monetary establishments partaking in shopper financing actions are required to keep up a free call-centre SAC to obtain and deal with service requests from customers in respect of data, questions, complaints and suspensions or cancellations of services or products. The SAC Decree units out normal guidelines to be noticed by SACs, together with guidelines on minimal service ranges provided, availability of companies, disclosure of SAC contact info, dealing with of requests, and high quality of companies.

The up to date SAC Decree has launched quite a few improvements, together with the next necessities:

1. a assure of uninterrupted service (24/7) by way of a minimum of one of many built-in service channels, operation of which should be broadly publicised by the service supplier;
2. prohibition on broadcasting commercials throughout service ready instances, except the patron consents upfront;
3. better accessibility within the SAC channels maintained by suppliers, to be used by folks with disabilities, in accordance with pointers to be outlined by the Nationwide Shopper Secretariat (SENACON);
4. a assure as to the standard of the remedy of shopper requests, with due regard for the timeliness, safety, privateness and backbone of requests;
5. compliance with Brazil’s Common Knowledge Safety Legislation¹⁴ within the assortment, switch, storage, use and processing of customers’ private knowledge; and
6. a assure of customers’ proper to observe their calls for by way of numerical registration or one other kind of digital protocol, and assurance of entry to their request historical past, freed from cost.

Along with sustaining a SAC, monetary establishments partaking in shopper financing actions are required beneath Brazilian banking laws to have an ombudsman division. The present regime was up to date in 2020 by CMN Decision No. 4,860/20 to ascertain simpler and clear ombudsman companies able to offering higher help to establishment prospects.

Moreover, the aforementioned new regulation harmonises the scope of the ombudsman’s exercise with the SAC actions beneath the SAC Decree. On this context the ombudsman division has the next tasks:

1. to offer help as ultimate recourse to reply prospects’ calls for, after these calls for have been analysed by different customer support channels (together with banking correspondents and the SAC);
2. to function an interface between the establishment and its prospects, together with for dispute mediation; and
3. to report on its actions to the establishment’s administration.

Regardless of the remedy of any shopper grievance by the monetary establishment’s aforementioned inside channels, the patron can also register a grievance with the Central Financial institution’s particular channel. This channel isn’t the Central Financial institution’s ombudsman (which solely offers with complaints in opposition to the regulator itself) however, as an alternative, is a channel made accessible just for submission of buyer complaints. Any grievance filed by way of this channel won’t end result within the Central Financial institution immediately taking efficient motion in respect of a person’s case however, slightly, will solely enhance the Central Financial institution’s capability to oversee correctly the entity involved.

Any breach of a shopper’s rights also needs to be topic to a grievance introduced earlier than shopper safety businesses referred to as PROCONs. PROCONs have the authority to supervise shopper relations and maintain conciliatory hearings to advertise a settlement in disputes between customers and suppliers.

If a PROCON understands {that a} provider is adopting a industrial observe in breach of the legislation, it might institute an administrative continuing to analyze the observe. After the provider presents its defence, an administrative penalty could also be imposed if the PROCON decides {that a} breach was dedicated. The commonest penalty is a superb. The quantity of the superb varies relying on the seriousness of the infraction, the financial standing of the provider and the benefit obtained by the latter, as much as an quantity not exceeding 10 million reais. At the moment, there’s a invoice of legislation beneath dialogue that goals to extend the penalty quantity to as much as 2 per cent of the provider’s revenues within the previous yr.

Customers can also file particular person lawsuits in opposition to suppliers. For claims that don’t exceed the worth of 40 minimal wages,¹⁵ customers might carry a lawsuit earlier than the small claims courts. Small claims courts provide a simplified and expedited continuing.

If the declare exceeds the worth 40 minimal wages, then customers ought to carry the lawsuit earlier than a state courtroom, the place proceedings are extra time-consuming.