Since the second week of March 2021, the new law that sets interest rate caps was approved, despite the observations made by the executive branch, as well as the debate that was generated in Congress. But what is this new law about? Is it as good as it sounds or will it cause problems for users?
What is the law of interest rate caps?
Through Law No. 31143, Congress approved the setting of caps on the interest rates charged by financial entities; In addition, the implementation of the interest rate caps was left to the BCR.
Although it sounds that this law benefits users, everything is not as good as it seems; That is why the bill generated controversies between the same parliamentarians and representatives of the Ministry of Economy and Finance. In fact, spokespersons for the latter came out to say that the rule was unconstitutional, since it affected the financial inclusion process, so that, consequently, banks would grant fewer loans to users.
Next, we will talk about what this law implies and how it harms users.
What does the law imply?
- With the law, it is now the BCR that will set the minimum and maximum interest rates charged by financial entities, on a semi-annual basis. In other words, it will be the BCR who will regulate the market.
- The SBS must supervise that financial entities comply with the limit and sanction those who do not.
- The law prohibits the capitalization of interest, as well as the collection of penalties or interest for arrears.
How does the law affect financial entities and users?
With the application of this law free competition is eliminated. This law has already been applied to neighboring countries with negative consequences, not only for financial institutions, but also for users. And it brings the following drawbacks:
- It makes it difficult for people with fewer resources, as well as MYPES, to access loans with interest within the limit set by the BCR, due to their risk profiles.
- If the maximum rate set by the BCR does not offset the costs and profitability estimated by financial institutions, they will choose not to provide loans or credits to higher risk clients, for example, SMEs.
- If the maximum limit of the financial institution exceeds that established by the BCR, it will be classified as a crime of usury.
- Clients who cannot access loans or credits from entities regulated by the SBS will have to go to non-bank lenders, who charge higher interest than entities regulated by the system, before the application of the law.
Due to the negative effects of the new law, it remains to wait for the President of the Republic to file an unconstitutional action against the norm. This would be necessary so that the new norm does not affect populations with fewer resources. Another solution could also be for the BCR to set high ceilings.