Brazil rate cap may deter banks from payroll loans

Why might banks lose interest in private-sector payroll credit?

Brazil's Central Bank statistics chief Fernando Rocha warned on Thursday (July 30) that capping interest rates on private-sector consignado (payroll-deductible) loans could reduce the product's appeal for financial institutions. Speaking at the presentation of first-half monetary and credit statistics, Rocha framed the concern in straightforward economic terms: price controls affect supply.

What are the new rules?

In June, the Managing Committee of Consignado Credit Operations published regulations allowing workers to use their FGTS (Severance Indemnity Fund) balance as collateral for cheaper loans. The interest rate on these operations is capped at 1.99% per month. Workers can pledge 35% of severance payments, 100% of the FGTS fine, and 10% of their fund balance as guarantees.

What does the data show?

Despite the regulatory uncertainty, the outstanding balance of private-sector payroll loans rose 3.8% in June versus May, reaching R$ 113.3 billion — a 143.1% surge over 12 months. Monthly disbursements, however, fell 1% to R$ 7.68 billion. Rocha noted that new lending has stabilised below R$ 8 billion per month. The average annual interest rate stood at 54%, up 0.1 percentage points from May but down 2.3 points over 12 months.

Is there any upside?

Rocha acknowledged that the Crédito do Trabalhador programme has "undeniable merits." Using FGTS balances as collateral improves the perceived security of each loan, which could push rates lower and stimulate new lending. He also said the market is maturing: after more than a year of operation, both lenders and borrowers are better equipped to assess credit conditions, which may naturally stabilise monthly disbursements.