Usury is certainly nothing new, from the medieval Venice through Shylock and the dramas of Balzac —who spent his life writing books to pay off his debts— it consists mainly in making money out of money, even if you do not have it. Pecunia pecuniam parit, as it was described. But in modern Brazil it has evolved into a system with cutting edge computers, algorithms and state of the art invasion of privacy. In finance, we are in the age of the naked client. We are at present in a world of low interest rates, but Brazil banks are thriving in a completely different financial environment.
The figures are impressive. Average interest rates in commerce, for purchases in installments, was 60.10% in March 2013 and 72.73% in January 2021. For business (legal persons) the average interest rates were 43.58% and 41.25%, respectively. How can someone create any productive activity, pay this type of interest, pay back the loan, and still have profit? Credit card revolving credit was 192.94% in March 2013 and 257.10% in January 2021. Overdraft corresponding figures were 144.09% and 127.76%. All this for an inflation of less than 5%.
The numbers defy credibility. But they represent the Custo Efetivo Total —CET— or total real cost of credit for families and businesses in Brazil with very little change in the decade, and even rising with the pandemic when both families and businesses can be desperate for credit. The figures are presented in the traditional monthly interest rate report from ANEFAC, Associação Nacional de Executivos de Finanças, Administração e Contábeis.1 With the pandemic, desperate families and small businesses are expanding the use of revolving credit that presents the highest cost. Banking profits rose dramatically, including international banks, while the economy was brought to a recession (2015 and 2016) and to a standstill until the pandemic. In 2020 the GDP was reduced by around 5%.
In international meetings people ask me how can the population accept this level of usury. There are several reasons. During decades, inflation in Brazil was extremely high, reaching 80% a month, and understanding of interest rates with such variations of the future value of money simply vanished. People just paid what was charged. Another factor is that interest rates in Brazil are presented to clients in monthly rates, so that 127.76% overdraft is presented in banks as 7.10%, and very few people can calculate the composite yearly rate this represents. And, of course, financial calculus is excluded from the education curriculum, where we learn about glorious emperors but not how to manage a credit card. Only very specialized financial management courses teach how finance works. People just pay. As bankers in Brazil comment: “the poor keep their word, the rich have their lawyers."
The fact is that tying down families, small and medium enterprises and the government in a growing debt service trap is seldom clearly understood by the population in general. Traditionally, low wages are the chief mechanism of surplus extraction. In what Marjorie Kelly and Ted Howard call extractive capitalism, debt and rent seeking have become impressive new instruments, and money has changed. It is difficult to take a ten-reais bill out of the pocket of the poor, but now this population has bank accounts and credit cards, which means they depend on virtual, immaterial money. World-wide, cash printed by governments represents roughly only 3 per cent of liquidity, 97% are only registries in computers. It is not printed by governments, but basically emitted by banks. Charging 5% on tens of millions of daily credit card payments throughout the country, a toll profiting to banks, is very simple. Raising interest rates on millions of indebted individuals, or charging some new service, means the banks just press “Enter.”
Usury is not new in Brazil. In the 1988 Constitution, article 192 put a lid on interest rates, with a limit of 12% plus inflation, which would presently amount to around 16%. Hermes Zaneti, in his book O Complô, shows in detail how the financial system managed to take it out of the Constitution.2 The result is that the two-thirds of indebted adults in Brazil permanently contribute to the wealth of financial intermediaries, which explains figures such as the 42 wealthiest people in Brazil having raised their fortunes by 34 billion dollars during just four months, from march 18 to July 12 2020, while the economy was sinking. The Brazilian Central Bank’s report on financial citizenship concludes that “it is necessary to move in the direction of a more active, personal and constructive dialogue between Brazilians about the functioning of their financial system.”3 In 2021, Congress voted for the “autonomy” of the Central Bank, basically meaning it is more than ever in the hands of bankers.
Presently, banks have a very sophisticated system of debt renegotiation, through which the 25% of clients in personal bankruptcy can elongate their debt. Even if starting with a small credit, but with such high interest rates, clients become permanent prisoners of the banks, paying successive interest over former interest, and millions in Brazil have already paid many times their initial debt and continue working for the banks. Zygmunt Bauman states that “bankers hate good payers.”
It is also impressive that although many leading universities, research centers and economists have been denouncing the absurd usury scheme that came to dominate the country, the powerful commercial media just ignores the scam, and regularly presents interviews with economists belonging to “the markets”, with explanations based on the argument that high interest rates are necessary to protect the population from inflation, the remaining scare-crow for Brazilians in general. Conceição Tavares, a leading specialist in finance, is indignant: “We have surrendered to financialization, without any resistance… Brazil has become a rentier economy, which I most feared. It is necessary to make euthanasia of rentism, the most effective and perverse concentration of wealth.”4
The system is reinforced by the Serasa-Experian multinational corporation, which organizes detailed financial information on all credit clients, issuing a score on every person, thus leading to a financial transparency of the clients, but not of corporations. Banks and commerce have access to precise information about how far the cord can be stretched according to each individual client, and credit conditions are adjusted consequently. The information gap, widened by the presentation of credit in monthly rates, makes financial negotiations a trap. The 2021 breach in Serasa-Experian Brazilian information on citizens revealed names, social security numbers, income tax declaration forms, addresses and other private information on nearly all Brazilian citizens.
This system is made possible because 5 banks —Itaú, Bradesco, Banco do Brasil, Caixa Econômica Federal and Santander— control 85% of credit. Smaller institutions participate in the informal cartel, and credit conditions do not change significantly. The Lula administration did try to open an alternative through payroll credit, where payments are made directly to the creditors, thus drastically reducing risk. But even at this level, interest rates are around 28%. And it must be considered that the poorer mass of the population has no possibility of purchasing household appliances without credit.
Economic elites can certainly raise their share of the social surplus through low wages, but for this they must at least create jobs, while interest rates and different tariffs on the use of credit cards reach everyone, whether employed or not. In Brazil, with 212 million inhabitants, of which 150 million are adults, we have only 33 million formal jobs in the private sector. Adding the 11 million public servants we reach 44 million. Most of the adult population is either in the informal sector (40 million) or is unemployed (14 million) or is just too tired to keep trying. Thus, high interest rates tend to raise inequality in a country that is among the 10 most unequal in the world.
The Brazilian poor, roughly two thirds of the population, use about 90% of their income in direct consumption, and this stimulates the economy through mass demand of simple goods. The rich tend to reinvest in financial products, which drains the economy instead of stimulating it. Since the distributive policies have been reversed in 2014, the whole economy is stalled. This is not a strictly Brazilian situation, as can be seen with what happens with student debt in the United States, but in Brazil it has become a system, and it is working only for the happy few.
1 Anefac, Pesquisa mensal de juros.
2 Zaneti, H. (2017). O Complô. Brasilia: Verbena Editora.
3 Banco Central do Brasil. (2018). Relatório de Cidadania Financeira. p. 41.
4 Tavares, C. (2021). Restaurar o Estado é Preciso. January, 18.