By Marcela Ayres and Bernardo Caram
BRASILIA, Oct 20 (Reuters) – Brazil’s central bank is preparing a package of measures to curb rising household indebtedness, including stricter disclosure requirements for lenders, while studying foreign regulatory models that limit access to unsecured credit based on borrowers’ income, two people involved in the discussions told Reuters.
The move reflects growing concern among policymakers over household debt levels and the rapid expansion of unsecured lending. The central bank has already signaled it plans to unveil measures to tighten oversight of unsecured credit, including credit card lending.
According to the people familiar with the discussions, who spoke on condition of anonymity due to the private nature of deliberations, the measures are expected to be rolled out gradually, with any increase in capital requirements unlikely to feature in an initial package.
The central bank declined to comment.
The review comes as household finances have become a central issue in Brazil’s presidential campaign, with President Luiz Inacio Lula da Silva rolling out measures aimed at boosting consumers’ purchasing power amid record consumer indebtedness in Latin America’s largest economy.
Lula unexpectedly finished behind right-wing Senator Flavio Bolsonaro in the first round of voting, setting up a runoff on Sunday. Recent polls show Bolsonaro is narrowly favored to win.
While digital channels have broadened access to credit and lowered borrowing costs in Brazil, they have also made it easier for loans to be marketed, approved and disbursed faster than ever, raising questions about responsible lending practices.
One proposal under consideration would require lenders to conduct more rigorous assessments of borrowers’ financial circumstances before extending credit. Authorities are also considering stronger disclosure rules to give consumers clearer and more accessible information about loan terms before signing contracts, said one source.
As part of its review of international experience, the central bank has examined frameworks adopted in several jurisdictions, including Singapore, which one of the sources described as a successful example.
Singapore limits unsecured borrowing, including credit card debt, for lower-income consumers.
Individuals earning up to around 30,000 Singapore dollars ($23,435) a year can generally hold unsecured debt equivalent to up to two months of income, while the cap rises to four months of income for those earning between 30,000 and 120,000 Singapore dollars.
No such limit applies to higher-income earners. The country also imposes income and asset-related requirements for access to certain credit products.
A second source said the discussions had been guided by two concepts widely used in more developed credit markets: affordability and suitability.
In practice, that means assessing not only whether borrowers can reasonably service a loan without undue strain on their finances, but also whether the credit product being offered is appropriate for their circumstances and needs.
($1 = 1.2801 Singapore dollars)
(Reporting by Marcela Ayres and Bernardo Caram; Editing by Brad Haynes and Stephen Coates)
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