The new interest rate rules for credit card revolving and overdraft are designed to reduce delinquency, but they may run out of finances and have the snowball effect on the family and business budget.
In June and July 2018, respectively, the rules for minimum credit card payment change and an alternative overdraft facility begins to apply.
On the card , banks can now define the minimum payout percentage on the invoice. With overdraft , consumers who compromise more than 15% of the limit for more than 30 days in a row will have access to a cheaper line of credit.
In theory, the goal would be to reduce default rates on these lines of credit and make the financial lives of clients healthier. But in practice, this change can increase debt.
What is overdraft?
It is the pre-approved credit available at any time in the checking account, also called “limit”. It can be used whenever there is not enough balance to pay bills, checks or cash withdrawals.
What changes in overdraft?
In the case of overdraft , the self-regulation defined by Febraban (Brazilian Federation of Banks) aims to reduce the cost of credit to bank customers and improve the use of overdraft, in addition to lowering interest rates in this modality.
This means the customer may have access to lower bank interest rates. It remains to be seen, however, how much lower these rates will be, as each bank will be able to set their own.
The contact that banks will be required to make may work to arouse the person to the overdraft problem before it is too late. Prior to the change, as it is a “silent” credit line, the customer could be using it even unknowingly.
With the new rule, upon receiving the offer from the bank, the customer will have the opportunity to become aware of their financial health. The installment offer will be made within 5 business days after 30 days of use of the limit, through the service channels used by banks, such as ATM, application and internet banking.
What is revolving credit?
This is the credit used by the person who does not pay the full invoice amount by the due date. Anyone who pays less than the full amount, or does not pay the invoice, has the remainder of the amount automatically calculated at the revolving credit rate and posted with interest on the next month’s invoice.
And what are the new rules for credit card?
In the case of the card, the new minimum payment rule was imposed by the National Monetary Council (CMN). Banks are expected to reduce – not raise – the minimum card payment percentage: in the face of a lower requirement, the chances of the customer failing to honor the minimum payment fall.
On the other hand, by lowering the minimum percentage to less than 15%, banks can make room for up to 100% of the invoice to be rolled over at an interest rate that, despite showing a downward trend, is still high.
That is, although it has the potential to reduce default rates on this type of credit, the measure can also increase the risk of debt through the so-called “snowball”.
It is important that the communication of financial institutions with the consumer is clear and that the customer does not understand the reduction of the minimum payment as an opportunity to pay nothing. In fact, 30 days later, he will have to settle or split this amount, since since last year the customer can not spend more than 30 days in the revolving.