Abusive Interest: What it is, how to calculate and not fall into this practice
You may have heard of abusive interest, right?
Paying interest is such a common practice that it has become the main source of Brazilian families’ expenses .
According to a survey by the Federation of Commerce of the State of São Paulo (Fecomércio-SP) , approximately R $ 354.8 billion in interest were paid in 2017 (last year surveyed) – a real increase of 11.8% last year.
According to the survey, the value surpasses expenses with food outside the home (R $ 291.3 billion), public transportation expenses (R $ 154.3 billion) and rents (R $ 129.9 billion).
The numbers are categorical and establish the complex relationship of wealth transfer between people and financial institutions.
An exchange that occurs solely because of the activity of banks and financial operators.
In many cases, the relationship between the public and financial institutions becomes predatory when excess interest is levied, either by granting high-risk credit or by abusive actions aimed at exploiting consumers.
This is how abusive interest is born , present in loans, installments of accounts or debts, financing and other financial operations .
In this article, we will clarify more about abusive interest, how to prevent and what to do if you fall victim to this type of practice.
What are abusive interests?
The practice of charging abusive interest occurs from the Middle Ages, when usury was practiced extensively, especially in Europe.
The practice of usury – lending money in exchange for a generally exorbitant interest rate – was commonly occurring until the end of the reign of Henry VIII (1547), and was only in vogue in the eighteenth century.
Throughout history, bankers and moneylenders have taken advantage of vulnerable individuals or situations of conjunctural economic instability.
Charging interest on loans is something that occurs in any society and can spread quickly and become a social problem.
Without good legislation and supervision that control interest rates on credit and other financial products, a situation of collective debt is created that can be dangerous for the economy.
The court uses the concept of the consumer’s exaggerated disadvantage vis-a-vis the financial institution to verify the abusiveness of interest rates, according to Article 51, IV of the Consumer Defense Code .
This Article of the CDC supersedes contractual clauses relating to the provision of products and services – including products of financial institutions such as loans and financing – and provides that any “obligations considered to be unfair, abusive, placing the consumer at a disadvantage, or incompatible with good faith or equity “become without legal value.
Thus, in cases of abusive interest, the Superior Court of Justice establishes that interest rates should be limited to the average market rate established by the Central Bank for that specific financial product.
This understanding, of course, requires a court decision and is not automatically regulated by the market, which may lead to interest rate abuses of certain products, such as real estate financing, credit card revolving credit and financial products considered high risk, such as “Negatives” – which can reach interest rates of up to 1000% per year.
How to know if the interest rate is correct?
A lot of financial companies use interest rates differing from what was advertised or what is expressed in the contract.
The most common practices include compound interest (interest on interest) with irregular evolution rates, or intentionally undue charges that, by questioning, are treated as a simple administrative error.
It should be made clear, however, that the collection of interest rates of amounts above what is described in the contract is illegal, and it is possible to denounce the company that performs this at the Public Prosecutor’s Office for committing a crime against the consumer.
On the website of the Central Bank, it is possible to have access to a calculator that shows if the interest charged is the same as those described in the agreement .
What to do about abusive interest rates?
After reviewing the agreement and using the Citizen’s Calculator on the Central Bank website, you will be able to know if the fees charged are irregular or abusive.
If this is the case, you must have legal advice from a lawyer and file a lawsuit in the Civil sphere known as the Revised Action to reduce or, in some cases, eliminate excessive interest rates.
The problem of a situation like this is that there are costs to file a lawsuit against a financial company.
If the costs are greater than the economy resulting from the leveling of abusive interest, this course of action may not be worth it.
You can not seek the Special Civil Court (popularly known as small claims court) to seek your rights in this case, because it is necessary to perform accounting expertise to base the action , which is outside the scope of the JCE.
What does the Consumer Defense Code say about abusive interest?
In addition to Article 51, item IV of the Consumer Defense Code (which we have already presented earlier in this article), the CDC also provides in Article 39, item V , that it is prohibited to provide products or services in an abusive manner by ” manifestly excessive . “
Therefore, according to the Consumer Protection Code, financial service providers are in breach of consumer protection by setting too high interest charges.
As the letter CDC (Law No. 8.078 of 1990) does not expressly define the amounts of what would be abusive interest, magistrates may apply the rules of common experience to prosecute the consumer , in accordance with Article 335 of the Code of Civil Procedure .
How to calculate abusive interest?
As we have already mentioned, the Central Bank has a tool aimed at finding out if abusive interest has been charged on your loan or financing agreement, which is the Citizen’s Calculator.
The Citizen’s Calculator is an application that simulates everyday financial transactions , such as credit card fees, fixed- income financing, future capital value, among others.
This application allows you to enter data for the financial product you purchased and find out the interest you should pay during the period, thus allowing a direct comparison with the interest you actually paid.
You can access the service on the Central Bank website , and there are Android and IOS applications in the Citizen’s Calculator.
How to secure a personal loan without abusive interest
Hiring a financial product with abusive interest rates is a matter of lack of knowledge about how banks, credit card operators and other companies that carry out financing and credit work.
That’s why many companies that practice abusive interest as part of the business model (informally of course) target people with low educational level.
So your biggest weapon to evade abusive interest, especially in hiring a personal loan, is knowledge : study interest rates, the effects of the economy on the financial product you have acquired (or are about to hire) and read the contract carefully before signing (do not forget to keep a copy).
Know the company in which you are applying for credit and, where possible, minimize the installments of your personal loan.
You can simulate a quick and easy personal loan at one of the most solid financial institutions on the market, the Credit Advisor !
What is Revisional Action?
When you are faced with abusive interest in your financial product, you can file a review of the terms of your contract, a practice that is called a Revisional Action.
Car, motorcycle and real estate financing, credit card bills, overdraft and personal loan are common demands for revision actions.
The Revised Action is a legal action that, as we have said, must be based on an expert report, which will attest to the abusiveness of the interest charged.
If the judge decides that the practice is illegal, the interest should be reduced to the average values practiced by the market (according to the Central Bank) and the amounts paid by the consumer in an irregular manner must be reimbursed.
In which cases should I request a Revisional Action for abusive interest?
There are a number of situations where a contractual review is possible, which makes it possible for the Review Action to be heard.
The most common is when the practice of abusive interest paid without default, exceeds that indicated by the Central Bank .
However, other situations are also possible from a Revisional Action such as:
Charge of credit opening rate (TAC)
Even extinguished by the Central Bank since 2008, it is still possible to find financial institutions that charge the customer the credit opening fee, a compulsory fee that was linked to the opening of the account and was intended to defray the customer’s credit research.
The charging of this tariff is prohibited and, therefore, may be the subject of a Revisional Action.
Third Party Services
The transfer of the costs that a bank or financial entity would have with third parties to the consumer in the form of fees or charges is prohibited, since they are costs inherent to the business activity, and is subject to a Revisional Action.
The practice of interest on interest is legally denominated as capitalization and is considered abusive. To identify this practice, simply calculate the monthly interest rate and multiply by 12, then check if the result is equal to the annual interest rate charged.
Even if capitalization is described in a contract, it may be grounds for filing a Revision Action.
Commission of permanence
The stay fee refers to the percentage charged when the consumer delays the payment of one or more installments.
Here the same rule applies to the interest rate: if the stay fee is higher than the average market rate, published by the Central Bank, it is considered abusive and may be the subject of a Revisional Action.
Marketable sale in financial transactions occurs when the consumer is required to purchase a product to close a contract or contract a service.
It can be a capitalization or insurance.
The practice is unlawful and it is a Proposed Action , which may result in double reimbursement for the values of the products or services that were sold together.