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Central Bank proposes 12-month limit for interest-free installments

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Central Bank President Roberto Campos Neto discussed with representatives of banks and payment and retail companies a proposal to limit interest-free installment purchases to 12 installments and restrict the interchange fee for credit cards. The monetary authority presented the suggestion on Monday in a meeting with executives about a new model for revolving credit, sources say.According to sources familiar with the matter, Mr. Campos Neto asked the executives to simulate the impact of limiting the number of interest-free installments on their respective business models. The restriction to a maximum of 12 months, according to the design presented by the Central Bank, would be a first exercise.The new limit would come into force immediately, along with a gradual decrease in revolving and interchange interest rates.This is a starting point to understand how reduced installments would impact revolving credit interest rates, the factoring of receivables by card acquirers, and consumer spending. A new meeting was scheduled for two or three weeks from now when simulations on the proposal’s impact should be presented.The idea behind the proposal is that all the links in the credit chain must give up a little. Issuing banks want to reduce the payment period in those purchases, claiming that this payment method pressures default indicators, increasing credit card revolving rates.On the other hand, banks will lose revenue by limiting the interchange fee for card issuance. The Central Bank discussed limiting interchange fees years ago, but it did not proceed.Card acquirers, in turn, would lose part of their revenue by reducing the number of installments. They are the ones who advance these receivables to store owners. However, with 12 installments, they will still have a large slice of their pie preserved.Retailers will be able to largely maintain interest-free installments, which are essential today for household consumption. Only a few areas admit purchases to be paid in more than 12 installments, and they must adapt.Paulo Solmucci, president of the Brazilian Association of Bars and Restaurants (Abrasel), said there were differences in the room after Mr. Campos Neto asked whether everyone would agree to limit payments to 12 months. Some representatives were against it, others...

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