Opinion – Rodrigo Zeidan: Family goods as loan guarantee is one of the worst proposals to reduce interest rates

The bill 4188/21, which expands the possibility of attachment of family property by creditors as collateral for loans, may even lead to lower interest rates for some consumers, but that does not mean much. In institutional questions about the structure of the financial system, the effects that dominate are the second order ones, on the behavior of agents.

In this case, adverse selection and moral hazard would be insurmountable barriers to the benefit of society. In the current version of this new framework, approved in the Chamber and currently being processed in the Senate, the possibility of an increase in fraud and family conflicts is significant.

The guarantee aims to solve information asymmetry: the lessor does not have accurate information about the lessee and the guarantee limits the risks of a family that extends credit to others. But the business of banks is already acquiring information about their consumers.

It is good to remember that today family goods can already be given as a guarantee of lease and is subject to attachment in this situation. So an extension of the right to direct credits wouldn’t be a problem, right? Not quite.

Instead of the “freedom” of choice for consumers who can choose the property as collateral, the correct question is: who would use that option and how would lenders discriminate between good borrowers and bad borrowers? Are they responsible people who need cheap credit temporarily?

In an article published in Revista Brasileira de Finanças, I did an extensive review on the reasons that interest rates in Brazil are among the highest in the world (an excellent complement was published in the same issue by Klênio Barbosa). There is not a single factor, and the answer involves legal uncertainty, lack of competition (indirectly sponsored by the Central Bank, which left the market to focus too much), funding and opportunity costs, among others (this text is part of the campaign # ScientistWorking).

But the project should only transfer legal uncertainty from the real estate market to the credit market.
Worse, it creates a collateral management institution, which could turn into a monster. It would only work if there was no uncertainty about who really owns the property, but in the country of oranges and drawer contracts, can you trust that the real owners of the family property will use them to raise funds?

There is no plot from the financial sector. Banks are not real estate. In the past, banks were required to own their branches. On the first day that it became legal to sell them and start renting them, the banks mobilized to do so; in some cases, they entered into 30-year contracts. The current project is just poorly designed.

It is practically the rule that any minimally competent reform must be supported. After all, a worse balance than the current one, with chronic institutional backwardness and stagflation, is impossible. But the problem to be solved and the tool for it are so far apart that they make the input project useless. Worse, as political capital is limited, it looks like it was handpicked.

If approved, its perverse effects will only be felt for years to come. If not, the government will complain that they are blocking the “blessed reforms” in an election year. But that doesn’t make sense. Among the dozens of measures to reduce interest rates, the government chose one of the worst possible proposals. Looks like you did it on purpose.