Opinion – Maria Inês Dolci: Distortions in payroll loans put Brazilians in debt

As an idea, payroll loans seem brilliant: since the loan amount is automatically deducted from the paycheck or benefit of the account holder, the interest is much lower than those practiced in the financial market. But the credit card linked to payroll, pushed to account holders, distorts this financing mechanism, and threatens to increase the indebtedness of the poorest.

The Ministry of Justice announced, on August 25, that it will investigate 23 financial institutions to determine whether there was fraud in this type of card. The investigation is in charge of Senacon (National Consumer Secretariat). According to a complaint by Nudecon (Consumer Defense Center) of the Public Defender’s Office of the State of Rio de Janeiro, people have been harmed by the unauthorized issuance of cards and by charging interest on invoices with a discount from the minimum payment directly on the payroll.

That is, the money received by the consignee is posted as a withdrawal on the credit card. The payroll discount only pays the financing interest, and not the principal, subject to the high revolving rates.
And this is not the only problem linked to payroll loans. Daily, retirees and pensioners are bombarded with offers and scams, evidently, which are multiplying in Brazil.

Through WhatsApp messages, phone calls and email, scammers get in touch to, allegedly, register payroll-deductible beneficiaries, offer credit cards or other services. Sometimes, they ask for a cash deposit in a checking account to ‘release the payroll loan’, or ask for a bank card password.

In addition, retirees are pressured by family, friends and acquaintances to take out a loan. Therefore, they get into debt so that third parties can enjoy the money, and often they are not even reimbursed to cover the debt.

As there is practically no financial education for most Brazilians, many people confuse the ease of credit with a license to spend.

But the greatest risk of the destruction of finances is precisely in vulnerable people, assisted by Auxílio Brasil, the substitute for Bolsa Família. The decree that created this income transfer also regulated the granting of payroll-deductible loans to beneficiaries of the aid, within the limit of up to 40% of the benefit value.

For those who are in extreme poverty, and will receive R$ 600.00 per month until next December, committing almost half of the amount to a loan is literally taking food away from the plate. In addition, they should be aware of interest rates, which may be much higher than those charged to retirees.

Therefore, it is essential that the winner of the presidential race, who will take office in 2023, find time on the agenda to make consumer and financial education a reality in the country’s schools, and for there to be more controls over the operation of the consignments. If its measures result in more jobs, income, combating absurd interest rates and controlling inflation, it will be possible to reduce the record percentage of indebtedness, which reaches approximately 8 out of 10 families in the country.