By Eduardo Amaral Gurgel Kiss1
Brazilian monetary authorities have put in place a compulsory credit assignment system to be complied with by financial institutions ("FI"). As far as we know, there is no similar system in the world.
Such system aims at permitting individuals to reduce the cost of their loans, financings and leases.
In accordance with the applicable rule2, any individual that has a credit transaction with a FI is allowed to request the transfer of such credit to another FI which is willing to (i) accept the credit; (ii) pay the original creditor the amount due under the credit transaction.
So, individuals interested in reducing the cost of their debts and enjoying a sound track record and/or a good credit score may negotiate with a different FI a lower cost for its debt. If he/she agrees with that different FI on the terms and condition of the transaction, the FI interested in running the credit risk of that individual and willing to pay the amount due to the original FI, shall communicate its intent to acquire the receivable from that FI.
The original FI cannot refuse to transfer the receivable, - thus it is a compulsory assignment - provided that it receives the payment of the full amount due thereunder. Actually, the original FI has to supply to its clients upon their request all necessary data that will enable them to negotiate with another FI the terms and conditions that will prevail after the assignment. The original FI must present within one business day to a client that has requested all the following data:
- the number of the agreement:
- the updated amount due thereunder;
- a chart indicating the payment dates, the amounts paid and amounts still due;
- the type of transaction;
- both the nominal and the actual annual interest rate;
- the total and the remaining term of the existing transaction;
- repayment system;
- amount of each installment indicating separately the principal and interest; and
- term of the transaction.
Once the FI institution receives the information that its client wishes that the receivable be assigned to another FI, it may negotiate with its client a change in the terms and conditions of the existing transaction. Should there be an agreement between the FI and its client; the receivable assignment may be cancelled upon the client's request.
There is some expectation as to whether or not the new system will actually reduce the cost of loans, financings and leases to individuals. The answer will only be known within some months after the new rules are put in practice.
1 Demarest Partner of the Banking and Capital Markets Area
2 Resolution 4 292, of December 20, 2013, which entered in force on May 5, 2014.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.