Chamber approves project that foresees SIGNIFICANT changes to vehicle loans and financing; know more

This week, the Chamber of Deputies approved the new Legal Framework for Guarantees, which promotes significant changes in the way assets, such as real estate and vehicles, are used as guarantees in loans.

One of the main changes is making it easier for banks to repossess vehicles in default situations. Furthermore, the project authorizes a property to be used as collateral in multiple credit operations.

Although originating from the administration of former president Jair Bolsonaro, the proposal is also supported by the economic team of the current president, Luiz Inácio Lula da Silva.

The project is in line with the measures announced by the Ministry of Finance, which aim to boost the credit market in the country.

With the implementation of this milestone, it is expected that strengthening the use of guarantees can result in a reduction interest rates by financial institutions and, consequently, in expanding the supply of credit. The validity of the legislation, however, still awaits presidential approval.

Brazil is the country with the greatest difficulty in recovering guarantees

A recent study by Febraban places Brazil in an unfavorable position when it comes to recovering guarantees, being the country that takes the longest and most costs in this process. According to research:

• In Brazil, only 0.146 cents are recovered for each dollar given as collateral, in situations where companies declare bankruptcy.
• In contrast, England has a recovery rate of 0.853 cents per dollar.
• Among emerging countries, the median is 0.416 cents per dollar – approximately three times higher than the Brazilian index.
• The average time for credit recovery in the country is four years, with a cost that can reach 12% of the total amount to be recovered.

Furthermore, the Brazilian Institute for Consumer Protection (Idec) warned, in July, that the new Guarantee Framework could increase the debt of Brazilian families.

Extrajudicial procedure for vehicles in case of default

The new legislative text on the use of vehicles as collateral brings significant changes to repossession procedures in cases of default.

Now, creditors have the option of proceeding with the recovery without the need for judicial intervention, and can carry out this process both at notary offices and at local traffic departments.

Paulo Noman, president of the National Association of Financial Companies of Automakers (Anef), clarifies that, although each bank has its specific rules, generally the judicial process for resuming vehicles pledged, under current legislation, begins after 120 days of default.

Agility in repossessing financed vehicles

With the new legislation that exempts the judicial process for the repossession of financed vehicles in case of default, the president of the National Association of Financial Companies of Automakers (Anef) predicts a “much faster” resolution of these cases.

Although the exact time for accelerating the procedure has not been specified, the use of notary offices and Detrans should represent a significant advance in the efficiency of this process.

Marcos Pinto, Secretary of Economic Reforms at the Ministry of Finance, recognized the pre-existing problems in recovering financed cars.

He points out that, due to current difficulties, good payers end up, indirectly, bearing the costs of those who do not honor their commitments. This fact results in higher interest rates for everyone.

The complete resolution of this process, culminating in the repossession of the vehicle due to default, can take from a year to a year and a half.