Finance | Brazilian Superior Court of Justice (STJ) Sets New Precedent Favored to Lenders on Defining Abusiveness of Interest Rates in Loans

In a recent court precedent in favor of lenders, such as financial institutions, fintechs and funds, the Brazilian Superior Court of Justice (STJ) accepted a request from a financial institution to declare that the abuse of interest rate in a consumer loan agreement cannot be identified by simply comparing it with the average rates practiced by the market, and the circumstances of the specific case must be taken into account.

The case concerns a class action filed by the Public Prosecutors Office against a Brazilian financial institution on the premise that the interest rates charged on the loans were above the average market rate, and that, for this reason, they should be declared abusive.

The defense of the lender sustained that, although the rates were higher than the average practiced by the market, this circumstance was justified by the type of transaction, whose consumers served were, for the most part, people with low credit score.

When evaluating the case, the STJ understood that transactions with a higher risk of default, for example, may justify interest rates higher than the market averages without this necessarily implying the recognition of abusiveness towards consumers.

The decision is an important milestone since Brazilian courts usually use the average market rate published by the Brazilian Central Bank as a parameter to determine the abusiveness of the applied interest, which ends up disregarding the differences between the different credit criteria practiced by the financial institutions and other market players.

This new understanding, when considering the assessment of a specific case to declare abusiveness, should reduce the possibilities of judicial review of the interest rates applied to the loans, also reducing related convictions, such as compensation for moral damages.

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