What’s the interest rate on your credit card? 20%? 30%? In Brazil, consumers face rates that make these figures look modest. Some credit cards in Brazil have rates that reach a staggering 450%. And no, that’s not a typo.

But change is here. Late last year, Brazil passed legislation to cap these exorbitant rates. As of January 3, 2024, the annual interest rate on credit cards cannot exceed 100%. In practice, this means a debt can only double.

A November 2023 study from the credit bureau Serasa reported that over one-third of Brazilian consumers are defaulting on their debts, with an average amount of just above BRL$5,000 (roughly US$1,000) owed to creditors. The total consumer debt in Brazil amounts to BRL$370 billion (approximately US$77.26 billion).

The current situation places consumers in a precarious position. While access to credit is vital for economic growth and personal finance, the high interest rates create a debt trap. A single missed payment can quickly snowball into an overwhelming financial burden.

The cap, though still high by global standards, marks a significant shift. It aims to alleviate the pressure on borrowers, suggesting a move towards more consumer-friendly financial practices. For lenders, however, this change demands a reevaluation of their business and risk models.

Whether the new law will lead to a healthier credit market or inadvertently tighten credit availability to consumers remains to be seen. The financial sector’s response to these changes will no doubt dictate what comes next.