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Brazil: Recent banking soft-law

The Superior Court of Justice in Brazil (STJ), the highest court on non-constitutional matters, published 17 summaries of decisions on banking matters on December 30 2015

Rafael BaleroniLucas F Annes

The Superior Court of Justice in Brazil (STJ), the highest court on non-constitutional matters, published 17 summaries of decisions on banking matters on December 30 2015. These summaries create a consistent thread of decisions on matters that from time to time are brought before the higher court for adjudication, particularly after major devaluations. The more important decisions concern interest rates and contracts denominated in foreign currencies.

On the topic of interest rates, the STJ has confirmed the general freedom of financial institutions to charge interest rates deemed appropriate and financially reasonable, meaning not abusive. This discussion is relevant in Brazil because of diverging interpretations on the subject of interest rates. For instance, in the past there have been attempts to cap rates through a constitutional provision (already revoked). Some debtors still try to apply the Usury Law against banks (a 1933 Decree that caps interest rates to 12% per year) or to somehow limit interest rates to market benchmarks.

The STJ held that financial institutions are not subject to the Usury Law and in dicta has affirmed that, although a court may assess abusiveness in the calculation of interest rates, it is not up to the court to determine whether the level of interest rates is excessively profitable for the lender. Unless clear evidence confirming excessive burden and contractual imbalance exists in the specific case, the agreed-upon interest rates will be upheld and enforced. The STJ ruled out abusiveness for the sole fact that rates are above the 12% per year limit set forth in the Usury Law, or above the average market interest rate (as calculated and published by the Central Bank of Brazil). The STJ further detailed that judges have no discretion to use the so-called Selic rate, Brazil's short-term base interest rate to cap interest rates. These rates may, however, serve as a guideline to recompose the contractual balance in extraordinary circumstances, or if the contract does not expressly provide for an interest rate.

On the subject of contracts denominated in foreign currencies, the STJ has confirmed that the execution of certain agreements denominated in foreign currency is permitted even though the applicable law is Brazilian law, provided that upon liquidation the amount due is converted into Brazilian currency, and further provided that certain requirements under Decree 857, of September 11 1969 are met. Therefore, any contractual relationships comprising international elements such as cross-border loans, exchange contracts, import and export and assignments or modifications thereof may be pegged to a foreign currency.

Although the decisions do not have a binding effect, they harmonise case-law and increase legal certainty. As soft law, they represent the opinion of the STJ. This has strong persuasive power and influences the reasoning of the Brazilian courts, thus helping investors (both foreign and domestic) to understand and mitigate their risks.

Rafael Baleroni and Lucas F Annes

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