Amid Brazil’s eco­nomic cri­sis, con­sumers strug­gle with debt


Fran­cisco Xavier emerges from a pay­day loan shop, his brow more fur­rowed with worry than when he en­tered. His loan re­quest was de­nied, and he has no idea how he is go­ing to pay out-of­con­trol bills, in­clud­ing credit card pay­ments that gob­ble up nearly half his monthly in­come.

Xavier, a taxi driver, is among the rapidly bur­geon­ing ranks of “su­per debtors” — peo­ple who rose into the mid­dle class dur­ing Brazil’s nearly decade-long boom, but now find them­selves drown­ing in debt as Latin Amer­ica’s largest econ­omy stalls, caus­ing in­fla­tion to heat up and un­em­ploy­ment to rise.

Brazil’s top credit in­for­ma­tion bu­reaus es­ti­mate that as of April, more than 55 mil­lion Brazil­ians were be­hind on pay­ing off credit cards or loans. That’s 37 per­cent of the adult pop­u­la­tion in a coun­try of about 200 mil­lion peo­ple, and the num­bers are ris­ing. Ac­cord­ing to the SPC credit in­for­ma­tion bureau, the lists have grown by an es­ti­mated 700,000 peo­ple since Jan­uary, when the top credit bu­reaus be­gan work­ing to­gether on com­bined lists for the first time.

So­raia Panella, co­or­di­na­tor of cus­tomer ser­vice at Rio de Janeiro’s Pro­con con­sumer pro­tec­tion agency, said she rou­tinely sees peo­ple living so close to the edge fi­nan­cially that any sud­den mis­for­tune can plunge them into a hole from which it’s nearly im­pos­si­ble to climb out.

Af­ter peak­ing at 7.5 per­cent an­nual growth in 2010, Brazil’s econ­omy has steadily re­treated. And this year, it con­tracted 0.2 per­cent in the first quar­ter and is fore­cast to fall more than 1 per­cent for the full year.

The boom was fu­eled partly by China’s hunger for Brazil­ian com­modi­ties, such as iron ore and soy. But the left-lean­ing gov­ern­ments of Pres­i­dent Dilma Rouss­eff and es­pe­cially her pre­de­ces­sor, Luiz Ina­cio Lula da Silva, also re­lied heav­ily on con­sumers for growth for about a decade. Among other things, the gov­ern­ment used tax breaks to enou­crage car sales, ended a tax on big-ticket house­hold goods, slashed in­ter­est rates and gave in­cen­tives to banks to ex­pand credit for lower-mid­dle class Brazil­ians.

Do­mes­tic con­sump­tion, which in 2004 ac­counted for 53 per­cent of Brazil’s GDP, rose to 63 per­cent of the to­tal in 2014. Con­sumers newly armed with credit cards and tax-break in­cen­tives snapped up flat-screen TVs, re­frig­er­a­tors, mo­tor scoot­ers and com­pact cars.

With ac­cess to easy credit and a tra­di­tion of pay­ing for small-ticket items like ten­nis shoes or even gro­ceries over sev­eral monthly in­stall­ments, Brazil­ian con­sumers racked up such large bills that nearly 30 per­cent of dis­pos­able in­come now goes to ser­vic­ing debt, the Cen­tral Bank says. By con­trast, con­sumer debt ser­vic­ing in the U.S. ac­counts for just over 5 per­cent of dis­pos­able in­come, ac­cord­ing to the Fed­eral Re­serve.

That debt threat­ens to push some of the new mid­dle class back into the ranks of the poor. The gov­ern­ment’s Agen­cia Brasil news agency re­ported late last year that the num­ber of peo­ple in ex­treme poverty rose in 2013 for the first time in a decade, in­creas­ing 3.5 per­cent over the pre­vi­ous year. Fig­ures for 2014 are not yet avail­able.

Much of the prob­lem, an­a­lysts say, lies in credit cards, which have been ag­gres­sively mar­keted to lower-in­come con­sumers.

In­ter­est rates on Brazil­ian credit cards are as­tro­nom­i­cal, av­er­ag­ing around 200 per­cent a year, com­pared to about 12 per­cent in the U.S. Banks say the high rates are jus­ti­fied be­cause they lack data on in­di­vid­u­als’ credit rat­ings, while crit­ics con­tend banks are sim­ply goug­ing cus­tomers. What­ever the cause, it means that one late pay­ment can eas­ily snow­ball into a gi­ant debt.

“Credit cards are my temp­ta­tion,” said Xavier, the taxi driver. Ap­pli­ances, fur­nish­ings for his new apart­ment and im­pulse splurg­ing on things like cloth­ing and per­fume led to credit card pay­ments that eat up half his roughly US$2,000 monthly in­come. Af­ter rent and sup­port for his four kids, Xavier said he is left with nearly noth­ing but re­gret at hav­ing the cards.

Years of hy­per­in­fla­tion in the early 1990s ha­bit­u­ated Brazil­ians such as Xavier to spend im­me­di­ately lest they see the value of their money shrink overnight.

Rio res­i­dent Paulo Du­tra Alves, whose only in­come is a US$254 a month dis­abil­ity check due to a bad back, said his qual­ity of life is crum­bling.

Af­ter doc­tors di­ag­nosed a her­nia, Alves turned to a pay­day loan shop to pay for new medicines and cover back rent. With in­ter­est, that US$540 loan has bal­looned to US$1,325 in just a few months. He has no idea how he’ll pay it back and fears he’ll soon find him­self living on the street.


In this Fri­day, June 12 photo, a woman is seen through the win­dow of a store as she looks at dresses for sale in Rio de Janeiro, Brazil.

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