This reality of what “income capture” means is best-illustrated by the following example of an elderly retired and indebted consumer, who on condition of anonymity, shared her story with Idec researchers. At the age of 73, she currently has 40% of her social security benefit committed only to payroll loan repayments.
The woman, who had to retire early due to a disability, began to receive another minimum wage after being widowed. However, by having the amount of the payroll credit debited directly from her account, when adding in the cost of rent and other bills she now only has R$ 230 reais (€35.50) a month left to spend on food and medicines. The woman reported to the researchers that she has moreover, been making continuous use of this of this type of credit for at least 15 years.
"In addition to social precariousness, the elderly are exposed to persistent harassment in the provision of payroll credit and aggressive marketing practices by banks, which takes advantage of the vulnerabilities of this age group, such as loneliness, ill health and the loss of consumer capacity,"explains Ione Amorim, Economist and Coordinator of the Idec Financial Services program, which conducted the case study.
Divided into four parts, the research seeks to draw attention to the direct relationship between the regulatory gaps with regard this type of credit and the deepening of the indebtedness of those extremely vulnerable consumers. To this end, Idec researchers focused on Brazilian legislation and made a comparative analysis with Mexico - a country that has some stricter rules and criteria for granting this type of credit.
"Idec intends to raise awareness, inform of and expose the relationship between indebtedness and the irresponsible payroll-deductible offers, which in theory should be used to democratize access to credit, but have, rather led to financial exclusion in the medium/long term. In addition, the study aims to hold legislators and regulators accountable and show the impacts that the absence of sound regulation has on people's lives," added Ione Amorim.
Payroll-deductible loans are the most profitable for banks, with significant attention paid to retirees and pensioners who receive up to 2 minimum wages. Repayments are debited directly and these types of loans are one of the personal credit lines that present more flexible and attractive conditions, such as more affordable interest rates.
On the other hand, the survey also shows that banks have looked at self-regulatory measures in this area, but they have proven to be insufficient to combat abuses related to payroll-deductible offers and consumer indebtedness. Furthermore, the study points to the need for norms that are capable of adapting existing rules with regard to the new system introduced by the Over-indebtedness Law.
"Unfortunately, the real case referred to earlier exemplifies the magnitude of the problem and how existing regulatory gaps can lead extremely vulnerable groups into debt. These aspects are not often widely reported to consumers who are victims of abuse and who have access to payroll-deductible offer,"said Ione Amorim. "Advancing measures of this nature is an urgent and necessary imperative for the prevention of and treatment of indebtedness in Brazil".