Addressing the Urgency of Reform: The World Bank’s Scoping Note on Brazil’s Financial Consumer Protection Framework

The World Bank Urges Brazil to Reform Financial Consumer Protection Regime

In a scoping note prepared by experts at the World Bank, Brazil’s Ministry of Fazenda has been urged to prioritize the reform of the country’s financial consumer protection (FCP) regime. The note, authored by Gian Boeddu and Sergio Mesquita under the guidance of Gabriel Sensebrenner and Yira Mascaro, highlights the pressing need for changes in light of the growing challenges faced by financial consumers in Brazil.

Despite significant progress in financial inclusion, with the rapid adoption of the PIX payment system and a notable increase in account ownership, issues such as fraud, scams, over-indebtedness, and mis-selling of financial products continue to plague vulnerable groups, particularly women and younger consumers. The Desenrola Program, a government initiative, has made strides in addressing these issues, but over 72 million Brazilians still find themselves in default, indicating the inadequacy of the current framework.

The rapid growth of Brazil’s financial sector, fueled by innovations like the PIX payment system and the proliferation of digital payment accounts, has introduced new risks for consumers. The widespread use of credit cards, with interest rates exceeding 1,000% annually for some, and the prevalence of payroll loans tied to government benefits have contributed to rising debt levels and financial strain among vulnerable populations.

The current FCP framework in Brazil, governed primarily by the Consumer Protection Code (CDC) enacted in 1990, is deemed outdated and ill-equipped to address the complexities of modern financial products and services. Regulatory oversight is fragmented among various bodies, leading to gaps in enforcement and accountability. External dispute resolution mechanisms for financial consumers are also limited and inconsistent, leaving many grievances unresolved.

The World Bank proposes a comprehensive reassessment of Brazil’s FCP framework, including updating the legal and regulatory structure, enhancing market conduct supervision, and creating robust external dispute resolution mechanisms. Transparency and stakeholder engagement are emphasized, with a phased implementation strategy recommended to ensure effective and inclusive reforms.

By building a safer and more inclusive financial system through structured reforms, Brazil has the opportunity to set a global benchmark for emerging economies facing similar challenges. The World Bank’s scoping note serves as a call to action for Brazil to prioritize consumer protection and ensure that financial inclusion benefits all citizens while safeguarding them from harm.