Credit-card binge leaves many Brazilians deep in debt

SÃO PAULO, Brazil — With a stable job as a home health worker, Maria Conceição decided it was time to live a little.

So when a local retailer offered her the chance to buy some appliances on credit, she pounced. Using installment plans, she snagged a new stove, a radio, a TV and a cellphone.

Then came the bills. The payments cut so deeply into her $850 monthly salary that Conceição ended up defaulting. With her credit history now trashed, she’s back to paying cash for everything.

“In the end it drained my cash and left me hanging,” said Conceição, 53, of her credit binge. “They encourage you to take on debt here. But never again.”

Stories such as Conceição’s are increasingly common in South America’s largest country, whose economy has been fueled in recent years by consumer spending — often financed at sky-high interest rates. Economists say many shoppers have reached the limits, and many in Brazil are waking up to a credit hangover.


Government-controlled banks led the charge, issuing payday loans and credit cards to juice consumption and help power the nation through the 2008 financial crisis. Private banks got in on the act, helping to expand loans for cars, household appliances and electronics.

Credit soared. Over the last five years, the ratio of outstanding debt to gross domestic product jumped to 56% from 31%. But in a country where credit cards have annual interest rates of 120% or more, defaults have risen and credit expansion has slowed, particularly among the middle class and working poor.

“Credit arrived for all classes, even those that had never had it before. And there’s been a huge push for people to take on debt, since it increases our GDP,” said Vera Lúcia Remedi Pereira, executive advisor and specialist in debt at São Paulo’s consumer protection agency. “It’s very common for honest people to find themselves unable to even make their minimum payments.”

Until recently, credit was off-limits to average people. More than 40 million Brazilians have risen from poverty since center-left Luiz Inácio “Lula” da Silva took over as president in 2003. His administration urged state banks to open up the spigot to consumers, an emphasis that continued under his successor, Dilma Rousseff.

Economists say Brazil’s government was right to expand consumer credit as a stimulus during the crisis. But many say the country would have benefited more from higher state spending on education, healthcare, roads and other infrastructure to raise living standards over the long term.

Such investments are difficult in Brazil, which has a history of corruption and inefficiency, said Tony Volpon, head of emerging-market research for the Americas at Nomura Securities in New York.

“They just can’t get themselves to invest,” Volpon said of the government. Supplying “credit for consumption … was just easier.”

Meanwhile, some consumers have discovered that “easy credit” can get tough.

Remedi Pereira of the consumer protection agency said many Brazilians fell prey to “abusive” practices that she’d like to see outlawed. Interest rates are often hidden or not mentioned, she said. Big signs at many retailers woo buyers with low monthly payments. But the small print reveals the products can end up costing consumers double the cash price once interest is factored in.

Farmworker José Everaldo da Rocha swore off credit after getting burned on a stereo purchase. Window shopping outside a retailer called Casas Bahia recently, he pointed to a sign advertising easy payments on mattresses.

“What they tell you the price is, that’s a lie,” the 51-year-old said. “I learned that the hard way.”

Retailers and bankers defend their lending practices, which have proved quite lucrative.

Itaú Unibanco, Brazil’s largest private lender, saw its stock price outperform Brazil’s Bovespa index 60% in the last five years. Retailer Magazine Luiza, a major retailer of electronics and home appliances which partners with Itaú, saw its revenues from its own credit cards jump to about $850 million in the third quarter, up 15.8% compared with the same period a year earlier.

“We’ve accompanied the rise of Brazil’s social classes by supplying services, products and credit, and that way we’ve been able to expand continually,” said Marcelo Silva, chief executive of Magazine Luiza. He said 80% of purchases at the company’s stores are financed and that default rates are low.

Although Brazil’s economy has slowed markedly from the boom years — 2013 GDP growth is projected to be a modest 2.4% — unemployment remains at a historical low of 5.4%.

Consumers continue to crowd the malls and shopping centers. But fewer are saying “charge it.”

On a recent morning, Maria Meres Felix Goncalvez, 29, lugged a flat-screen TV from Casas Bahias. The set cost her more than half her $1,900 monthly salary as a nursing technician.

She could have financed it. But she said she’d rather pay upfront than pay a lot of interest.

“I refuse to pay double price by taking on one of their plans,” she said. “I threw my credit card away.”