What is usury and what is happening today with the indebtedness of individuals?
It is an issue that we have been working on for a long time, from the moment the conditions were installed for us to be as we are today. I hope that the agreement to legislate on the subject is finalized. It is not the first time that he has reached agreements that end in the middle of the road, there are larger interests. Some time ago we tried to legislate on the interests of credit cards and we managed to vote unanimously in deputies, and we never managed to get the bill dealt with by the Senate. The banks negotiated with the government at that time of the Broad Front and in that negotiation they achieved something that was later called compulsory banking and after that banking, what they did was manage to keep a market that the banks always wanted, that they did not have and which was the consumer credit market. The banks bought all the important finance companies in the country. Today there are 5 banks that will camp 95% of the market. That caused the great problem that today is usury in Uruguay. I make this context because the laws did not change from 2007 to today. The only thing that has happened in these years from the financial point of view is that we have investment grade, for which the country obtains very low costs, that is, the money from the loans is obtained at a very low cost.
That is to say, we have investment grade and the country does not reach two digits of inflation, that is, there is no condition by which the bank rate must have risen, but what happened? Mandatory bankarization passed, and the banks that bought 100% of the finance companies. What does the usury law say? The law says that usury is calculated on the average bank rate. Usury is a crime in Uruguay. What does the legislator do? Put how far the crime goes, and that crime is calculated on the average bank rate. Banks can charge 50% compensatory interest, that is, the profit on the good money, and 90% on the default interest, that is, the interest that can be charged when the person does not pay. What happened in the country, in all of Latin America more or less the same thing happened, the average bank rate is around 30, 32% and that was what it was in Uruguay before the mandatory bankarization. What happened is that when buying the financial companies, the banks incorporate them as a business unit, add the financial companies, the credit card interest, and at the same time the Central Bank (BCU), by default, lets that happen. From my point of view, that is contrary to the law, but it is clear that there has been a double interpretation. Now what I want is for the average bank rate to be the rate of the banks and not the rate of the financial companies or of everything they buy outside the banks.
This has a simple explanation, within the bank there are all the market forces, that is, the millionaires have their money in the banks and press on a rate, then there are those who do not have as much force and press less. In this pressure, there is a balance that works like the market, that average rate incorporates everything that is within society, there is a balance and the rate is always lower, an issue that does not work like that in financial companies, because no millionaire, no that it has a guarantee, it goes to a finance company to pay 100 and some percent interest, in a bank it is paid between 8 and 6% as it currently happens.
This is a very well-armed chain, very well thought out and very well built, where people end up with a lot of debt. The profits of the financial system have gone through the roof.
Why are finance companies allowed to charge that level of interest?
Because the law allows it, and that is where we are working. The law allows it because when the banks bought the finance companies, they report to the Central Bank as if it were a single business unit. In the country, the average bank rate should be around 30% and has now risen to 140%. The compensatory rate is 140% plus 50%, which gave you 190%, the default rate reached 240%, which means that everything that the financial institution charges below 190% is allowed by law. They did not increase the rates, what they did was through the purchase of the financial companies, and the obligatory bankarization, they raised the average banking rate over the calculation rate. So this works in a very particular way, they made many believe, starting with the PIT CNT, that this was a very popular measure, where workers were allowed to enter bank accounts they had never had and they gave them credit cheap. This was the first big lie, first they kept the accounts of all the workers in a mandatory way within the banks, for which there is another discussion, the Clearing of Reports, it has been a tool for a long time if it does not expire, quite old, why what? Because today we are all inside the banks and the report happens inside the banks, we all have a category.
Within the banks we are category 1,2, 3, 4 and 5. Category 5 is because it is a very bad payer and your credits are practically cut off. This information works within the financial system, which is why financial companies and banks do not ask for reports from the Clearing, category 5 is not authorized for bank loans. The bank has the entire chain of loans, and it does so through the financial companies. A person asks for a loan at the Bank that has a cost, if he cannot pay it immediately so as not to be a “civilian death” and not stop paying the installment, you go to a financial institution, that is, when the Bank does not give you more money, it tells you to go to the financial institution if you want, people end up going to the financial institution to pay 20% or 30% more interest , and with that money he pays the bank fee. In other words, the Bank lent to the finance company, the finance company lends to the person, and with that money, the person pays the Bank’s fee. Then people go to other finance companies that lend up to category 3, category 4, there are even those that lend up to category 5, that is, to people who cannot pay. Loans that end up being non-recoverable and that are sold to law firms, which harass debtors in a totally abusive way, where they call her between 12 and 15, and up to 20 times a day, they call her relatives, her neighbors, to their co-workers, there is no legislation for these cases.
This is a very well-armed chain, very well thought out and very well built, where people end up with a lot of debt. The profits of the financial system have gone through the roof and that is why we have been saying for a long time, since this reality is not regulated by the market, there is no competition, it has become an oligopoly. Most of the advertisements from different houses have different commercial names but they belong to the same owner and when there is an oligopoly there is no healthy competition and for the general interest the Legislative Power must control. We have been in this fight for a long time, unfortunately although there are many people in agreement and when one explains things, which are not easy to understand, we have a high consensus and high support, but it is not possible to put the bell on the cat .
Today 100% of all the advertising of the financial companies that exist in Uruguay, in all the media, are misleading. None really tell people what they end up paying.
How many Uruguayan families have significant debt? Are there between 600,000 thousand and 1,000,000 Uruguayans in debt?
Yes, yes and more too, with different degrees of indebtedness, different degrees of compliance. And here the system also ends up being quite unfair, there are the good payers or those who try to make a huge effort to pay their bills at very high costs sometimes, and there are others who never pay. The reality ends up being that all of this is incorporated at a rate that skyrockets and we end up with a question that is what we have today of tremendous injustice. Why? Because there are people who bought a small appliance, fell behind and today owe millions, because of the calculation method. That is why we propose a law against usury, which not only implies regulating the average rate, there are many things here that are not regulated, or are regulated but are not controlled, and that is worse. Example, misleading propaganda, we put the issue within this law.
There are other laws that punish misleading advertising, I would say that today 100% of the advertising of financial companies that exist in Uruguay, in all the media, are misleading. None really tell people what they end up paying and the fee they pay. This is not different from what we see today with food, excess fat and excess sugar. This reality of the financial system, added to the harassment exerted by many law firms, leads people to death, there are many people who have a very bad time and who cannot sustain the pressure. Financial problems greatly influence the lives of families.
Could it be that there are interests that shoot up to 300% and 400%, a person who bought something for 30,000 pesos, wants to charge 300,000?
It all depends on how the interests are calculated, the years begin to pass and everything is in the way of calculating the compensatory interests. Debts of 30,000 pesos that end in debt of 1,000,000 and up to 3,000,000 million pesos. These debts are the ones that end up being claimed through law firms and people are unable to pay even if they want to.
Solutions to this situation? What does the Central Bank say, what does the Ministry of Economy say?
There we have a fight, we had it before, now we have a president of the Central Bank (Diego Labat) who recognizes the problem. Personally, I’m still worried. Why? In April 2021, a legal circular from the Central Bank comes out, which believes, in the same way that we believed, that the way in which banks report the average bank rate was inadequate. A circular was sent to all the banks, where it was said that as of January 2022, they should correct the irregularity, they sent a circular about something that is illegal and they are given 7, 8 and 9 months to correct. In other words, they issue a circular in April 2021 so that it can be carried out in January 2022. There is a specific acknowledgment based on the fact that the average bank rate cannot be reported adding financial and credit cards, the only thing that had to be reported was the average bank rate, that circular that had to be put into operation in January 2022, it was not put into operation. In January 2022, we met with the president of the Central Bank, all the members of the government coalition, to finalize the adjustments. Neither the adjustments nor the contributions matter, I don’t want it to be Daniel Peña’s law, but that usury be regulated. I have been as open as they have asked me to incorporate everything that is wanted to be incorporated and improved, what is necessary is to legislate quickly. In April, the president of the Central Bank told us that although what he wanted was for it to be regulated by law so that what he was saying would be clear, he promised to put the circular into operation so that it would be effective. Today is the end of July, the circular has not been put into operation. The excuse of the president of the Central Bank is to wait for legislators to finish the law, knowing that it is an issue that will not come out quickly and knowing that ultimately, there is always a legislator who is looking for “the comma and the period”. At the beginning of last year, he was very convinced that the issue was moving forward, I have been on this path for years. Unfortunately, I am no longer so auspicious, nor so optimistic, nor so happy that the issue is going to move forward. It is the force that those who have real power, the banks and their big business, always end up exerting, which ends up influencing the decisions of the Legislative Power and, unfortunately, I do not predict a great future on the subject.
