The Banking Litigation Law Review: Brazil
Brazil is a highly litigious country. The number of civil lawsuits related to financial and banking litigation is significant and involves all financial institutions, such as banks, payment agencies, credit card companies, banking correspondents, investment funds and insurance companies.
Banking litigation typically arises from contractual default or disputes on financial transactions, interest rates, loans, improper charges, pricing and products, or services defects. The principal matters related to banking litigation currently under discussion before Brazilian courts are discussed below.
Significant recent cases
Monetary stabilisation plans
From 1986 to 1994, the Brazilian federal government implemented several consecutive monetary stabilisation plans (MSPs), to combat hyperinflation. To implement these plans, the federal government enacted several laws based on its power to regulate the monetary and financial systems as granted by the Brazilian Federal Constitution (the Constitution).
Holders of savings accounts during the periods when the MSPs were enacted have challenged the constitutionality of the laws that implemented those plans, claiming additional amounts of interest from the banks where they held their savings accounts based on the inflation rates applied to savings accounts under the MSPs. As a result, Brazilian financial institutions became defendants in numerous standardised lawsuits filed by individuals, consumer protection associations or public attorneys' offices in respect of the MSPs. Holders of savings accounts may collect any amount owing on account of a final decision.
The Federal Supreme Court (STF) has issued a number of decisions in favour of such holders but has not issued a final ruling with respect to the constitutionality of the MSPs as applicable to savings accounts. In relation to a similar dispute with respect to the constitutionality of the MSPs as applicable to time deposits and other private agreements, the STF has decided that the laws were in accordance with the Constitution. In response to this discrepancy, the National Financial System Confederation, an association of Brazilian financial institutions, filed a special proceeding before the STF,2 arguing that holders of savings accounts did not incur actual damages and that the MSPs, as applicable to savings accounts, were in accordance with the Constitution.
At the time of writing the matter is pending a final decision. Actions on the subject without a final judgment have been suspended since the STF recognised the general repercussion of the disputes and decided to judge four appeals assigned as 'leading cases'.3 This means that what is decided with regard to these appeals will be valid for the lawsuits presently suspended.
At the end of 2017, consumer protection associations – including the Brazilian Institute for Consumer Protection (IDEC), the Brazilian Association of Consumers' Rights and the Brazilian Savers' Institution – jointly with the Brazilian Bank Federation and the National Financial System Confederation, reached a collective settlement agreement with the purpose of solving disputes related to MSPs.
The settlement agreement provides for the payment, by the financial institutions, of the amounts corresponding to the inflationary purges of savings on behalf of consumers, according to the limits and criteria set forth in the instrument.
In March 2018, the STF's plenary session ratified the collective agreement within the appeals assigned as 'leading cases', to produce legal effects based on Article 487(III)(b) of the Code of Civil Procedure.4 According to the STF, the agreement will close collective actions related to the matter, as well as solve thousands of individual lawsuits filed by consumers who choose to adhere to its terms.
Recent legislative developments
In 2001, in order to improve the relationship between market participants and foster additional transparency, discipline, competition and reliability on the part of financial institutions, the National Monetary Council (CMN) established and consolidated a new set of procedures regarding the settlement of financial transactions and services provided by financial institutions to customers and the public in general.
These rules have been revised and are now consolidated in Resolution 3,694 of 26 March 2009, which was substantially amended in 2013, in 2016 and again in 2019. The aim of the regulations is to prevent risks of litigation in the contracting of transactions and rendering of services to clients. The CMN and the Central Bank have also been issuing regulations with respect to operational risk, in order to have stricter control and avoid litigation risks, following Basel Accord guidelines.
In Resolution 3,694, financial institutions must ensure that the following is provided in their transactions and services to customers:
- the products and services being offered or recommended are adequate for the needs, interests and objectives of clients and users (suitability);
- the transactions are carried out in a comprehensive, reliable, safe and confidential manner, and the transactions and services rendered are legitimate;
- the necessary information to allow for the client's and user's free choice and decision-making processes, including rights, duties, responsibilities, costs or advantages, penalties and possible risks when carrying out a transaction or rendering a service, is provided in a timely fashion;
- the client or user is provided with agreements, receipts, statements, advice and other documents related to the transactions and services, as well as the possibility of timely cancellation of the agreements in a timely fashion;
- clear, objective and adequate wording is being used, in relation to the type and complexity of the transaction or service involved, in contracts, receipts, statements, vouchers and other documents intended for the public, thus allowing for a clear understanding of the content and terms, values, charges, fines, dates, places and other conditions involved;
- an adequate instrument has been put in place to set out the rights and obligations concerning the opening, use and maintenance of a post-paid payment account;
- payment instrument is forwarded to the client's or user's residence or to enable the respective instrument only upon express request or authorisation; and
- the identification of final users' beneficiaries of payments or transfer in statements and bills of the payer, including in situations in which the payment service involves institutions participating in different payment arrangements.
With regard to point (c) above, when a deposit account or payment account is opened, it must be accompanied by a booklet containing essential information and it must, at minimum, explain the basic rules, existing risks, contracting and termination procedures, safety measures (including in case of loss, theft or hacking of credentials), and the method and timing for updating of record data by clients.
Financial institutions must disclose, on their own premises and at the establishments where their products are offered, in a visible place and in legible form, adequate information on the circumstances that give rise to refusal of payments or acceptance of cheques, payment slips, documents (including collection documents) and bills, among others.
Financial institutions are prohibited from refusing or impairing access to ordinary customer service channels (including cashiers) by clients and users of their products and services. These provisions do not apply to virtual establishments or to the provision of collection and receipt services arising from contracts or agreements that provide for specific customer service channels.
The option for providing services through alternative means is permitted, provided that the necessary measures have been taken to safeguard the integrity, reliability, security, safety and confidentiality of transactions carried out, as well as the legitimacy of services provided, with regard to the rights of clients and users, who shall be informed by the institutions about the existing risks.
All of these rules are set forth in a generic nature, and there is no specific guidance on their implementation, except for the day-to-day contact between the financial institutions and the Central Bank as the supervising entity.
In the event that such regulations are not observed, financial institutions are subject to administrative penalties issued by the Central Bank, in addition to liabilities in the civil sphere already discussed.
In June 2021, the Central Bank announced the development of a new information system called the Information System on Receivable Values, which will allow individuals and legal entities to check online amounts to be refunded by financial institutions as a result, among others, of fees or liabilities improperly charged by financial institutions that must be refunded as a result of a settlement agreements with the authorities or related to inactive accounts. Resolution BCB No. 98, which implemented the system, requires the financial institution to inform the Central Bank monthly or quarterly of amounts already refunded or to be refunded, so that the Central Bank may monitor the process more swiftly. This new arrangement is expected to be operational in December 2021 and will bring more transparency and facilitate the refund of amounts to consumers in the financial system.
ii E-payments Law
Over the past decade, the volume of transactions using payment instruments in the wholesale market increased significantly. In view of this, in 2013, the federal government enacted the E-payments Law,5 which provides the legal framework for 'payment arrangements' (i.e., the set of rules governing a payment scheme, such as credit or debit card transactions), and 'payment agents' (i.e., any agent that issues a payment instrument or acquires a merchant for payment acceptance), which became part of the Brazilian Payment System and subject to oversight by the Central Bank. Note that payment agents are not deemed to be financial institutions and are prohibited from engaging in activities that are exclusive to these institutions.
The E-payments Law brought within the scope of the CMN and the Central Bank supervision the entire market of credit, debit and prepaid cards that were not previously regulated.
Following the E-payments Law, the CMN and the Central Bank enacted a set of rules on payment arrangements and payment agents, which became effective in May 2014. This set of rules encompasses, among others:
- consumer protection and anti-money laundering compliance and loss prevention rules that should be followed by payment agents and payment arrangers;
- the procedures for incorporation, organisation, authorisation and operation of payment agents, as well as for the transfer of control, subject to the Central Bank's prior approval;
- payment accounts, which are broken down into prepaid and post-paid accounts; and
- a liquidity requirement for prepaid accounts by which their balance must be allocated to a special account at the Central Bank or else invested in government bonds, starting at a lower rate and rising gradually to the total account balance.
Following discussions with market players and industry representatives, the Central Bank has been adjusting and improving the regulations over time, mainly to include operational and non-discriminatory tools to foster competition in the payments market.
iii Over-indebtedness Law
On 1 July 2021, Law No. 14,181 (the Over-indebtedness Law), which amends the Consumer Protection Code6 and the Elderly Statute,7 came into force. The Over-indebtedness Law aims at improving the discipline of consumer credit and providing for the prevention and treatment of consumers' over-indebtedness.
Principles and basic consumer rights
Among other provisions, the Over-indebtedness Law includes as principles governing the National Policy of Consumer Relations:
- the fostering of actions directed to consumers' financial education; and
- the prevention and treatment of over-indebtedness as a way to avoid consumers' social exclusion.
Furthermore, the law sets forth, as a basic consumer right, the guarantee of responsible credit practices, financial education, and prevention and treatment of over-indebtedness situations, through debt review and renegotiation.
Over-indebtedness prevention and treatment
The Over-indebtedness Law includes a specific chapter in the Consumer Protection Code regarding the prevention and treatment of over-indebtedness. According to the law, over-indebtedness is the clear impossibility of the consumer, an individual in good faith, to pay the totality of his or her consumer debts, without compromising his or her 'existential minimum'.8 Over-indebtedness encompasses any financial commitments arising from consumer relations, including credit operations, instalment purchases and contracts for continuous performance.
The Over-indebtedness Law establishes that, in the granting of credit and instalment sales, the supplier must inform the consumer, previously and clearly, at the time of the offer, about the following information:
- the operation's total effective cost, with a description of the elements that compose this cost;
- the effective monthly interest rate, the interest rate for late payment and the total charges applicable to late payment;
- the instalments amount and the offer validity;
- the supplier's name, and physical and electronic addresses; and
- the consumer's right to early settlement of the debt, with no additional costs.
This information must be clearly and briefly provided in the contract itself, in the invoice or in a separate instrument that is easily accessible to the consumer.
In addition, when offering credit to the consumer, the supplier is prohibited from, among other practices:
- concealing or making it difficult for the consumer to understand the burden and risks of contracting a credit or instalment purchase;
- harassing or pressuring the consumer to contract the supply of a product, service or credit, especially if the consumer is elderly, illiterate, ill or in a state of aggravated vulnerability, or if the contract involves a premium; and
- conditioning the fulfilment of the consumer's requests or the beginning of negotiations to the waiving or desistance of judicial lawsuits, the payment of attorneys' fees or judicial deposits by the consumer.
A supplier's failure to comply with these obligations may result in a reduction of interest or any additional charges to the principal amount, as well as an extension of the payment term provided in the original contract, without prejudice to other penalties, and losses and damages owed to the consumer.
The rules on the prevention and treatment of over-indebtedness do not apply to consumers whose debts:
- have been contracted through fraud or bad faith;
- have arisen from contracts entered into by the consumer with the intent not to pay the debt; or
- have resulted from the acquisition of luxury products and services.
The Over-indebtedness Law provides that certain contractual clauses are null, such as the ones that:
- condition or limit the consumer's access to court;
- establish grace periods in the case of defaulting on monthly payments; or
- prevent the full restoration of the consumer's rights and his or her means of payment as of curing the default or of the agreement with creditors.
Conciliation in over-indebtedness
At the request of the over-indebted consumer, the court may initiate proceedings for debt renegotiation and schedule a conciliatory hearing (preventive phase). At the hearing, the consumer will propose to creditors (suppliers) a debt payment plan, with a five-year maximum term, aiming at paying the debts while preserving the existential minimum and the guarantees and forms of payment originally agreed upon.
The unjustified non-attendance of any creditor or its attorneys to the hearing will result in the suspension of the debt enforceability and interruption of default charges, in addition to implying, in certain cases, the compulsory submission of the creditor to the consumer's debt payment plan. Furthermore, payment to the absent creditor, pursuant to the payment plan, shall occur only after payment to the creditors that were present at the hearing.
If conciliation fails with respect to any creditors, the court, at the consumer's request, will initiate proceedings to review the contracts and renegotiate the remaining debts by means of a compulsory judicial plan and will summon all creditors not included in any agreement.
Under the terms of the Over-indebtedness Law, the public bodies that are part of the National Consumer Defense System, such as the Public Prosecutors' Office, have concurrent competence for the conciliatory and preventive phase of the debt renegotiation proceeding, as detailed above. The Over-indebtedness Law is the first to address over-indebtedness in Brazil and is considered an important landmark for consumer protection.
Changes to court procedure
In Brazil, banking litigation is not subject to a specific law. Disputes involving banks and other financial institutions are governed by the provisions of the Code of Civil Procedure.
On 18 March 2016, the Code of Civil Procedure9 (the Code) came into effect, which brought changes to the procedure rules in force since 1973.10 The Code aims to simplify the procedural action, as well as to favour the celerity of disputes and effectiveness of the result of the proceeding. One of the Code's main purposes is the granting of greater autonomy to the parties to manage how to pursue the lawsuit (i.e., setting deadlines, hearings and acceptable evidence).
The main changes brought about by the Code are outlined in the following subsections.
i Promoting mediation
Litigation is common in Brazil, and in view of the increasing number of lawsuits filed before national courts, the Code strives for stimulation of settlements, by strengthening mechanisms such as mediation and conciliation, in order to decrease the number of claims.
In this scenario, the Code makes mandatory a conciliation or mediation hearing at the beginning of the proceeding, even before the defendant presents his or her answer to the complaint. There may be as many sessions designed for conciliation and mediation as necessary for the parties to settle, during a period not exceeding two months from the date when the first session is held (Article 334).
The Over-indebtedness Law also provides for the conciliation in cases of consumers' over-indebtedness, as detailed above.
ii Procedural transactions
The Code sets forth crucial measures to give autonomy to the parties to decide on their dispute. If the suit deals with rights that are open to settlement, parties may lawfully provide for changes in the proceeding to adapt it to the specificities of the case and to stipulate procedural obligations, powers, privileges and duties, before or in the course of the proceeding (Article 190).
Contenders set such changes through 'procedural transaction', which may consider, among other matters, the burden of proof, production of evidence, forum selection, waiver of the right to appeal, deadlines and arbitration agreement.
iii Standardising judicial precedents
The Code requires that higher courts (i.e., state courts and regional federal courts) standardise their precedents and keep them stable, fair and consistent, and issue guiding precedents based on their prevailing court rulings (Article 926).
It also provides that, when judging disputes, judges and courts shall observe:
- the STF's decisions rendered under the model of centralised constitutional review;
- binding precedents;
- appellate decisions rendered in incidental proceedings for assumption of jurisdiction or for resolution of same subject-matter suits, and in the judgment on extraordinary and special appeals on the same matter of law;
- guiding precedents set by the STF and the Superior Court of Justice (STJ); and
- the stand of the full bench or special body to which they report (Article 927).
iv Resolution of repetitive lawsuits
Brazil has an excessive number of lawsuits in progress before national courts, many of which have similar legal issues under discussion. In view of this, the Code shaped a measure named 'incident for resolution of repetitive demands' that enables appellate courts to simultaneously solve different cases that contain controversy regarding the same legal matter, provided that they pose risk to equality and legal certainty (Article 976).
When a certain legal issue is highly recurrent, the judge, the parties or the Public Prosecutor's Office may request an incident for resolution of repetitive demands to the court's president. Once the incident is assigned, the reporting justice orders the suspension of all pending individual lawsuits or class actions on the same matter, in the state or region.
After the incident is ruled, the decision shall be applied to:
- all individual or class actions dealing with an identical matter of law and being processed in the jurisdiction of the respective court; and
- future cases that deal with an identical matter of law and that are processed within the territorial jurisdiction of the court.
In respect of banking litigation, currently, there is one main incident pending judgment, regarding the level of abuse of interest rates involving bank contracts.11
v Interim measures
Interim measures are granted by the court to provide urgent relief, in order to avoid any harm to the effectiveness of the process or damages that may result from its delay.
The Code of Civil Procedure 1973, repealed in March 2016, used to provide for different types of provisional measures, referred to as 'typical provisional measures' (i.e., anticipated discovery motion, precautionary measure for disclosure of documents, seizure precautionary measure), to prevent, preserve or defend the parties' rights before the conclusion of the lawsuit.
The (new) Code has simplified the legal system previously in force, henceforth stipulating that the party may request a provisional relief based on urgency or evidence (Article 294), entered before the lawsuit is filed or incidentally.
The court will grant a relief based on urgency when there are elements evidencing the likelihood of an asserted right and a risk of injury or risk to the practical result of the proceeding. The court may enforce this relief through seizure, sequestration, inventory of assets, registration of protest against disposal of assets, and any other valid measure to assure the asserted right.
When the condition of urgency is concurrent with filing of the suit, the complaint may be limited to a request for advance relief, specifying the claim for final relief and detailing the dispute, the right sought, and the risk of damage or the risk to the ultimate outcome of the case. Should the court grant the relief, the opposing party must file an interlocutory appeal against the relevant decision (Article 303). If the defendant fails to appeal, the advance relief becomes permanent, causing the dismissal of the case.
In addition, the interested party may plead relief based on evidence, regardless of proof of any risk of damage or risk to the case's practical result, when, among other cases, the defendant is manifestly abusing its right of defence or making use of delaying tactics; or the statements of fact may be evidenced only by documents, and a legal principle has been settled in a judgment on same subject-matter suits or in a binding precedent (Article 311).
Furthermore, although the Code has extinguished the typical provisional measures set forth by the previous code, it expressly authorises judges to apply any measures that they consider appropriate to enforce provisional relief (i.e., seizure, sequestration and inventory of assets), regardless of the parties' request, including in collection actions, which frequently involve financial institutions.
In respect of collective actions, legal doctrine recognises that judges may also apply measures of psychological pressure on the defendant or debtor to guarantee compliance with financial obligations (e.g., suspension of driver's licence, restriction of passport, cancellation of the debtor's credit card), even though these measures do not ensure the immediate satisfaction of the debt.
Privilege and professional secrecy
The Constitution provides protection to lawyers in the exercise of their profession. Such protection is reflected in the Lawyers and Brazilian Bar Association's Statute,12 which guarantees the inviolability of lawyers' offices or place of work, as well as of their working instruments; and written, telephonic and telematic mail, as long as they are related to the performance of the profession.
Regarding professional secrecy, the Ethics Code of the Brazilian Bar Association13 sets forth that lawyers have the duty to keep confidential all facts of which they become aware as a result of the profession. Communication of any nature between lawyers and their clients is presumed to be confidential.
Lawyers are also not obliged to testify, in judicial or administrative proceedings, on matters about which they must maintain professional secrecy. Moreover, when applying on behalf of third parties, against ex-clients or former employers, lawyers must safeguard professional secrecy.
Professional secrecy is a public policy principle; thus, it is not dependent on the client's confidentiality request. Notwithstanding, professional secrecy might be disregarded in exceptional circumstances for justified reasons, such as in cases of serious threat to the right to life and honour, or in situations of self-defence. In addition, Brazilian courts recognise that professional secrecy might be disregarded in cases where the lawyer is suspected of unlawful behaviour (i.e., the lawyer becomes an accessory to the crime that is being investigated).
Jurisdiction and conflicts of law
Filing a lawsuit before a foreign court does not prevent Brazilian courts from ruling the same case if the defendant, regardless of his or her nationality, is domiciled in Brazil; the obligation is to be performed in Brazil; and the actions result from an event that occurred or an act that was performed in Brazil.
Brazilian courts have jurisdiction to adjudicate lawsuits arising from consumer relations, when the consumer is resident or domiciled in Brazil. Accordingly, Brazilian courts shall have concurrent jurisdiction to rule claims involving clients of financial institutions resident or domiciled in Brazil even if a lawsuit is filed abroad.
Article 25 of the Code provides that Brazilian courts have no jurisdiction to process and adjudicate on a lawsuit when there is a clause electing an exclusive foreign forum in an international contract. Nevertheless, such provision does not apply to the principle of exclusive jurisdiction, such as the one involving consumer issues.
To that extent, financial contracts might provide for a contractual clause selecting the jurisdiction to which eventual disputes between the contracting parties will be submitted, regardless of any specific connecting factor to Brazil. Nonetheless, courts may render the forum selection clause ineffective, especially in cases involving consumers.
This is because, as stated, consumer relations in Brazil are ruled by the Consumer Protection Code, which was issued to protect the consumers. Section 101(I) of the Code provides that consumer disputes will be processed and judged in the jurisdiction of the consumer's domicile.
Nevertheless, the rules of the Consumer Protection Code apply only to agreements entered into between suppliers and users to supply products or services. Brazilian law does not present a clear concept of 'end user', however.
Specifically concerning financial products and services, after extensive debates, Brazilian courts held that they are subject to the Consumer Protection Code,14 as long as the counterparty to the agreement is regarded as an end user (a person acquiring the products and services but not using them for profit-making purposes).
Consequently, Brazilian courts may deem a forum selection clause invalid when provided under a financial contract involving a consumer (end user). In this case, the dispute will be processed and ruled in the jurisdiction of the consumer's domicile, pursuant to the Consumer Protection Code.
In any event, if the financial contract does not involve a consumer, the financial institution and the counterparty may elect a foreign court to settle any disputes that may arise from such contract, in accordance with Article 25 of the Code.
Sources of litigation
A substantial number of lawsuits involve financial institutions in Brazil.
Lawsuits engaging financial institutions as plaintiffs most commonly concern credit collections arising from clients' default. Conversely, disputes engaging financial institutions as defendants are usually related to consumer matters, such as lawfulness of MSPs; improper registration of consumers in credit protection agencies; and irregularities related to the integrity, reliability, security, secrecy or legitimacy of operations and services offered to clients.
There are also several lawsuits filed by consumers against financial institutions claiming the reduction of interest rates set forth in financial contracts. Such lawsuits derive from the fact that, in Brazil, there is no legal provision limiting interest rates in banking transactions. Thus, the contracting parties are free to negotiate interest rates that are convenient.
On the basis of the Consumer Protection Code, however, courts may review the agreements already signed and determine a reduction in the agreed-upon interest rate if it holds that said interest rate causes unreasonable disadvantage for the consumer. On this subject, the STJ also stated that it may review a banking agreement entered into by a consumer if the financial institution charges blatantly excessive interest rates.
Within this context, financial institutions face mass litigation because of consumer claims, pleading the reduction of charged interest rates in defaulted agreements. Nevertheless, as a rule, only when the agreed-upon interest rate is higher than the average market rate should the contractual revision occur.
Brazil's civil liability system is based on the general provisions of the Civil Code. According to this system, a person will be held civilly liable if they carry out an illicit act and there is causation between that illicit act and the loss caused to the aggrieved party.
In principle, there is no separate legal framework for financial institutions when it comes to civil liability. Nevertheless, as mentioned above, the STJ has already decided that the Consumer Protection Code, which provides for specific rules on suppliers' liability, is applicable to the relationship between financial institutions and consumers.
Therefore, as outlined in Subsections i and ii, below, Brazil has a dual system of liability for financial institutions:
- for corporate clients, the basic principles of civil law liability established in the Civil Code; and
- for consumers, a more protective system based on the Costumer Protection Code.
i The Civil Code
The general rule of civil liability under Brazilian law arises from Sections 186 and 927 of the Civil Code, by which a person is liable to redress the damage caused to another person resulting from their fault or wilful misconduct.
Brazilian law divides civil liability into at-fault liability and strict liability. Sections 186 and 927 (main section) of the Civil Code set forth the general rule of at-fault liability. According to the doctrine, in order to characterise at-fault liability, the agent must carry out an illicit act, for the purposes provided in Section 186.15
Section 927, sole paragraph, of the Civil Code sets forth the general rule of strict liability. According to this provision, an agent may be held liable independent of fault when such agent is subject to strict liability, regardless of whether there has been an error in conduct.
Strict liability is therefore liability grounded on risk, which consists of:
the obligation to compensate for the damage caused as a result of activity developed concerning the agent's interest and under its control, without any questioning on the behaviour of the aggrieving party, setting such liability as strict, that is to say, in the relationship of cause and effect between the damage itself and the conduct taken by the party causing such damage.16
Hence, at-fault liability differs from strict liability to the extent that at-fault liability requires the existence of fault in the conduct of the agent, while strict liability depends only on the existence of a causal relationship between the conduct and the damage.
Most of the relationships between financial institutions and their clients are subject to at-fault liability. That is to say that the client has the burden of proof to show the illicit act (fault), the damage and the causation between both.
Nonetheless, court precedents have shown situations in which there is strict liability of financial institutions, based on the understanding that a financial institution's activities can cause risk to the rights of other parties, as provided under the sole paragraph of Section 927 of the Civil Code.
On the basis of this rule, the STJ has issued interpretative rulings to standardise the interpretation of courts to some specific situations of strict liability (i.e., financial institutions are strictly liable for damage caused by force majeure events that are the result of fraud and misdemeanour activities carried out by third parties in banking transactions).17
There is no legal provision in the Civil Code that forbids financial institutions to include contractual clauses that provides for the exclusion of liability if the financial institution does not act with grave fault or wilful misconduct, and the other contracting party is not considered a consumer under Brazilian law, as detailed in Section VI.
ii The Consumer Protection Code
Generally, the Consumer Protection Code assumes that the consumer is always the weakest party in the relationship between supplier and consumer. Within this context, application of the Consumer Protection Code will be, as a rule, more favourable to the victim because it not only imposes strict liability on the offender, but also encompasses a whole set of rules that favour the consumer.
A special chapter in the Consumer Protection Code is devoted to consumer protection under contracts. A section of this chapter focuses on abusive clauses, which are considered null and void by operation of law.18 This section deems invalid any contractual clause that prevents, disclaims or reduces the supplier's liability for defects of any kind in the products and services, or entails a waiver or disposal of right.
The Consumer Protection Code also provides that parties may limit the amount of indemnification that suppliers may pay to consumers in the case of consumer agreements entered into with corporations (i.e., non-individual consumers), in justifiable situations. Although the law does not provide for a concept of 'justifiable situation', legal doctrine holds that it may be reasonable to limit indemnification in case there is a clear upside to the consumer as a trade-off to such limitation (i.e., the price paid for the product or service is reduced owing to such limitation).
iii Liability regime and exclusion of liability applicable in banking litigation
Given the above-mentioned considerations, financial institutions' liability regimes may vary depending on the nature of the relationship maintained with the counterparty.
In 2006, the STF acknowledged that consumer relations of a banking or financial nature are subject to the rules provided under the Consumer Protection Code.19 In this sense, when it comes to consumer relations, financial institutions are strictly liable for damages caused to consumers due to defects in the service provided, based on the provisions of the Consumer Protection Code. Financial institutions shall not be held liable only when it proves:
- that there is no defect after performing the service; or
- the exclusive fault of the consumer or a third party.
Moreover, in consumer relations, contractual provisions or terms of business restricting financial institutions' liability shall be considered null and void by Brazilian courts. As described above, however, in a relationship between the supplier and a corporate consumer, civil liability may be limited in justifiable situations.
Conversely, there being no consumer relation between the contracting parties, the case will be governed by the Civil Code, which does not prohibit the insertion of clauses that exclude or limit financial institutions' liability, provided that it does not limit financial institutions' liability in case of grave fault or wilful misconduct.
Outlook and conclusions
The Code changed the procedural rules to favour the efficiency of disputes and effectiveness of the result of judicial proceedings. Among other changes, the Code strengthens alternative methods of conflict resolution, such as mediation and conciliation, aiming to reduce the number of claims.
Considering the legal system introduced by the Code, and the high rate of recurrence of judicial complaints involving financial products and services, financial institutions, along with the courts, are likely to take internal measures to promote the amicable resolution of conflicts and celerity of disputes.
Examples of such measures are the creation of conciliation centres to promote conciliation exclusively in banking disputes – as established by the São Paulo State Higher Court in 2016 – and fostering administrative actions within financial institutions to internally solve consumer complaints and avoid judicial disputes.
In addition, the above-mentioned ratification by the STF of the collective agreement regarding MSPs entered into by consumer protection associations and financial institutions shows that courts are promoting and prioritising the consensual solution of conflicts, in accordance with the guidelines of the Code.
As stated, the execution and ratification of the collective settlement agreement will resolve thousands of lawsuits involving the matter, and bring better balance and stability to the national financial system.
Finally, the CMN and the Central Bank have been acting on a preventive basis, through regulations that aim to avoid conflicts with clients and reduce operational risks facing Brazilian financial institutions. Despite all of this, Brazil continues to have a highly litigious banking system, so all of these efforts must continue in order to increase customer satisfaction and reduce the level of litigation.
1 José Luiz Homem de Mello and Pedro Paulo Barradas Barata are partners and Sasha Roéffero is an associate at Pinheiro Neto Advogados.
2 ADPF No. 165.
3 Extraordinary appeals Nos. 626.307, 591.797, 631.363 and 632.212.
4 'Adjudication on the merits will occur when the judge: III. certifies: (...) (b) a settlement.'
5 Law 12,865 of 9 October 2013.
6 Law No. 8,078 of 11 September 1990.
7 Law No. 10,741 of 1 October 2003.
8 The Over-indebtedness Law does not establish the concept of 'existential minimum', which will depend on specific regulation. Nevertheless, the existential minimum can be understood as what is necessary for the individual to survive with dignity (e.g., expenses with housing, food, medicine and education).
9 Federal Law No. 13,105 of 16 March 2015.
10 Federal Law No. 5,869 of 11 January 1973.
11 Lawsuit No. 0872123-67.2016.8.13.0000 – Minas Gerais State Higher Court.
12 Law No. 8,906 of 4 July 1994.
13 Resolution No. 02/2015.
14 Precedent 297. The Consumer Protection Code is applicable to financial institutions.
15 As per Section 186 of the Civil Code, anyone who, by voluntary act or omission, negligence or recklessness, violates law and causes damages to others, including non-pecuniary damages (i.e., moral damages), commits an illicit act.
16 Maria Helena Diniz. Curso de Direito Civil Brasileiro: Responsabilidade Civil, seventh volume. São Paulo: Saraiva, 2002, p. 49.
17 Interpretative ruling No. 479 of STJ.
18 As per Article 51 of the Consumer Protection Code, clauses are generally regarded as null and void whenever they prevent, disclaim or reduce the supplier's liability for defects of any kind whatsoever in the products and services, or entail a waiver or disposal of rights (in a consumer relationship between the supplier and a corporate consumer, indemnification may be limited in justifiable situations); deprive consumers of the option of receiving a refund of what was already paid, in the events provided for in the Consumer Protection Code; transfer liability to third parties; establish obligations considered inequitable or abusive that place the consumer at an unreasonable disadvantage, or that are incompatible with good faith or equitable practices; reverse the burden of proof to the detriment of consumers; provide for compulsory use of arbitration procedures; require a representative to conclude or perform another legal transaction by the consumer; leave the supplier with an option of whether to conclude the contract, while binding the consumer; permit the supplier to directly or indirectly vary the price in a unilateral manner; allow the supplier to cancel the contract unilaterally without conferring the same right on the consumer; obligate the consumer to reimburse any charges for collection of what is owed, without the same obligation for the supplier; authorise the supplier to unilaterally modify the contents or quality of the contract, after execution thereof; and contravene the consumer protection system.
19 Direct Unconstitutionality Action No. 2,591.