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.
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 were 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 checks, payment slips, documents (including collection documents), bills, etc.
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 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.
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,6 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 Brazilian Central Bank (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.
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,10 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 Association11 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 to 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).
Sources of litigation
There are a substantial number of lawsuits involving financial institutions in Brazil.
Lawsuits engaging financial institutions as plaintiffs most commonly concern credit collections arising from clients' default. On the other hand, 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.
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.'
6 Law 12,865 of 9 October 2013.
7 Federal Law No. 13,105 of 16 March 2015.
8 Federal Law No. 5,869 of 11 January 1973.
9 Lawsuit No. 0872123-67.2016.8.13.0000 – Minas Gerais State Higher Court.
10 Law No. 8,906 of 4 July 1994.
11 Resolution No. 02/2015.
12 Law No. 8,078 of 11 September 1990.
13 Precedent 297. The Consumer Protection Code is applicable to financial institutions.
14 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.
15 Maria Helena Diniz. Curso de Direito Civil Brasileiro: Responsabilidade Civil, seventh volume. São Paulo: Saraiva, 2002, p. 49.
16 Interpretative ruling No. 479 of STJ.
17 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.
18 Direct Unconstitutionality Action No. 2,591.