In early September, the Central Bank of Brazil initiated a public hearing relating to proposed regulations on the use of credit card receivables.
Currently, it is common practice for a merchant to assign credit card receivables to a bank by way of security of a credit facility and agree to receive all credit card transaction amounts in an account held with the respective bank, “fixing” the domicile of its receivables. This system works on the basis of a general agreement under which certain financial institutions and acquirers undertake to honor these fixing mechanism. However, this security control system is not used by all market players, which makes it less effective and reliable.
Assignments of receivables to Asset-backed Funds (FIDCs in the acronym in Portuguese) have also become rather usual, but this transaction is still bureaucratic and ineffective.
The Central Bank intends to create one or more registrars with which acquirers and subacquirers should register all credit card receivables from their merchants on the same date as the credit card transactions. Any such merchant would then be able to offer its receivables to financial institutions, investment funds or their own suppliers. The registrar would be responsible for organizing the financial flow and paying the respective assignees. This would add greater certainty to the deals.
A key point in the proposed regulations is that only registered receivables would be available for use as security, preventing the development of a “side market”. In addition, the volume of receivables given by way of security should be equal to the actually used amount of the credit extended to the merchant. As such, a credit provider should not be able to encumber a greater amount worth of receivables than required for repayment of the credit facility.
In consequence, the Central Bank seeks not only to regulate the use of receivables, but also to improve the certainty and effectiveness of the system and foster competition in order to achieve a decrease in the cost of credit for merchants.
The deadline for submission of suggestions for the draft regulations ends on November 30, 2018.