CMN regulates calculation of legal interest rate according to the new wording of the Civil Code

On August 29, 2024, the Central Bank of Brazil (“BC”) published the Brazilian National Monetary Council (“CMN”) Resolution No. 5,171, to regulate the method for calculating and enforcing the Legal Rate provided for in Article 406 of the Brazilian Civil Code (“CCB”), as per Law No. 14,905, of June 28, 2024.

Law No. 14,905 was enacted to standardize the enforcement of interest to correct liability amounts in cases where an interest rate is not agreed upon or is agreed upon without a stipulated rate, as well as in tort liability cases (damages).

This law also made the Brazilian Usury Law more flexible for business:

• Made between legal entities;
• Represented by negotiable instruments or securities;
• Carried out in the financial, capital or securities markets; or
• Contracted before financial institutions and other institutions authorized to operate by the BC, investment funds or clubs, lease-purchase agreement corporations, simple credit companies, and civil society organizations of public interest provided for by Law No. 9,790/99.

Find out more in our Client Alert on the matter.

The amendment of article 406 of the Civil Code consolidates the understanding of the Superior Court of Justice (“STJ”) on the matter[1] and provides for practical results for the calculation of compensation involving breach of contract and tort liability, including ongoing lawsuits. 

The law states that the Legal Rate will correspond to the SELIC interest rate and the Broad Consumer Price Index (“IPCA”), and the CMN will establish the methodology for calculating and enforcing the new reference rate.

CMN Resolution No. 5,171 represents a significant advance in Brazilian financial regulation, fostering uniform interpretation, transparency, and adequacy in enforcing interest rates. The BC’s exact formula and monthly disclosure enable all stakeholders to track and understand how the rate is calculated, increasing confidence in the financial system.

Below, we highlight the main points of the resolution:

1. Calculation methodology

• • The legal rate will be calculated monthly based on the ratio between the accumulation of daily SELIC rates and the variation rate of the IPCA-15 preceding the reference month.
  • If the calculation of the legal rate results in a negative amount, the rate will be considered equal to zero for the reference month (Article 406, paragraph 3 of the CCB).

2. Enforcement

• • The legal rate will be enforced using the simple interest regime, both for accumulating monthly rates and calculating pro rata interest.
  • This regime is already employed in judicial convictions against the tax authority and in other judicial cases, such as for payments to public officers, social security and welfare benefits, and liquidation of awards.

3. Disclosure

• • The first legal rate, referring to August 2024, will be announced on August 30, 2024.
  • As of September 2024, the legal rate will always be announced on the first business day of each reference month.

4. Interactive application

• • The BC will provide a public interactive application to simulate the effects of the legal rate in everyday financial scenarios.
  • The Citizen Calculator (Calculadora do Cidadão), available on the BC website, will have a specific functionality for the correcting amounts based on the legal rate.

Resolution No. 5,171 entered into force on August 29, 2024.

Demarest’s Financial Market, Dispute Resolution, and Insurance, Reinsurance, Health and Private Pension teams are assessing the matter and remain available to provide any further clarifications on the topic that may be necessary.

[1] The STJ established the following argument in a special repetitive appeal (Subject 99): “Currently, the interest rate for late payment referred to in such device [Article 406 of CC/2002] is the SELIC rate, which cannot accumulate with other monetary correction indexes” (STJ, 1st Section, Resp 1,102,552/, 2008/0266468-7, Rel. Min Teori Albino Zavascki, DJe 06.04.2009).