Vehicle Financing: Abusive Interest and Repossession

This page is a translation of the original Portuguese text, provided for convenience. It deals with Brazilian law. If there is any discrepancy, the Portuguese version prevails. Read the original in Portuguese

Vehicle financing is one of the most widely used forms of credit in Brazil, but it often involves abusive interest rates. When a repossession is irregular, you can challenge it in court.

Abusive interest in vehicle financing

The interest charged on vehicle financing must respect the average market rate published by the Central Bank of Brazil for the same type of transaction. The STJ (Brazil’s Superior Court of Justice) has held (REsp 1.061.530, decided as a repetitive appeal) that interest rates that deviate significantly from the average market rate are abusive, and that the courts may reduce them to an appropriate level.

To check whether the interest on your financing is abusive, you can look up the average rate charged in the market on the Central Bank website (Credit Information System). Compare the Total Effective Cost (CET) of your contract with the average for the period when you signed it. Differences of more than 50% above the market average are considered a strong sign of abusiveness.

In addition to the stated interest, a financing agreement may include extra charges that significantly increase the total cost: a registration fee, a vehicle appraisal fee, credit life insurance (seguro prestamista), and contract registration. The STJ has ruled (REsp 1.251.331 and 1.255.573) that the registration fee is valid only at the time of the initial contract, and that fees such as the TEC (payment booklet issuance fee) and the TAC (credit origination fee) are not allowed in contracts signed after 04/30/2008.

Tying arrangements and mandatory credit life insurance

Conditioning approval of financing on the purchase of credit life insurance or other financial products is a tying arrangement (venda casada), which is prohibited by Article 39, item I, of Brazil’s Consumer Protection Code (CDC). You cannot be forced to buy insurance, a consortium, a capitalization bond, or any other product as a condition of obtaining financing.

This practice is particularly common with lenders affiliated with car dealerships, where the salesperson adds insurance and extra services to the financing without the consumer’s clear consent. Charges you never requested being added to the contract may amount to a tying arrangement that can be reported and annulled.

The interest charged on vehicle financing must respect the average market rate published by the Central Bank of Brazil for the same type of transaction.

If you find insurance or services improperly included in your financing, you can ask for them to be canceled and for the amounts to be refunded. If the lender refuses, you can turn to PROCON (Brazil’s consumer protection agency), the Central Bank, and the courts, and seek a refund of double the amount wrongly charged (Article 42, sole paragraph, of the CDC).

Vehicle repossession: when it is lawful

Repossession of a financed vehicle is governed by Decree-Law 911/69, as amended by Law 13.043/2014. For the repossession to be valid, the borrower must be in default (late on payments) and must have been notified beforehand by registered letter or by protest of the debt instrument.

Prior notice is an essential requirement for placing the borrower in default. The STJ has settled the position that simply sending the notice to the borrower’s address is enough, and that proof of personal receipt is not required. However, a notice sent to the wrong address does not place the borrower in default and makes the repossession invalid.

After the vehicle is seized, the borrower has 5 days to cure the default, meaning to pay in full the overdue installments plus interest, penalties, and charges. Curing the default means the vehicle must be returned immediately. If the borrower does not cure the default within that period, the creditor may sell the vehicle and apply the proceeds to the outstanding balance.

It is essential to verify that the repossession met every legal requirement. The lack of prior notice, installments already paid that undermine the claim of default, or abusive charges in the contract can all be used as defenses to challenge the repossession in court.

Contract review and consumer defense

If you identify abusive clauses in your vehicle financing, you can file a contract review action (ação revisional) to bring the contract terms into line with legal standards. A review action can result in lower interest, removal of improper fees, a recalculation of the outstanding balance, and elimination of unlawful charges.

Filing a review action does not, by itself, prevent the vehicle from being repossessed. To avoid repossession while the case is pending, you can request urgent preliminary relief by showing that your claims are plausible and that you face a risk of irreparable harm. Depositing the installments with the court (in the undisputed amount) strengthens the request for advance relief.

STJ case law allows banking contracts to be reviewed while they are still in effect, so you do not have to wait until the financing ends. You can seek review at any time, including as a defense in a repossession action brought by the lender.

In financing arrangements that involve abusive clauses, specialized legal guidance can identify all the contractual irregularities and recalculate the outstanding balance, often showing that the consumer has paid more than was owed.

Frequently Asked Questions

Can I return the financed vehicle and settle the debt?

Voluntarily returning the vehicle does not automatically extinguish the debt. The lender sells the vehicle and deducts the proceeds from the outstanding balance. If the sale price is lower than the balance, you remain responsible for the difference. If it is higher, the lender must return the surplus to you. You have the right to follow the appraisal and sale of the vehicle to make sure the price is fair and consistent with the market.

What can I do if my vehicle is repossessed without prior notice?

The lack of prior notice makes the repossession void. The borrower may file a defense in the case, showing that he or she was never properly placed in default. The judge must order the vehicle returned and may order the lender to pay compensation for moral and material damages. The defense must be filed within 15 days of the repossession being carried out.

How do I know whether the interest on my vehicle financing is abusive?

Look up the average market rate for vehicle financing on the Central Bank website (calculadoradocidadao.bcb.gov.br or registrato.bcb.gov.br). Compare the CET (Total Effective Cost) of your contract with the average for the period. If your contract’s rate is significantly higher (the STJ treats a rate that deviates excessively from the average as abusive), you should seek legal guidance for a detailed analysis of the contract and a possible review action.

As informações deste artigo são de caráter informativo e não substituem consulta jurídica individualizada. Cada caso possui particularidades que exigem análise específica.