Published and draft legislation - Paraguay

Regulating the use of credit and debit cards

Law 5476 establishing rules on user protection and transparency

On 25th September 2015 the law regulating the use of credit and debit cards in Paraguay came into force. The regulation aims to establish a set of requirements and conditions in the issue, contract and usage of credit and debit cards, with mandatory compliance for card issuers, operating companies and users themselves.

The law establishes provisions for quality of service, duties of transparency and information and specifies the maximum limit on interest rates applicable to the use of credit cards (article 9 of the law).

Interest ceiling

According to the article cited, the interest that can be applied on credit card use may not be higher than triple the current average deposit rate as published monthly by the Central Bank of Paraguay (BCP), which would be roughly equivalent to 18%*. It is worth remembering that before the law came in to force, financial institutions tended to use what the BCP considers to be a usurious rate, of over 50%** as their reference for setting the applicable interest rate. This fixing of an “interest-rate ceiling” has had consequences for the commercial strategies of the institutions involved, which in turn impacts user consumption patterns.

Reactions to the law

The Banking Association of Paraguay (Asociación de Bancos de Paraguay, ASOBAN) and the Association of Financial Institutions of Paraguay (Asociación de Entidades Financieras del Paraguay, ADEFI) have informed users of credit cards in the financial system, merchants and the general public that (i) all the benefits, discounts and promotions that they have been enjoying through banks and financial institutions with participating merchants have been cancelled with immediate effect; (ii) transactions that exceed the credit available on the credit card will be automatically refused and (iii) anti-fraud insurance policies taken out before the law came into force will not be renewed once the policy expires, although new protection measures may be agreed upon.

Likewise, ASOBAN and ADEFI member institutions report that they are required to take the following measures:

  • cancel interest-free deferred payment plans and options for interest-bearing deferred payment;
  • gradually reduce the credit facilities on cards whose available balance is PYG 5m (approx. USD 860) or less. In these cases, the credit allowed will be brought down to match the latest balance that the customer has used;
  • reduce the amount that the institution can advance in cash; and
  • increase the percentage of the minimum monthly payment the customer must make in cases of deferred payment.

 

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* According to the Central Bank of Paraguay’s publication on Thresholds on Usurious Rates for November 2015.

** Idem.