Over-Indebtedness in Brazil : Do We Need More Regulation?

During the last decade, many Brazilian consumers left the lower strata of the socioeconomic pyramid and ascended to the middle class. A large part of this expanding social mobility came from increased access to credit. Easing the access to credit is considered by classic economic theory an important factor for economic growth and for contributing to economic well-being. Debt is necessary to maintain a stable consumption level and to boost economy in more timid periods. In Brazil, however, although borrowing led to a higher social status for some, for others it may have led to over-indebtedness. This paper takes a law and economics approach to analyze over-indebtedness in Brazil and discusses the necessity of wider regulation of consumer credit. It investigates data searching for signals related to the increasing indebtedness of Brazilian consumers and it deals with some concepts of over-indebtedness presented by the literature.Moreover, some of the behavioral law and economics biases are presented and related to consumer behaviors. All regulators should take this analysis into consideration in order to achieve good results for their public policies in the sector