Survey measured the difference between the rates of those who entered the system and those who opted out

Consumers who entered the positive register had their interest rates reduced by up to 8.7% compared to personal credit borrowers who remained outside the database, in a move led by private banks.

The finding comes from a study recently released by the Central Bank, which assessed the impact on interest rates of a 2019 law that transformed the market by automatically including all customers (except those who requested otherwise) in the positive register.

The result of making data on 100 million customers available, compared to 6 million previously, was a perception of lower risk by the banking sector, increased competition and lower rates.

To determine the scope of the effects of the change, the Central Bank's researchers compared the interest rates on personal credit operations of clients who were included in the register when the legislation was passed with those who delayed entering the database for operational reasons.

The conclusion was that, on average, interest rates fell by 3.7% for those who became part of the positive register. For the group of customers with the highest credit scores after the change, the reduction was almost 9%. Among those whose credit scores worsened, there was an increase in interest, of 1.4% on average.

The drop in rates was led by private banks, while there were no significant changes in rates for public banks. According to the study, the results indicate that private banks, which are more agile and focused on results than public banks, have adapted more quickly to the release of new scores.

“The availability of positive scores to any potential lender increases competition, putting pressure on banks to lower rates in order to retain their current clients or attract new ones,” say researchers José Renato Ornelas, Raquel de Freitas Oliveira and Ricardo Schechtman.

In a scenario where all financial institutions now have access to the detailed histories of most Brazilians, interest rates fell by 5.8% for new customers, indicating that competition played an important role in this process. For the banks' long-standing clients, the drop was smaller, at 2.5%.

“The market now uses better glasses to determine credit risk,” says Danilo Coelho, director of data and analytics at Quod, a credit bureau made up of the five largest banks. “It's now possible to see gradations, all the types of credit the consumer has already taken out, whether they've been paid on time or not. This has made it possible to reduce interest rates.”

The possibility of using positive information to determine credit risk, such as loan payment history, has existed since 2011. But participation was optional, meaning that consumers had to take the initiative to share their data.

This changed with the new legislation, which included 100 million consumers in the positive register

Elias Sfeir, the organization's president, says that while credit bureaus previously only looked at defaults (negative information), the massive use of payment history has given them access to a more realistic picture when it comes to determining a customer's risk of default.

“For decades, Brazil has had a culture of negativity. The negative only takes one fact, the default, but the positive takes the history, the consumer's behavior over time,” says Sfeir. “The negative is a photograph, the positive is a movie. There's been a cultural change.”

According to the organization, in June 2022, out of every 100 people who left the positive register, 45 returned. That number has risen to 94 now.

“Every time ratings improve, delinquencies go down, and when that happens, interest rates go down,” says Sfeir. “Consumers” 78% credit rating went up after the release of the positive information."

Data from another survey, by Serasa Experian, helps to explain the effects of the positive record on credit. The figures show that the possibility of a negative person having access to loans went from 0.5% to 8.5%, an increase of almost 18 times.

“By getting to know your customer better, and realizing, for example, that they have had a negative credit rating but that most of the time they are a good payer, the lender has more confidence in granting credit,” says Eduardo Mônaco, vice president of credit and platforms at Serasa Experian. “This translates into more efficient policies, a lower risk of default and, consequently, lower interest rates.”

In recent years, the register has been refined by including an increasing amount of non-banking data, such as energy and telecommunications bills.

The sector's next challenge is an agreement with sanitation companies to access the payment history of water bills, which would add 55 million records to the system, and piped gas bills, with another four million records.

“We're putting together a more complete picture,” says Coelho. “There are customers who aren't even banked, but most people have electricity and water bills. And Brazil is very big, so this information also has regional importance.”

Another objective of the credit bureaus is to incorporate a greater number of MEIs (individual micro-entrepreneurs) into the register, which is being studied by ANBC in conjunction with the Central Bank and other entities. “Today between 93% and 94% of large companies are already on the positive register, but in the case of MEIs, only 18.5%. It's a challenge to increase this participation,” says Sfeir.