Revolving credit facility arrangements, identified as adhesion contracts, that is, one in which the party who takes out the bank services cannot change the contents of the contract, usually provide for clauses requiring payment of various abusive charges by borrower in the event of default.

Among these charges, the collection of interest on interest charges is worth emphasizing, that is, the so-called compound interest. This accumulation takes place by incorporating interest overdue into the principal, along with the collection of interest imputable thereto.

Another common practice adopted by banks is the collection of late payment surcharge in case of default. This surcharge is determined as follows: combination of the Certificate of Interbank deposit (CDI) rate as published by the Central Bank of Brazil (BACEN) on the 15th day of each month to be applied in the subsequent months, and a yield rate capped at ten percent (10%) per month.

The capitalization of compound interest and the late payment surcharge has been the subject of several discussions in judicial decisions.

It is important to note that the capitalization of interest is a practice that should be prohibited in such banking contracts, as expressly provided in articles 4 and 11 of Decree no. 22626/33 and Precedent 121 of the Brazilian Federal Supreme Court (STF).

The same applies to collection of the late payment surcharge, as per the understanding recently expressed by the 2nd Section of the Higher Court of Justice (STJ) upon adjudging Appeal to the STJ no. 712,801-RS in a decision rendered by Minister Carlos Alberto Menezes Direito.

Furthermore, the banking contractual clauses that provide for the collection of such charges are not in line with the social purpose generally assignable to contracts, the principle of objective good faith, and the contractual balance proper, as set forth in Articles 421 through 424 of the Brazilian Civil Code.

Lastly, the provisions established in the Brazilian Consumer Protection Code (CDC) should apply to those banking contracts, whereby any clauses that may be too costly to consumers shall be deemed null and void (Article 51, X, paragraph 1, III).

In view of all the facts disclosed above, imposing clauses that provide for collection of these charges by financial institutions is undeniably inappropriate, especially in adhesion contracts, in which the borrower is not in a position to discuss the contents of clauses before entering into such contracts.