Opinion: Brazil’s Consumer “Protection”

Opinion by Michael Royster

RIO DE JANEIRO, BRAZIL – Temer’s new economic package proposes, inter alia, to stimulate growth by making it legal for merchants to give customers a discount for paying cash, rather than using a credit card. This will require revoking an article in the Consumer Defense Code (CDC) that declares any cash discount illegal.

You read that right — the CDC says that granting a cash discount, a perfectly normal, commonplace business practice the world round, is harmful to consumers.

How can this be?

The answer is historical. The CDC was enacted in 1990, when Brazil had suffered for over a decade with rampant inflation, meaning 10 or 20 or 30 percent per month — not per annum, per MONTH.

In those bygone (Hallelujah!) days, credit cards became all the rage. Anyone could get one, so smart people got four — Amex, Diners, MasterCard and Visa. What smart people also did was set the payment dates on each card one week apart.

If payment was due on the 7th of next month, you could buy something on the 2nd of the month, and only pay for it 35 days later — so you saved somewhere between 10 and 40 percent in real (dollar) terms. Smart people used different cards each week, depending upon the due date.

Merchants, who are not stupid, figured out they had been sucker-punched by the credit card companies, who not only charged them five percent but also only paid them thirty days later. So, they began to offer consumers cash discounts of 10-30 percent. Everybody loved it — except for those people who didn’t have cash.

That meant almost everybody, because there were no debit cards, and nobody carried around ready cash which was devaluing daily. Yes, you could write checks, and people did, but the banks (surprise!) charged a large fee per check.

So, to the “rescue” of consumers who had no cash, but were indebted up to their eyeballs to credit card companies charging eighty percent per month interest (yes, per month), came “the Law”: NO MORE CASH DISCOUNTS! The sticker price is the sticker price, regardless of the method of payment.

The Curmudgeon now knows, of course, that all this “consumer protection” was nothing of the sort, it was just demagoguery, designed to make people believe, in the face of overwhelming evidence to the contrary, that their currency was stable.

Yesterday, when the Temer economic team announced the measures it would take to try to kick-start the Brazilian economy, one measure being to permit cash discounts, the Consumer Defense League took to the trenches to attack this measure.

Why? Possibly because they receive financial support from credit card companies, all owned by banks, all of which have truly obscene profits due, in great part, to charging 450 percent per annum interest on credit card financing. Or, possibly because they believe Brazil, emulating a failed-state Venezuela, will soon embrace hyper-inflation.

No consumer is “protected” by being prohibited from accepting cash discounts. No merchant is “protected” by being prohibited from offering cash discounts. The only people being “protected” are Brazil’s bankers.

That is not right.