Law no 14,905/2024 introduced significant modifications to the regulations regarding monetary adjustment and interest for legal and contractual obligations in Brazil.
We will examine the implementation of changes in civil debts before the law, the newly established regulations, and the practical effects for attorneys and their clients.
How were the qualifying debts updated prior to Law No. 14,905/2024?
Before Law No. 14,905/2024, there were issues with inconsistency and uncertainty in updating civil debts.
There was no uniform index, leading courts to use various references.
- INPC/IBGE refers to the national consumer price index.
- IGP-M/FGV (measure utilized in particular agreements like lease contracts);
- The IPCA-E/IBGE is utilized in certain legal situations for adjustment purposes.
These variations led to insecurity among creditors and debtors, as well as extending legal disputes over the most suitable index.
There was a debate about which interest rate to apply: either 1% per month (traditional moratoriums) or the SELIC Fee used for tax obligations.
What is stated in Law 14,905/2024?
Law No 14,905/2024 seeks to create uniformity in the adjustment of currency and interest rates on qualifying debts to provide greater predictability and legal assurance.
The primary modifications consist of:
Fixing the application of the IPCA/IBGE index in cases of failure to fulfill obligations
The law’s initial significant modification was the insertion of a new paragraph into Article 389 of the Civil Code (CC).
In the absence of a specific contractual provision, the IPCA/IBGE index will be utilized as the benchmark for monetary adjustments.
This index is commonly accepted as a dependable indicator of purchasing power and represents the overall inflation rate.
Articles 395, 404, 418, and 772 of the CC, which previously permitted the use of officially established indices, were revised to eliminate this provision.
The IPCA/IBGE index is now considered the standard. Review the previous and current versions of the articles.
If the obligation is not met, the debtor is responsible for damages, interest, monetary updates based on official indices, and legal fees.
The debtor is responsible for losses, damages, interest, monetary adjustments, and attorney’s fees if the obligation is not met, according to Article 389 of the Civil Code in its revised version.
If the monetary update index is not available or specified in the law, the National Consumer Price Index (IPCA) published by the Brazilian Institute of Geography and Statistics (IBGE) will be used.
The debtor is responsible for any damages caused, along with interest, monetary values updates based on official rates, and attorney’s fees, as per Article 395 of the Civil Code, which has been revoked.
The debtor is responsible for the damages they cause, along with interest, updated monetary values, and attorney’s fees according to the new version of Article 395 of the Civil Code.
Losses and damages in cash payment obligations will be compensated with monetary adjustments based on official indices, including interest, costs, and attorney’s fees, without excluding any contractual penalties.
Losses and damages for cash payment obligations will be compensated with monetary update, interest, costs, and attorney’s fees according to the new wording of Article 404 of the Civil Code, in addition to any agreed-upon penalties.
If the party that provided the trawlers fails to fulfill the contract, the other party can keep them by default; if the failure is on the side of the party that received the trawlers, the one who provided them can demand their return along with compensation, updated with official indices, interest, and legal fees.
In the event of contract non-performance, as stated in Article 418 of the Civil Code with the new wording.
The recipient of the items must return them, along with the appropriate monetary compensation, interest, and legal fees, to the person who originally provided them in the event of a default on the contract.
The insurer must update the compensation amount according to official indices when paying for the damage, as stated in Article 772 of the Civil Code, which has been revoked.
The insurer is required to update the indemnity amount when paying the claim, in addition to any applicable moratorium interest, according to the new wording of Article 772 of the Civil Code.
Fixing legal fees for calculating interest
Law No. 14,905/2024 amended Article 406 of the Civil Code.
The moratorium interest will be calculated using the SELIC Fee minus the IPCA of the same period if there is no specific provision in the contract.
The new regulation also covers situations outlined in the law or when interest is agreed upon without necessitating a charge.
The National Monetary Council will determine the calculation method and its application, and if the legal rate results in a negative value, it will be treated as zero.
Art. 406 has been modified, resulting in changes to Arts. 591 and 1,336 to accommodate the new legal interest rate.
Let’s take a look:
Interest will be determined based on the legal fee when there is doubt, no agreement, or when it is determined by law (Article 406, Civil Code).
The legal fee will be based on the Selic referential rate, minus the monetary update index mentioned in Article 389 of this Code.
The National Monetary Council will establish the procedure for determining the official interest rate and its implementation, which will be made public by the Central Bank of Brazil.
If the legal fee is below zero, it will be treated as zero when calculating interest during the specified period.
Art. 591, CC, has been repealed. Due to the shared economic goal, interest is implied, with an upper limit set at the rate mentioned in Art. 406, allowing for annual capitalization without penalty.
By focusing on mutual economic goals, interest is implied under Article 591, Civil Code, in its new wording.
If the interest rate is not used, the legal fee specified in Article 406 of this Code will be applicable.
Article 1,336 of the Civil Code has been revoked. The responsibilities of the condo owner include:
The dominant party failing to make their payment will face the agreed moratorium interest rate or, if not specified, a one percent monthly interest rate and a fine of up to two percent on the outstanding balance.
The condo owner has certain responsibilities as outlined in Article 1.336 of the Civil Code with the new wording.
The organization that fails to pay its dues will face financial penalties, including a possible interest rate and a fine of up to 2% on the outstanding amount.
Article 4 of Law No14,905/2024 states that the Central Bank will offer an interactive tool for simulating the legal interest rate.
Exceptions to Decree No. 22,626, which regulates contract interests.
Law No 14,905/2024 states that Decree No 22.626/1933 regarding interest in contracts does not cover certain specific situations as outlined in Article 3.
Examine each one of them.
The regulations in Decree No 22.626 from 7 April 1933 do not pertain to responsibilities as per Article 3 of Law No. 14,905/2024.
Agreement made between legal entities.
II – depicted by credit instruments or securities;
III – agreed upon in advance
Authorized institutions by the Central Bank of Brazil include financial institutions and other institutions permitted to operate.
investment funds or clubs;
Merchant leasing firms and basic credit companies.
Civil society organizations focused on providing credit and operating in accordance with Law No. 9.790 of March 23, 1999.
IV – conducted within the financial, capital, or securities markets.
Business agreements now have more flexibility to negotiate interest rates that go beyond the previous restrictions, allowing for the accumulation of compound interest.
Changes that result in a sense of consistency
Law number 14,905/2024 is a major step forward for the Brazilian legal system, offering increased stability and foreseeability in contractual and legal interactions.
The new law standardizes currency adjustments and interest rates, reducing ambiguity and encouraging more equitable discussions between the parties.
It is important for attorneys to comprehend these changes and assist their clients strategically to ensure adherence to the new regulations and avoid legal disputes.
Frequently Asked Questions
Law 14905 of 2024 comes into effect when?
What is the lawful interest rate as specified in the Civil Code?
What is the current standard procedure for applying interest rates and judicial monetary correction in private law relationships following Law 14.905/2024?
In the absence of a contractual forecast, monetary correction will typically be based on the IPCA/IBGE index, which measures official inflation. It is essential to consider any particular regulations that may apply to specific legal relationships.
Mortal interest will be calculated using the SELIC Rate, minus the IPCA for that time frame.