Brazil Caps Interest at 1.99% for FGTS-Backed Worker Credit

The Ministry of Labor issued new rules allowing workers to use up to 10% of their FGTS balance and up to 35% of severance payments as collateral for payroll‑deductible loans (Consignado CLT). The interest rate on these loans is limited to 1.99% per month, roughly half the average rate for unsecured credit. The cap applies when the guarantee covers at least 50% of the loan value through bank channels, and 100% when the loan is arranged via the digital Carteira de Trabalho platform. The regulation, effective 26 June 2026, aims to increase competition among banks, lower borrowing costs, and reduce default risk. In its first 15 months, the Consignado CLT program financed more than R$130 billion for around 10 million workers, with about R$110 billion in new contracts. Consumer‑rights groups such as Procon SP and Idec have urged caution, warning borrowers to consider the risks of pledging FGTS assets.