Brazil worker credit expansion raises severance pay risks

The expansion of the ‘Crédito do Trabalhador’ (Worker Credit) model in Brazil has significantly increased the volume of payroll loans for CLT employees. Following legislation sanctioned by President Luiz Inácio Lula da Silva, the process was simplified by removing the requirement for agreements between companies and financial institutions, allowing workers to apply directly via the Digital Work Card or banking apps.

While the integration with FGTS Digital has lowered interest rates—limited to 1.99% per month—and boosted monthly volumes from R$ 1.5 billion to R$ 11 billion, it carries significant financial risks for workers. In the event of dismissal, the system allows for the automatic retention of up to 35% of severance pay, including notice periods, proportional vacations, and the 13th salary. If these funds are insufficient, the debt can be covered by up to 10% of the FGTS balance and 100% of the 40% fine in cases of dismissal without cause.

Data from the Ministry of Labor and Employment indicates there are currently 24 million CLT payroll loan contracts serving 10 million Brazilians, totaling R$ 143 billion. However, Serasa Experian reports that 78% of workers who have joined this new credit model already have more than 81% of their income committed to debt.