CMN Resolution No. 32 - Disciplinary Norms for Operations by Credit and Financing Companies and Mixed-Type Companies Involving Acceptance of Exchangeable Titles Issued by Financed Entities - Revocation of SUMOC Instruction 251 and Resolutions 21 and 28

RESOLUTION No. 000032

THE CENTRAL BANK OF THE REPUBLIC OF BRAZIL, in accordance with the deliberation of the National Monetary Council, in session on this date, and considering the provisions of Article 4, item VI, and Article 9 of Law No. 4,595, of December 31, 1964, and Articles 14, item II, and 27 of Law No. 4,728, of July 14, 1965,

RESOLVES:

I - To regulate, as follows, the operations carried out by Credit and Financing Companies and mixed-type companies resulting from the acceptance of exchangeable titles issued by financed companies.

II - Credit opening operations through acceptance by the financier of bills of exchange drawn by the financed party shall, from this date, comply with the following provisions:

a) They shall be governed by a written and formal contract, which must include a clause admitting the drawing of bills of exchange by the financed party, observing a minimum term of 6 months, for both the contract and the resulting bills of exchange, with the rotation of guarantees prohibited;

b) They shall have as principal and mandatory guarantee the pledge of duplicates representing installment sales contracted for a total term of not less than 6 (six) months, made to buyers of durable goods, or duplicates resulting from installment sales, whose maturity is not less than 120 (one hundred and twenty) days, calculated from the date of the pledge; and

c) The value of the pledged titles must exceed, by at least 20%, the value of the acceptances that guarantee them.

III - Companies whose paid-up capital plus reserves equal or exceed Cr$250,000,000 (two hundred and fifty million cruzeiros) may carry out, in addition to those regulated in the previous item, credit opening operations through exchangeable acceptance, subject to the following norms:

a) They shall be governed by a written and formal credit opening contract, which must include, in addition to the clause admitting the drawing of bills of exchange by the financed party, clauses for monetary correction and interest, respecting a minimum term of 6 months, for both the contract and the resulting bills of exchange, with the rotation of guarantees prohibited whose maturities are less than 120 days;

b) They shall have as principal and mandatory guarantee the pledge of duplicates representing installment sales, contracted for a total term of not less than 6 months, made to buyers of durable goods;

c) The value of the pledged titles must exceed the sum of 120% of the value of the acceptances plus the monetary correction that is agreed upon;

d) The monetary correction clause, at the discretion of the contracting parties, must comply with one of the following conditions:

1. Adopt the coefficients approved by the National Council of Economy for the correction of Readjustable Obligations of the National Treasury (Article 27 of Law No. 4,728, of July 14, 1965), establishing the maximum correction as a percentage of the principal of the operation; or

2. Alternatively, pre-fix the value of monetary correction, observing, in this case, the provisions of letter "f" below;

e) The content of the resulting bills of exchange from the operations covered by this item must refer to Article 27 of Law No. 4,728, of July 14, 1965, and specify the monetary correction, in accordance with what is agreed in the credit opening contract, as well as the interest rate to be applied to the principal;

f) The nominal differences resulting from the monetary correction of the credit opening contracts and the bills of exchange covered by this item, according to the provisions of Article 27, § 1, of Law No. 4,728, of July 14, 1965, do not constitute taxable income for income tax purposes, except in the case of pre-fixed monetary correction (letter "d", number 2, above) if this, plus the interest rate, exceeds the monetary correction resulting from the application of the correction coefficients approved by the National Council of Economy; in this case, the excess will be considered interest and will be subject to income tax, with the accepting companies of the bills of exchange responsible for withholding and immediate payment, upon redemption, of the due tax;

g) The average term of the credit opening contracts, bills of exchange, and duplicates received as collateral, calculated over the total operations, may not be less than 9 months.

IV - The limit of direct responsibility of the same client, referred to in item VII, letter "c" of Ordinance No. 309, of November 30, 1959, of the Ministry of Finance, may be exceeded up to a maximum of 10% of the total applications of the company, provided that the responsibility of each of the drawees of the duplicates delivered as collateral does not exceed 2% of the value of the guarantees received for the total of the contracts in force.

V - Contracts in force that do not meet the operational conditions established in item II, when of indefinite term, must be liquidated by December 31, 1966, and the others at their respective maturities, admitted, in both cases:

a) The re-contracting, with the same issuing companies, for a value at most equal to that of the contract in force, provided that the current guarantee modalities are gradually replaced, at the rate of 1/3 of their value in each new contract, by the pledge required in letter "b" of item II; or

b) Alternatively, the re-contracting with the same issuing companies, maintaining the current guarantee modalities, provided that the value of each new contract, from the first, is gradually reduced at the rate of 1/3 of the value of the contract currently in force; and

c) In any of the above cases, the terms of the new contracts may not exceed six (6) months.

VI - Passive operations of any nature by credit and financing companies and mixed-type companies may not exceed, in value, 15 (fifteen) times the sum of paid-up capital and reserves.

VII - To comply with the provisions of the previous item, companies whose operations, on this date, exceed the limit established therein, must reduce, each month, the excess at the rate of 1/5 of its value, so as to fit within the limit by December 31, 1966.

VIII - From this date, it is prohibited for credit and financing companies and mixed-type companies to co-obligate themselves in exchangeable titles in a manner different from that established in this Resolution, as well as to collect resources through the issuance of other titles representing orders or promises of payment; companies that are, possibly, responsible for titles under these conditions may not extend their maturity.

IX - Credit, Financing, and Investment Companies are exempt, from this date, from the compulsory deposit referred to in item VI of Ordinance No. 309, of November 30, 1959, of the Honorable Minister of Finance; the deposits currently existing will be released within 10 days of the date of this Resolution.

X - Non-compliance with the provisions of this Resolution will subject infringing companies to the penalties provided for in Law No. 4,595, of December 31, 1964, Article 44 and its items, respecting the following conditions:

a) Violation of the norms of items II, III, and VIII will result in the application of a warning penalty, with a fine of 10 times the highest minimum wage in force in the Country applied for each contract signed in disagreement with the mentioned items in case of recidivism;

b) Disregard for the provisions of items VI and VII will result in the application of a warning penalty, and in case of recidivism, successive and increasing fines of 50, 100, and 200 times the highest minimum wage in force in the Country.

XI - The processing of the application of the sanctions provided for in the previous item will be regulated within 20 days of the date of this Resolution.

XII - Bills of exchange resulting from the operations covered by this Resolution may be placed in the market directly by the accepting companies.

XIII - Resolution No. 21, of March 15, 1966, is revoked, except for the carrying out of refinancing operations for companies that have not yet used the credits referred to in item V of the mentioned Resolution.

XIV - Resolution No. 28, of June 20, 1966, and Instruction No. 251, of September 26, 1963, of the extinct Superintendence of Money and Credit, are revoked.

Rio de Janeiro-GB, July 30, 1966

CENTRAL BANK OF THE REPUBLIC OF BRAZIL

Dênio Nogueira
President