By Victoria Pacheco, Igor Sodre and Marcela Ayres
SAO PAULO, Sept 18 (Reuters) - Alice de Queiros was earning little more than Brazil's minimum wage of around $300 when Nubank, Latin America's largest digital bank, raised the limit on her credit card in 2022 far beyond what traditional lenders were offering, increasing it twentyfold over three years.
"They didn't even ask for proof that I had the income to repay it," the 30-year-old Brazilian public servant said.
With almost her entire paycheck now
going to repay the $1,500 owed on her credit card, Queiros is one of millions of Brazilians caught in a digital lending boom that expanded access to credit while exposing vulnerable households to some of the world's highest borrowing costs.
A record 82% of Brazilian households are in debt, and a third are behind on their payments, according to the National Confederation of Commerce. Despite a solid job market and easing inflation, frustrated voters say the state of the economy is among their top concerns ahead of general elections in October.
In a July review, as part of its annual consultation with Brazil, the International Monetary Fund said much of the buildup in Brazil's household debt was driven by credit cards and unsecured personal loans, with fintechs and digital banks at the forefront of the lending boom.
"These institutions have increasingly targeted low-income customers," said Lauro Emilio Gonzalez Farias, a professor at Fundacao Getulio Vargas in Sao Paulo, who specializes in financial inclusion. "We have a predatory lending model."
Nubank said in a statement that it could not comment on Queiros' case because of privacy rules, adding that credit decisions take into account factors such as existing debt and the portion of a client's income committed to servicing it.
Leftist President Luiz Inacio Lula da Silva and his main right-wing challenger in this year's presidential race, Senator Flavio Bolsonaro, have proposed measures to curb household debt, including tighter rules on credit offers, though the extent to which fintech lending would be affected remains unclear.
"You can walk into virtually any retail store today, including online, and be offered a credit card on the spot," said Jose Luiz Rodrigues, chairman of ABFintechs, an industry group.
Lenders should face stricter accountability and use better technology to assess borrowers' ability to repay before extending credit, he added. "Regulators need to raise the bar."
Brazilians had an average of 6.7 banking relationships at the end of 2024, one of the highest levels globally, data from Brazil's central bank shows.
UNINTENDED CONSEQUENCES
Three years ago, Queiros still had a student loan but no credit card debt when Nubank began raising her limit. She now owes five times her monthly earnings and has had to move in with her mother.
Queiros accumulated debt quickly in part because Brazil has some of the world's highest interest rates on credit cards, at some 440% for revolving lines — the balances that are rolled over when consumers do not pay the entire bill — versus around 21% in the US.
Economists have long attributed those extraordinarily high Brazilian interest rates to weak credit recovery rates, the limited competition that has prevailed in the country's banking sector and other issues.
When a series of regulatory changes during the past decade opened the door to the rise of fintechs, policymakers hoped the increased competition could help lower the interest rates offered to consumers.
But those hopes did not pan out, according to experts and one person familiar with regulators' thinking at the time.
Fintech companies that entered the sector competed less on rates than on extending credit to consumers who had struggled to obtain it, often through a streamlined digital experience.
The shift coincided with the rapid digitalization of financial services during the COVID-19 pandemic and the expansion of Pix, Brazil's instant payment system, which led tens of millions of Brazilians to create bank accounts for the first time.
Now more than half of the country's 96 million credit card holders carry debt, with payments consuming an average 54% of their income.
"Many of the people who gained access to credit were not necessarily prepared to handle it," said one person familiar with the central bank's thinking who was not authorized to speak publicly.
Combined with newer lenders' aggressive efforts to gain market share and a benchmark interest rate that is currently 14%, "it's the perfect storm," the person added.
While some fintechs offer lower unsecured loan rates than traditional banks, rates at major digital lenders serving riskier borrowers remain among the highest in the market, reaching 103.37% at Nubank, 178.69% at Mercado Credito, and 213.69% at PicPay, according to central bank data from late August.
In statements, Mercado Credito, a part of MercadoLibre's fintech operation, and PicPay denied contributing to over-indebtedness and said their customers' credit limits are increased according to their payment behavior. Nubank added that its second-quarter results demonstrate its disciplined approach to lending.
Fintech loans are also driving household debt stress in neighboring Argentina.
REPAYMENTS DETERIORATE
The rapid expansion of digital lenders in Brazil has coincided with a sharp deterioration in repayment rates among some of their customers.
A study by Equifax BoaVista, a data analytics company, found the share of delinquent neobank credit card borrowers rose to 20.31% in 2025 from 7.71% in 2021. At traditional banks, it fell to 13.6% from 14.57%.
"The main factor behind the increase in delinquency was precisely the profile of those borrowers, who are riskier than customers of traditional banks," said Marcos Coque, the analytics director at Equifax BoaVista.
Brazil's central bank is studying measures to tackle the crisis, and Lula relaunched a government-backed program earlier this year that allows consumers to refinance debt at more favorable rates. That move, however, did not reverse the rise in delinquencies.
But for consumers like Queiros, the government's measures offer little immediate relief.
Despite having taken on extra work and remaining confident of getting through her financial crisis, she is embarrassed by her current situation. "I am being supported by my mother like a child," Queiros said.
(Reporting by Victoria Pacheco and Igor Sodre in Sao Paulo and Marcela Ayres in Brasilia; Editing by Paul Simao)
