Mathematicians question interest summary

By ETCO
14/10/2009

Author: Laura Ignacio

Source: Valor Econômico - SP - 14/10/2009

Laura Ignacio, from São Paulo

Builders and developers can get rid of lawsuits with the review of Precedent No. 121 of the Supreme Court (STF). The rule, questioned in a manifest sent to the court by a group of mathematicians and economists, prohibits the capitalization of interest, even if agreed between the parties and provided for in the contract. They claim that the summary, published in 1963, is out of date. “The vast majority of real estate contracts use the price table to calculate the installments to be paid”, says José Dutra Vieira Sobrinho, professor of financial mathematics at the Institute of Education and Research (Insper), who is part of the group. “The federal government program Minha casa, Minha vida does this.”

There are, however, court decisions ruling out the application of compound interest based on the summary. As a result, a group of professors in the field of finance from institutions such as Insper, the University of São Paulo (USP) and the Getúlio Vargas Foundation (FGV) sent a manifesto to all the supreme ministers asking for the review of the summary . Experts argue that the ban on interest capitalization is contrary to international practices. Compound interest is used in financial applications - savings, investment funds, pension funds and government bonds, in addition to personal credit.

Supreme Court ministers have yet to comment on the request. The Ministry of Finance stated, through its press office, that Provisional Measure No. 2.170-36, of 2001, allows the application of compound interest. The standard expressly releases its use in contracts with financial institutions. Even so, there are court decisions that rule out the application of compound interest and determine the use of simple interest to calculate the installments to be paid. Insper professor José Dutra explains that the application of simple interest would only distort the total value of the property. "There is no condition to calculate financing in equal installments based on simple interest," he says.

After six precedents in the same direction, the Supreme Ministers decided, in 1963, to standardize the understanding of the court. The legal basis of the summary is Decree-Law No. 22.626, of 1933, the so-called Usury Law. According to Dutra, with the coffee crisis in 1929, farmers drafted legislation that gave a ten-year moratorium on the payment of agricultural debt. The standard also established a limit rate - and retroactive - of 12% interest per year. According to him, as São Paulo was defeated in the Constitutionalist Revolution against the centralizing policy of Getúlio Vargas, but the then president could not govern without State support, he accepted the proposal on April 7, 1933.

One way found by the builders and developers for the problem was to convince the Judiciary that the use of the price table does not mean capitalizing interest. The lawyer Marcelo Terra, from Duarte Garcia, Caselli Guimarães e Terra Advogados, recalls, however, that the jurisprudence on the subject is still divided. "Updating the summary would end the problem and bring more legal certainty to the contracts," he argues. The professor of finance at USP's Faculty of Economics and Administration (FEA), Roy Martelanc, supports the manifesto and summarizes: “It's like enforcing a rule against the law of gravity.”