Dias Toffoli voted in favor of notary offices in an action that could facilitate the recovery of assets in the event of defaults and would have the potential to unlock up to R$1 trillion in credit in Brazil
The minister of the STF (Supreme Federal Court) Dias Toffoli, rapporteur of the case challenging the Legal Framework for Guarantees (law ), decided to veto the execution of fiduciary alienation directly by Detrans (Traffic Departments), returning all power to the registry offices. This makes it more difficult for the owner of an asset to recover it in the event of default. Here’s the do vote (155 kB –PDF).
When approved, the Legal Framework for Guarantees regulated fiduciary alienation, a type of credit guarantee that occurs when the debtor transfers ownership of an asset (such as a house and a car) to the creditor (almost always a financial agent, such as a bank) as guarantee for a debt. When there is a default, the creditor has the right to repossess the asset to cover the loss.
According to Toffoli, notary offices should have priority in extrajudicial recovery because they would naturally be responsible for extrajudicial procedures for executing guarantees. “Attributing extrajudicial procedures to transit agencies weakens the guarantee of debtors’ constitutional rights”said Toffoli.
The minister amended: “For On the other hand, the exclusive attribution to registry offices allows these procedures to be covered by a strict and uniform legal regime, to be supervised by the internal affairs bodies of justice and the National Council of Justice. In this way, greater legal certainty is guaranteed in the application of these institutes.”
The STF had validated the search and seizure of assets without a court decision in the event of default. The measure is provided for in the . The Court is now, however, hearing an appeal from (Federal Association of Justice Officers of Brazil), which is against this type of action by Detrans.
Toffoli’s vote was delivered in the STF’s virtual plenary. Minister Cristiano Zanin followed Toffoli’s vote. The trial would end on October 17, but was suspended following a request for review (more time for analysis) from Minister Gilmar Mendes.
Toffoli’s decision goes against what the National Congress had approved in the law that speeds up the process of repossessing assets. The idea of the Legal Framework for Guarantees is that the creditor is more encouraged to offer credit when he is more certain that he will be able to recover a financed asset.
If Toffoli’s decision prevails, the search and seizure of vehicles, for example, will once again depend on the approval of notary offices. The STF will return Brazil to what has been in force since the last century. The progress that had already been in force since January with the Legal Framework for Guarantees – which allowed a simple operation through the Detran of each of the Federation units – is buried.
According to what the Poder360 has learned from the market, the impact of Toffoli’s decision could be of great magnitude:
- current vehicle market – Brazil currently generates around R$400 billion a year in financing;
- vehicle market with Legal Framework for Guarantees – with a more efficient guarantee system, the value could reach R$1 trillion in credit in this sector. There would be more competition, more access and more financing.
Acrefi criticizes
A (National Association of Credit, Financing and Investment Institutions) criticized Toffoli’s decision. Here’s the of the entity’s note (15 kB – PDF).
For Acrefi, Toffoli’s decision could interrupt thousands of ongoing asset repossession processes and increase the cost of automotive credit by passing administrative steps to justice.
“For this objective to be achieved and for consumers to have access to better financing conditions, it is essential that Detrans’ competence in the process is safeguarded, along with that of the notary’s offices and the Judiciary itself. As public bodies responsible for the registration and control of fiduciary guarantees, Detrans play a technical and legal security role, ensuring tracking and transparency in operations. Their participation is the conclusive stage of a legal flow which has been reducing costs and legal disputes, with direct benefits to the economy and the democratization of credit”said Acrefi.
