Law 14,905/24, which amends rules of the Civil Code on monetary restatement and application of default interest, was published in the Federal Government's Official Gazette on July 1, after sanction by the President of the Republic.

In total, eight articles of the Civil Code were amended – Nos. 389, 395, 404, 406, 418, 591, 772 and 1,336 – to regulate the rules applicable to these legal institutes in cases where there is no agreement between the parties or specific legal provision.

This new law is a consequence of legal uncertainty, resulting from the absence of specific regulation in the Civil Code and uniformity of case law on the criteria used for monetary restatement and application of default interest.

The lack of predictability in the definition of the amounts due in situations of non-compliance with obligations resulted in divergent case law interpretations, which varied from one Brazilian court to another. This scenario, in addition to legal uncertainty, resulted in important economic consequences.

Although the Superior Court of Justice (STJ) has been deciding that the Selic rate is the appropriate index for monetary restatement and default interest when they have not been agreed upon, part of the judges disregard the understanding of the Superior Court and applies 1% monthly interest for default.

This situation generated a discussion that has been ongoing since 2008, when the Special Court of the STJ ruled on the Motion for Clarification of Divergence in Special Appeal 727,842.–The decision was reaffirmed in 2024, in the judgment of Special Appeal 1,795,982.

An example is Statement 20 of the First Conference on Civil Law, which, even after the first decision of the Special Court of STJ on the matter, expressed strong opposition to the adoption of the Selic for default interest and made scathing criticisms.

With the new law, it is expected that this issue will be settled, since the new wording of article 406 of the CC expressly determines, in its paragraph 1, that "the legal rate will correspond to the reference rate of the Special Settlement and Custody System (Selic), minus the monetary restatement index referred to in the sole paragraph of article 389 of this Code".

Regarding the inflation restatement index, the scenario was also uncertain. By generically providing that, in case of nonperformance of the obligation, the debtor would be liable for loss and damage, plus interest, monetary restatement and fees to be calculated "by regularly established official indexes", the CC allowed each Court of Justice to adopt the index it considered most suitable. This precluded any possibility to consolidate the case-law.

It is based on this context that Law 14,905/24 was drafted, using the following definitions for cases in which there is no contractual provision:

  • On default interest (art. 406):
  • will be established in accordance with the legal rate, which will correspond to the Selic rate, minus the monetary restatement index;
  • if the legal rate presents a negative result, this result will be considered equal to zero for the purpose of calculating default interest in the reference period;
  • the methodology for calculating the legal rate and its format of application will be defined by the National Monetary Council and disclosed by the Central Bank.
  • On monetary restatement (art. 389):
  • the variation of the IPCA index, calculated and published by the IBGE, or of the index that may replace it, will be applied.

In addition, the new law made Decree 2,626/33 (Usury Law) more flexible, which prohibits the hiring of an interest rate higher than twice the legal rate and the collection of compound interest. From now on, in addition to continuing not to be applied to banking transactions, the Usury Law will not apply to the following obligations:

  • contracted between legal entities;
  • represented by credit securities or securities;
  • contracted with:
    • financial institutions and other institutions authorized to operate by the Central Bank of Brazil;
    • investments funds or clubs;
    • leasing companies and simple credit companies;
    • civil society organizations of public interest referred to in Law 9.790/99, which are dedicated to the granting of credit; or
  • carried out in the financial, capital or securities markets.

Law 14,905/24 will enter into force in 60 calendar days, counted from publication. The definition of the methodology for calculating the legal rate and its format of application, however, still depend on definition and regulation by the National Monetary Council. The disclosure will be made by the Central Bank, which will be responsible for providing an online calculator, to assist citizens with simulating the legal interest rate in everyday financial situations.

This legal innovation is not without criticism. The three main aspects that can be questioned are:

  • Although it is expected that jurists resistant to the adoption of the Selic will apply the law, they maintained their criticism of the adoption of Selic as a general rule of inde for default interest on civil debts, for three main reasons:

    • difficulty in operating Selic – which would contradict the principle of operability of the Civil Code – since the rate is periodically redetermined and includes inflation. This makes the calculation difficult and will result in the need to create a calculator, as already mentioned;
  • the need to deduct inflation, which, in periods of low Selic, may lead to default interest close to or equal to zero and facilitate nonperformance of obligations; and
    • impossibility to anticipate the interest rate that will be applicable in the event of nonperformance of the obligation, which can lead to a significative distortion of the risk assumed in times of low Selic, if the macroeconomic scenario changes drastically and Selic suffers a strong increase.
  • Imprecision in the allocation of certain legal changes – such as the provision of the IPCA as an inflation adjustment index in the "event that the monetary restatement index has not been agreed upon or provided for in a specific law”. This provision was inserted in article 389 of the Civil Code, reserved for contractual obligations, which may raise doubts as to whether the index also applies to non-contractual obligations.
  • Removal, in several provisions of the Civil Code, of the rule that establishes that the inflation adjustment must be agreed upon "according to regularly established official indexes". This can open the door for adoption of indexes that do not reflect inflation, distorting the purpose of the monetary adjustment, to, for example, embed default penalties that exceed inflation.

Despite these criticisms, the outcome of the legislative change appears to be positive, as it contributes, for example, to mitigate the practice of filing lawsuits in certain courts, due solely to the indexer applied there.

In other words, the suppression of the legislative gaps on the rates of default interest and inflation adjustment will remove the disagreements observed in case law, which will greatly contribute to the guarantee of equity treatment and legal certainty.

Contractual freedom is also preserved. Although the new rules define the way in which the monetary restatement and the application of default interest should be carried out, these legislative changes will only be applied in cases where there is no agreement between the parties or specific legal provision.

The risks and criticisms previously mentioned about the adoption of the Selic, alongside this possibility for the parties to agree on default penalties so to increase predictability, greatly increase the importance for the parties to carefully analyse into the contractual clauses for default and late payment charges. This is essential for the parties to be aware of the impacts of any nonperformance of obligations.