| RIO DE JANEIRO, March 9
RIO DE JANEIRO, March 9 A Brazilian judge barred
commercial banks from deducting loan installments from the
accounts of state civil servants who are yet to be paid their
wages, in the latest episode of a deep fiscal crisis ensnaring
debt-laden state governments.
The ruling, which Rio de Janeiro state judge Maria Christina
Berardo Rucker released on Thursday, affects 26 lenders who
have payroll-deductible loan contracts with civil servants in
the state. The ruling applies nationwide, blocking deductions
where states remain in arrears with their employees.
The ruling came after some civil servants claimed
installments were being deducted directly from their accounts
and not from the state's payroll. Rucker said in her ruling that
it is the state, and not the borrower, who must take
responsibility for the payroll deductions.
The decision underscores Brazil's unstable legal framework
for credit markets, where for decades the rights of borrowers
have been protected in spite of a legacy of high delinquencies.
Brazilians pay the highest borrowing costs among the world's
major 20 economies, in part because of legal and regulatory
uncertainty across credit segments.
"Financial institutions are getting their money at 'manu
military'," or by force, the ruling said. "That has aggravated
the situation of civil servants who have been deprived of their
salaries and are also being literally torn away by banks."
Some of the banks affected by the ruling include Banco
Bradesco SA and a consumer financing unit known as
Bradesco Financiamento; state-controlled Banco do Brasil SA
; Banco Alfa SA; Banco BMG SA; Banco Votorantim SA;
Banco do Estado do Rio Grande do Sul SA; Banco Safra
SA, and Banco Santander Brasil SA.
None of the banks commented on the ruling.
The decision mirrors the depth of Rio de Janeiro's crisis,
where administrations increased expenses unsustainably in the
past decade. A plunge in tax collections and royalties amid
Brazil's worst recession left Rio de Janeiro with no cash and
waiting for a federal government-led bailout.
(Writing by Tatiana Bautzer and Guillermo Parra-Bernal; editing
by Grant McCool)