Think your credit card rate is high? Some in Brazil pay 455 percent.

That rate is the reason that the debt Chaves took on in summer 2022 to purchase classroom materials has ballooned to an amount she says her salary will never cover. It’s why she resorted to buying beans and rice on an installment plan. Why her credit is bad. Why she lost more than 10 pounds.

Brazil has long suffered exorbitant interest rates. The average APR on a consumer credit card here is 431.6 percent, according to the Central Bank of Brazil — a result of historically high inflation, a lack of regulation and limited competition in the banking sector.

But as more Brazilians sought credit during the pandemic and subsequent recession, a new crop of lenders swooped in. Many are funded by Silicon Valley and other elite American investors; Nubank was backed by Warren Buffett, Josh Kushner (Jared Kushner’s brother), Peter Thiel and Sequoia Capital before it went public in 2021.

The new banks say they’re promoting financial inclusion, giving some of Brazil’s poorest citizens access to credit for the first time — through their smartphones.

In this effort, Nubank spokesman Rafael Corrêa said, the issuer is doing better by borrowers than the rest of the industry.

Seven percent of Nubank debt is assessed at the highest APRs, he said, eight points less than the industry as a whole. The 90-day default rate for the poorest customers is 8.3 percent — about three points less than the industry average.

“Nubank has been revolutionizing Brazil’s extremely concentrated financial system not only by democratizing access to financial services and products, but also by offering lower fees to our over 85 million customers base,” Corrêa said.

Josh Kushner’s Thrive Capital, Thiel’s Founders Fund and Sequoia Capital declined to comment. Buffett’s Berkshire Hathaway did not respond to requests for comment.

Most borrowers here don’t pay such high rates. It’s when they miss a payment that they get charged the astronomical APRs. By law, a lender cannot charge those rates for more than 30 days before offering borrowers the opportunity to parcel out payments. But the average rate in such cases is still more than 190 percent, according to the Central Bank.

These lending practices are exacerbating an existing consumer debt crisis here — with disastrous consequences for borrowers who struggle to understand what they’ve signed up for. Now the government is trying to address the problem.

In the United States, charging an APR of 455 percent on a consumer credit card is virtually unheard of — and in some cases, would be illegal, said David Silberman, a senior fellow at the nonprofit Center for Responsible Lending.

Twenty states plus D.C. set limits on the interest rates that payday lenders may charge; the highest of these is 36 percent, permitted by several states, according to the center. Lenders nationwide are barred from charging more than 36 percent to active-duty military service members and some of their family members. Federally chartered credit unions may not charge more than 28 percent.

This legal patchwork has helped keep credit card rates in the United States under 30 percent. The average APR on new U.S. cards ranges from 20.7 percent to 24.6 percent — a 30-year high, according to WalletHub.

But in Brazil, which lacks comparable regulations, staggeringly high rates are common.

“The entire system has been treating every borrower as if they were the worst possible borrower,” said Claudia Yoshinaga, a finance professor at the Fundação Getulio Vargas, a university in São Paulo. “Not only is this unreasonable, it makes it so that many people become worse borrowers because they simply cannot repay the debt at that interest rate.”

Tens of millions with ‘dirty names’

Government officials and private analysts once touted the expansion of credit here as a success story — a tool that helped lift millions into the middle class. But the level of consumer debt has ballooned into a national crisis. As of July, 72 million people, about a third of Brazil’s population, were saddled with nomes sujos — “dirty names” — meaning they’d defaulted on their debt, according to the credit bureau Serasa. It’s seen as the most challenging obstacle to restoring the economy of Latin America’s largest country and to the economic agenda of President Luiz Inácio Lula da Silva.

More than 55 percent of the credit card debt of people who pay the average APR in Brazil is delinquent by more than 90 days, the Central Bank reports. In the United States, the 90-day delinquency rate for the third quarter or 2023 was roughly 2 percent, according to the credit bureau TransUnion.

Lula, who took office at the beginning of the year, made a campaign promise to use the power of the federal government to renegotiate the debts of tens of millions of defaulters. He rolled out the Desenrola program in July; more than 600,000 people have renegotiated their debts. And in October, lawmakers passed a bill that would cap rates at 100 percent beginning in January if the industry doesn’t come up with an acceptable plan on its own.

But the government here has little authority to address the roots of the crisis.

Annual inflation in Brazil in November was 4.68 percent, a point and a half higher than in the United States. The Central Bank’s benchmark lending rate is 11.75 percent. But credit card rates are set by private banks, each of which prices risk individually.

Analysts say the methods by which lenders calculate rates are out of step with reality — the product of an uncompetitive market with little transparency or regulation. Brazil’s four largest banks control 63 percent of the credit card market, according to the Central Bank. In 2022, they enjoyed their most profitable year yet — giving them little incentive to reduce their rates.

Until last year, lenders were not required to share borrowing records with one another, making it difficult for consumers to develop a credit history that could help them argue for lower rates.

Yoshinga, the finance professor, asks students from high-inflation countries such as Argentina, Venezuela and Nigeria to guess credit card rates in Brazil. “No one ever imagines it is this high,” she said.

Card issuers in Brazil, as in the United States, make most of their money off customers who can’t pay their full balance each month. Brazil’s high interest rates quickly make the debt insurmountable.

‘The debt is a snowball’

In Morro da Cruz, a hilltop favela in the southern city of Porto Alegre, consumer debt afflicts nearly every home.

Jauna Morais de Aguirre shows a credit card from C6. It’s one of three maxed-out cards that the stay-at-home mom says became her lifeline after she separated from her husband during the pandemic. An initial balance of around $94, spent on diapers, milk and food, quadrupled in less than a year, she says, after her ex-husband stopped paying it down.

Eager to develop a source of income beyond her monthly welfare benefits, she borrowed money from her mother to take a course in nail and eyebrow care. But she can’t buy the equipment to start a beauty business, she says, because her nome sujo prevents her from getting another credit card.

Instead, she makes small cash purchases — nail adhesive, clippers, gel polish — every few months. A bed for her two-bedroom shanty (the family of seven now sleep on the floor) remains a distant dream.

“Everything I want to do in my life, I can’t because of this dirty name,” she said. “The debt is a snowball.”

C6 did not respond to a request for comment.

Fifteen minutes down the hill, Tucha Jamaica, a 37-year-old second grade teacher, is 10 years into a debt she doesn’t expect to ever pay back. A decade ago, she lent her credit card to a colleague who claimed she needed it for an emergency. (Sharing cards among friends and family is a common practice here.)

The friend went on a shopping spree and disappeared, Jamaica says, leaving her with a debt of nearly $500. She canceled the card, but the debt soon quadrupled, she says. At one point, payments on interest alone were so steep that Jamaica and her husband, who also has a nome sujo, resorted to sifting through neighbors’ trash for recyclable cans to sell so their children could have milk.

The call log on her cellphone shows multiple missed calls each day — collection agencies, she says, for the retailers where her former friend used her card. She tries each monthly payday to renegotiate the debt, she says, but even the settlement amounts offered by the bank are unaffordable.

Her phone rings. A debt collector, she says. She doesn’t pick up.

‘Another source of chronic indebtedness’

During Lula’s first stretch as president, from 2003 to 2010, a boom in commodities prices helped lift tens of millions of Brazilians into the middle class.

Even during the Great Recession from 2007 to 2009, the economy here was fueled by demand from China, which was willing to pay soaring prices for Brazil’s agricultural exports. Foreign investment more than doubled, wages and employment grew, inflation fell, and Lula’s signature social welfare program, Bolsa Familia — “family allowance” — gave the poorest Brazilians cash to spend.

The growth enabled a massive expansion of…