By Brazil Stock Guide – BTG Pactual is fighting a court battle with Instituto Nacional do Seguro Social, Brazil’s federal social security authority, to unlock payments from a portfolio of payroll-deducted consumer loans originally issued by Banco Master, according to O Estado de S. Paulo. The payments were suspended after the INSS identified signs of fraud in a large share of the contracts, abruptly cutting off cash flows to investors.
Payroll-deducted loans, known locally as consignados, are a major segment of Brazil’s retail credit market. Installments are automatically withheld from pensions or salaries before the money reaches borrowers, making the product low risk in normal conditions. Because the deductions run through government payment systems, the INSS has the authority to suspend collections if contracts are deemed irregular.
The dispute involves Fidc Alternative Assets I, a fund used by BTG to purchase distressed or complex assets. The fund bought debentures issued by CB Securitizadora, which were backed by Banco Master’s payroll loan receivables. When deductions are operating normally, the monthly payments made by retirees are passed through to the fund as income.
That cash flow stopped in November, after an INSS audit found that about 74% of Banco Master’s payroll loan contracts — roughly 251,000 loans — could not be properly documented as having been authorized by retirees. BTG told the court that the fund failed to receive around R$27 million in expected payments between late December and early January alone.
The legal process has been marked by contradictory rulings. A federal judge initially denied emergency relief, arguing there was no urgency. On Dec. 31, during the year-end judicial recess, appellate judge Ney Bello granted an injunction ordering the INSS to resume payments related only to the loans held by the BTG fund. That decision was later overturned, when another appellate judge ruled that such emergency decisions cannot be used to release blocked funds, reinstating the suspension.
The case comes amid broader scrutiny of Banco Master’s credit operations. Brazil’s federal police are investigating alleged irregularities in the sale of R$12.2 billion in loan portfolios to Banco de Brasília (BRB), including payroll-deducted loans. Separately, the INSS has refused to renew Banco Master’s authorization to operate in the consignado market, effectively barring the bank from originating new payroll loans to pensioners.
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