On 28 June 2024, Law 14.905/2024 was enacted, introducing significant changes to the Brazilian Civil Code. The new law standardizes how monetary correction and interest are applied in debt contracts without an agreed rate and in non-contractual civil liability cases.

Before Law 14.905, courts differed on how to interpret Article 406 of the Civil Code, sometimes applying the SELIC rate, other times using a 1% monthly rate.

Under the revised Article 389 of the Civil Code, if an obligation is not met, the debtor is liable for damages, interest, monetary correction, and attorneys’ fees. If the parties have not agreed on a monetary correction index or if specific legislation does not provide one, the National Consumer Price Index (IPCA), calculated by the Brazilian Institute of Geography and Statistics (IBGE), or its replacement index, will apply.

For default interest, the revised Article 406 of the Civil Code now states that when interest is not agreed upon, is agreed upon without a specified rate, or arises from legal requirements, it will follow the legal rate.

A notable change appears in the article’s paragraphs. Paragraph 1 specifies that the legal rate will be the reference rate of the Special System for Settlement and Custody (SELIC), minus the monetary correction index (SELIC minus IPCA). If this legal rate results in a negative value during any period, it will be considered zero, meaning no interest will accrue.

These changes address the issue of applying the SELIC rate to civil debts, a topic that was debated and is still awaiting a final ruling from the Superior Court of Justice (STJ).

They will take effect 60 days after the publication of Law 14.905 on 1 July 2024.