To significantly reduce emissions from deforestation and forest degradation, one of the main proposals of REDD schemes is to directly pay landowners for their opportunity cost. However, this idea gives little consideration to the conservation status of forested areas in small properties, ignoring that maybe direct payments will not bring a fair and equal distribution of benefits. This paper discusses implications the adoption of direct payments might have to smallholders in the Brazilian Amazon using a case study in the municipality of Cotriguaçu, Mato Grosso State. Interviews with landholders show that if the presence of a legal forest reserve, as determined by Brazilian Forest Code, is considered, the current environmental "deficit" found in most properties would represent the exclusion of thousands of smallholders from a direct compensation scheme, dramatically reducing the scope for REDD. The results show that alternative crediting schemes are needed for REDD to be equal and fair.