The Banking Supervision Department and the Capital Market, Insurance and Savings Authority are jointly publishing directives to regulate the consumer aspects of credit provision activity to private individuals. The directives set out the supervisors’ minimal expectations from the activity of the banks, credit card companies, and credit providers supervised by the Capital Market Authority vis-à-vis households, with the aim of setting uniform standards of lenders’ fairness when providing credit. In addition, this joint step to benefit customers is intended to eliminate regulatory arbitrage in the consumer aspects of fairness in the marketing of credit.
Background:
In the past decade, credit to households has expanded against the background of growth in private consumption, readily available credit, and increasing competition between credit providers. This expansion has been accompanied by GDP growth, meaning that household leverage, measured as the ratio between credit and GDP, has increased only slightly and is not high relative to other advanced economies. The increase in the supply of credit and the number of players active in the provision of credit has a positive effect on the increase in competition in financial fields. At the same time, these changes may also lead to a debt level for some borrowers that is too high to match their financial capabilities, and may even harm their well-being in extreme cases. In view of this, lenders are required to be meticulous about providing credit to households in a responsible and proper manner.
The main points of the measure:
The aim of the joint directives by the Banking Supervision Department and the Capital Market Authority is to ensure proper and fair behavior when providing credit to private individuals. This will minimize the risks to which credit customers are exposed, encourage the development of competition between credit providers, and strengthen public confidence in the financial system as a whole, to benefit consumers and the various entities that are active in the system.
Under the directives, lenders are required to set minimal criteria for the provision of credit to households, to strictly adhere to proper behavior toward customers, and to avoid prohibited practices in the marketing of credit. This includes:
- Adjusting the volume of credit to the customer’s financial capabilities in order to minimize the risk of the customer developing an excessive debt burden;
- Avoiding aggressive marketing activity and the application of pressure to the customer;
- Being meticulous about full and relevant disclosure to the customer;
- Ensuring that compensation mechanisms to employees who market credit do not encourage behavior that is unfair.
Supervisor of Banks Dr. Hedva Ber said, “The Banking Supervision Department has, in recent years, taken a variety of actions to improve fairness in bank-customer relations. This directive is another, complementary layer in these actions. I welcome the cooperation with the Capital Market Authority, which has enabled the publication of uniform rules to ensure proper behavior of all credit providers toward their customers, maintain the well-being of households, and increase confidence in the financial system as a whole.”
Supervisor of Capital Markets, Insurance and Savings Dr. Moshe Bareket said, “The Capital Market Insurance and Savings Authority welcomes the joint action with the Banking Supervision Department to protect credit consumers in Israel. The Authority is acting intensively to promote the provision of advanced financial services that are fair, by supervised licensees, in a way that will increase competition over the price of the service and adjust it to the customer’s needs while ensure the quality of the service and fair behavior toward the customers. This directive, which relates to consumer credit and was formulated in full cooperation with the Banking Supervision Department, expresses our commitment to protect credit consumers. I would like to take this opportunity to again emphasize that the public must remember and understand that credit providers that are not banks, credit card companies or insurance companies are not under prudential supervision by the Capital Market, Insurance and Savings Authority, except for places where there are deposits by the public, and the legislator has not required that financial stability rules be applied to them.”