- Over the past year, the Banking Supervision Department conducted an examination of the marketing and operational practices associated with revolving credit cards in several supervised institutions. Consumer credit services have been a focus of supervisory efforts for several years through regulation, examination, and oversight activities.[1]
- A revolving credit card functions as both a payment tool and an open ended credit facility that accrues interest. With standard Israeli credit cards (nonrevolving), the customer is charged the full amount of monthly transactions. [2] In contrast, revolving credit cards require only partial monthly repayment; the unpaid portion accrues interest and is added to the outstanding debt.
- Revolving credit serves as an additional financing option for customers. It may supplement or replace a bank account overdraft facility, depending on customer needs. It can be useful for those seeking extra credit, experiencing fluctuating incomes and expenses, wanting to reduce their monthly bank account charges for a period or in other circumstances.
- As of September 2024, the total revolving credit card balance stood at NIS 6.2 billion, about 4.6 percent of all nonhousing consumer credit issued by banks and credit card companies. Over 90 percent of revolving credit is issued by credit card companies, with the remainder issued by banks.
- Both revolving credit and overdraft limits represent flexible credit services with no fixed repayment schedule (hereinafter: "flexible credit"). Due to the uncertainty regarding the amounts and timing of credit usage and repayment, flexible credit is generally priced higher, meaning interest rates are typically higher than those for structured repayment loans.
- Revolving credit cards are common in many countries including the US, UK, Canada, Italy, Spain, and Singapore, where usage is significantly more widespread than in Israel. Data from US, UK and Canada indicates that interest rates on such services tend to be higher than in Israel, and that, as in Israel, flexible credit carries higher rates than structured repayment loans.
- This report outlines the key findings from the Banking Supervision Department’s review, summarizing the requirements communicated to supervised institutions involved in revolving credit card marketing.[3] These requirements aim to improve the sales process, clarify service terms and informed usage, and enhance post-enrollment service management. Given the service’s features and higher cost to customers, it is crucial that customers fully understand the product, match it to their needs, and use it wisely. The outlined "Do's and Don'ts" should serve as the foundation for training and periodic instruction of representatives involved in the marketing and servicing of these products.
- Based on the findings, the Banking Supervision Department is currently evaluating whether specific regulatory measures are needed for this sector.
- The report also includes consumer tips for responsible use of credit services in general and revolving credit cards in particular.
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