The Banking Supervision Department at the Bank of Israel and the Enforcement and Collections Authority have formulated principles with the objective of ensuring fairness and transparency in the debt collections processes undertaken by the banking corporations toward households and small businesses that are not paying off their debts properly. The Banking Supervision Department has accordingly formulated a new draft directive on the matter.
Supervisor of Banks David Zaken notes that, “We see it as important to handle how debts are collected from customers who, for various reasons, are not fulfilling the terms of the loans issued to them, since fairness and transparency are required not only when providing a loan, but also in the process of collecting debts under circumstances in which the customer does not properly fulfill his obligations. As part of the draft directive and cooperation with the Enforcement Collections Authority, a number of measures have been formulated to assist in achieving these important objectives.”
David Medioni, Director of the Enforcement and Collections Authority, said, “I welcome the cooperation with the Supervisor of Banks. Among other things, we have set a goal of simplifying the late payment interest rates in collections files and making them more transparent to the public, and we will act to reduce the interest rate tables according to which the banks’ collections files are administered.”
The main arrangements formulated are as follows:
v Setting policy and procedures: Each banking corporation (bank or credit card company) will set out policy for handling the collection of debts from customers who are not paying off their loans properly, and will anchor this policy in its procedures, with the involvement of senior management and the Board of Directors.
v Establishment of a designated function: The banking corporation will establish a designated function for handling debt collection, with the appropriate resources, which will focus on handling debt collection vis-à-vis debtors, and supervise and report on implementation of the directive. It will thus be assured that the banking corporation’s management is involved in how the banking corporation acts vis-à-vis customers that are not fulfilling the terms of the loans.
v Setting a late payment interest rate ceiling on the loan: The late payment interest rate shall not exceed the maximum interest rate collected by the banking corporation for exceeding the line of credit in the current account or CLA.
v Due disclosure of the late payment interest rate on the loan: The loan agreement shall contain clear and accessible disclosure of the formulation for calculating the late payment interest rate on the loan. This will ensure that at the time the customer takes out the loan, he will be aware of the monetary implications of being unable to meet the loan repayments.
v Obligation to send a detailed notice around the time the late payment is created: The banking corporation will be required to send the customer at least one notice around the time the late payment is created. The notice shall include comprehensive information regarding the debt and its components. The notice shall also include ways of communicating with the banking corporation on any matter concerning the debt that is in arrears. Additional notices shall be sent at intervals in accordance with the circumstances of each individual case.
v Continuity of access to information via electronic means: A banking corporation shall not prevent a customer that is not properly repaying a loan from continuous access to information and notices sent to him concerning his account by electronic means, if the sole reason for prevention of such access is the creation of a loan in arrears or the transfer of handling the debt to the banking corporation’s representatives (outside attorney) or the initiation of legal proceedings.
v Obtaining information directly from the banking corporation, even when there are legal proceedings being conducted: In cases where there are legal proceedings being conducted against the customer, the banking corporation shall enable the customer to approach it directly on any matter concerning the debt. In addition, the banking corporation shall provide the customer with any information he requests (including account statements and any other banking documentation), whether the request for the provision of information is directed to the banking corporation’s attorney or directly to the bank.
v The banking corporation’s supervision and control of its attorneys: The banking corporation shall exert effective supervision and control over its attorneys appointed to act to collect debts, through a computerized system that will enable the banking corporation to send detailed guidelines concerning the debt collection, to receive updates regarding actions taken against the customer by the banking corporation’s attorneys, and so forth.
v Settlement arrangements: A banking corporation shall take appropriate measures in order to ascertain that any request by a borrower for the settlement of debts in arrears, which is directed to the banking corporation’s attorney, shall be brought to the banking corporation’s attention.
v The banking corporation’s legal fees: The directive stating that the banking corporation shall collect legal fees only at the end of legal proceedings and only to an amount that is ruled by the legal tribunal, remains in place.
In addition, as part of the cooperation with the Enforcement and Collections Authority, this directive sets out various aspects concerning the actions of the banking corporation in collections proceedings, including:
v The late payment interest rate in collections files: In order to simplify the late payment interest rates and make them transparent, it has been decided to set a uniform format that will lead to smaller interest rate tables being sent by the banking corporations to the collections offices.
v Paying down or paying off the debt will be done directly vis-à-vis the collections file: In order to prevent discrepancies between the banking corporation’s records and the debt records in the collections file, payments will be made only to the customer’s file in the collections office, through various channels made available to the customer by the collections office (payment at the collections office, payment at Postal Bank branches, bank transfers, and so forth).
v Regular monitoring of customer files opened at the collections office: The banking corporation will regularly monitor files through an automated system provided to it by the Enforcement and Collections Authority (“Integrated Tools System”).