Cut in the credit framework (photo by Magma Images, shutterstock)
These days, many customers received a notification from the banks about reducing the credit limit on their bank credit card. This is a directive from the Bank of Israel that was postponed a year due to the Corona crisis. The guideline is based on the conclusions of the Strom Committee from 2015, regarding the reduction of credit card frames at Bank Leumi and Bank Hapoalim – the major banks. They must sell their credit companies, and reduce the frames of customers with a frame that is higher than NIS 5,000 by 50%. This, in order to encourage the entry of new competitors into the credit market. The order will enter into force at the end of January this year.
According to estimates, the credit reduction was carried out to about one million customers, with the method based on the utilization of the credit limit on the card: if you had a limit of NIS 15,000 and used only NIS 5,000 of it in the last year, the credit limit on the card will be reduced accordingly.
“A customer whose credit limit has been reduced can contact the bank and ask to increase the credit limit on his bank credit card again, or alternatively take another non-bank credit card. In both cases, the bank and the credit companies check the credit rating of the person ordering the card and accordingly decide whether to issue a card or to increase the framework,” explains attorney Shai Shemesh from the Cohen Shemesh law firm that deals with banking and credit.
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According to him, the excuse that “I didn’t read the message from the bank, I didn’t check the details of my credit card account that there was an intention to reduce my credit limit on the card or I didn’t open the envelope the bank sent me”, are not acceptable. It is our responsibility to check this, just as we are expected to check if the telecommunications company continues to bill us even though we have disconnected or received a notice about late payment of the electricity bill. Therefore, if a transaction is planned whose amount will exceed the limit, it is recommended to contact the bank in advance in order to examine the approval for increasing the limit on the credit card.”
Attorney Shai Shemesh: “If this is not enough, according to the new regulations of the Ministry of Finance, the Finance Committee may soon discuss changing the definition of a “wide-scale bank” from 20% market share to 10%. This means that customers of Bank Discount and Bank Mizrahi Tefahot are also expected to receive a similar message soon.” This should happen to 9 out of 10 customers.
The reduction of the credit limits will probably lead to a reduction in the credit rating of many, which will mean that such customers will be able to get another credit card or increase the credit limit on the bank credit card but will be required to pay significantly higher interest rates than those of the bank cards and there will be those who will refuse credit.
Attorney Shemesh adds that the intention of the law is not to reduce credit limits in a sweeping manner, but to act so that the banks will reduce the limits on bank cards, which will increase the use of non-bank credit cards. Competition may in some cases even lower the interest rate within the credit. The law does not refer to the credit limit in the account the bank but only concerns the limit on the credit cards. At the same time, a change in the credit rating will also affect borrowers: the lower the borrower’s credit rating, the higher interest he will pay on the loan.
Attorney Shai Shemesh. Photo: Mittal Azoulai
A bit of history until 1970 there were no credit cards in Israel and the first to issue such a card was Diners. The Isracard credit card is owned by Bank Hapoalim, the Cal card is owned by Discount and the International Bank, and the Max card – formerly Leumi Card – is currently owned by the Warburg Pincus investment fund. Most of the cards in Israel are bank cards: that is, they are offered by the bank to its customers in conjunction with a certain bank account from which the debit is made.
In April 2017, the Bank of Israel granted a clearing license to Tranzilla and in March 2018, it also granted a license to Cardcom.
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