Supervisor of Banks Yoav Lehman today issued a draft order to all the banks about the management of household accounts exceeding their overdraft limits. The banks have been given a year in which to contact clients and reach new arrangements on overdrawn accounts that have exceeded their allowable limits. The goal is eliminate excess overdrafts.
"The order's objective is to stop the prevailing account management practice in Israel, of allowing ongoing, continual deviations from permitted overdraft limits," ran a statement that confirmed the "Globes" report published yesterday.
The draft order proposes that the banks should base overdraft limits on an analysis of the customer's credit needs, and that limits should be subject to approval by the bank's official credit officer.
The agreement between the customer and the bank on overdraft limits must make clear the customer's obligation, with the bank able to charge interest on the customer's current account only within, and not above, the predetermined limit. In cases where the customer asks the bank to cover a specific debit that may exceed the overdraft limit, and the bank is willing to do so, it must be agreed upon in advance. The agreement on this temporary overdraft limit for the requested additional credit must be put into writing.
"The new order is intended to reduce the uncertainty caused to both customers and the banks, as a result of excess credit on current accounts," the Bank of Israel stated. The Bank of Israel noted that, from the banks' point of view, their control over credit risk on specific borrowers could be severely damaged, as would be their ability to generally estimate portfolio risk.
Published by Globes [online] - www.globes.co.il - on Monday, September 06, 2004