Simplify loan agreements, BoI tells banks

Hedva Ber

The Bank of Israel Banking Supervision Department published a condensed uniform credit agreement format today.

The Bank of Israel Banking Supervision Department is bringing order into the banks' long and cumbersome loan agreements. The Banking Supervision Department today published a directive on simplification of agreements for the customer. The directive establishes a condensed uniform format for presentation to the customer on the first page of a credit agreement, including the important particulars of the agreement.

These particulars include the amount of the loan, its duration and effective interest rate, the accompanying fees, interest on arrears, etc. Further details that will be highlighted are the bank's right to take measures if the loan is not repaid, and the right to repay the loan ahead of schedule. The banks will be obligated to present customers with a condensed document starting in May 2019.

The directive constitutes implementation of the requirements in the Fair Lending Law, which will become effective this November. Under this law, the Bank of Israel is authorized to dictate forms for disclosure of particulars in various credit agreements. The Bank of Israel states that the directive was formulated in cooperation with the Capital Market, Insurance, and Savings Authority, which supervises non-banking credit concerns, so that the same format will used by players in the market. The Banking Supervision Department says that the Capital Market, Insurance, and Savings Authority will later publish a form similar to the one that the Bank of Israel is publishing today.

There are two main reasons behind the decision to simplify the complicated agreements and to condense them. The first is so that the customer will understand and absorb the significance of the terms, amount of money to be repaid, and other particulars of the loan that he or she is taking, something that is difficult with the current format. The other is that using an identical format for all the concerns in the market will help in comparing different loan  offers and selecting the one with the best terms.

"Due to the length of the bank agreements and their complicated legal formulation, the customer finds it difficult in many cases to understand them and become familiar with their details. As a result, customers do not know the important terms of the banking service they are requesting and find it difficult to compare the various products being offered to them," the Bank of Israel wrote.

Supervisor of Banks Dr. Hedva Ber said today, "The current loan agreements are long and complicated. We hope that the new directive will help the public better understand their details. In the first stage, we have focused on an agreement for providing credit, which is a common agreement having many particulars."

Published by Globes [online], Israel business news - www.globes-online.com - on July 10, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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