2019 changes that will affect your portfolio

Changes in Israel Cabinet Expert Comptable Dray & Dray

What's new in Israel for 2019?

The year 2018 is over and many changes in Israel come into effect in 2019. The areas most affected will be;

  • The bank with reduced interest rates on loans,
  • Vehicle insurance policies,
  • Savings,
  • and pensions.

And they should affect everyone's wallet.

Limiting the use of cash in Israel

As of January 2019, cash payments will be restricted in Israel. According to the law, it will not be possible to pay cash when dealing with a dealer or service provider for transactions worth more than 11,000 Nis.

Transactions exceeding the limited amount will only be possible by cheque, bank transfer or credit card.

See also: Reforms to limit cash in Israel

However, it will be possible to pay up to 10% of the transaction price in cash.

Provided that the cash amount does not exceed the threshold of 11,000 shekels. For example, if a person wants to buy a refrigerator for 15,000 shekels, since the total amount of the transaction exceeds 11,000 shekels, he will only be able to pay 1,500 shekels in cash (10%).

On the other hand, for a transaction worth 200,000 shekels (for example, the purchase of a car), the maximum cash amount that can be paid in cash will be 11,000 shekels (less than 10%).

What about transactions between private individuals?

The restriction applies to amounts over 50,000 shekels. For example, a private individual who buys a used car from another private individual for 45,000 shekels will be able to pay the full amount in cash.

In a transaction over 50,000 shekels, both can pay or receive a cash payment only up to 10% of the transaction price or 50,000 shekels - whichever is lower.

The system that is supposed to lower our interest rates

Are you considering taking out a loan?

Today, most of the information about customers - their financial situation, their ability to repay loans and their level of risk - is held by Israel's largest banks. This gives the banks a significant competitive advantage and delays competition in the consumer credit market.

A customer who wishes to obtain a loan outside the bank, for example from a credit card company, is obliged to pay higher interest rates for "additional risk".

This is because the credit card company does not have complete data on the customer. Whether it's a customer who will repay his loans on time, or a problem customer who won't repay his debts.

Many households and small businesses are forced to pay more than they need to for no real reason.

To solve this problem, two years ago the Knesset passed a credit data law designed to consolidate all the financial data of the Israeli population into a single database.

This database, which should start operating in April 2019, will in fact contain all the data needed to determine the customer's credit rating.

This information can be obtained by the financial entity from which the customer wishes to obtain a loan and, consequently, the same organization will determine the level of risk of non-payment for this customer.

The idea is that increased credit sharing is likely to encourage competition between lenders for credit, increase credit to customers and improve credit conditions for borrowers.

How will it really work?

In addition to banks, data will be supplied by financial institutions and even public bodies: the Official Receiver, the Enforcement Office ("Otsaa lapoal"), the Bank of Israel, the courts, the Postal Bank, credit card companies and all major credit providers.

A customer wishing to obtain a loan from a financial entity will authorize that entity to receive information from the database. The financial entity must contact the credit bureau - an intermediary body approved by the Bank of Israel - to request the customer's rating. The credit bureau will process the data from the database and submit it in a matter of seconds to the financial entity, with a rating it will determine for the customer.

The financial institution can use the rating or analyze the data itself and decide on the loan.

The real change for 2019 is that for years it was possible to obtain information about a customer, but only negative information, from the enforcement office ("Otsaa lapoal"), the official receiver, etc., and then only negative information.

The real innovation in the new database is to absorb positive customer information.

The new situation raises concerns about the prejudice caused to customers for whom most or all of the information will be negative. Or to those who do not wish to be informed. These customers may receive higher interest rates than they pay today, or even be denied credit altogether.

The Fair Credit Act - coming soon to banks

Last year, the first part of the Non-Bank Lending Arrangements Act, better known by its other name "Fair Credit Act", came into force.

The main article of the law is the setting of a maximum interest rate on a loan. Anyone taking out a loan will not be able to charge more than the maximum interest rate, which will be based on the Bank of Israel's interest rate (currently 0.1%), plus 15%.

The law also seeks to bring order to the anarchy of interest rates on arrears.

Time and time again, lenders have set outrageous rates of arrears for failure to meet loan repayment dates. Now, this interest rate is fixed by law and will be in a range of up to 3% (the maximum cost of credit multiplied by 1.2 per annum). In other words, given the Bank of Israel's interest rate today, the maximum possible interest rate is the Bank of Israel's interest rate + 15% + 3% of arrears, i.e. the Bank of Israel's interest rate + 18%.

In the case of a short-term loan (up to three months), it has been determined that the maximum interest rate is equal to the Bank of Israel rate + 20% (excluding interest on arrears, which in this case will reach 4%).

In addition to the interest rate issue, the law provides clear penalties for those who violate it, and imposes greater disclosure to the customer, so that borrowers know better what kind of commitment they are making when they take out a loan.

Anyone exceeding this ceiling will be liable to penalties of up to millions of shekels. In addition, a "criminal interest" ceiling has been set, namely the Bank of Israel interest rate plus 30%.

Anyone exceeding this ceiling will be liable to three years' imprisonment.

What was the law before this reform

To date, there are no restrictions on interest rates in the banking system and none in the non-banking system, although there is a limit: it has not been applied at all.

The law was supposed to apply to all loans made by banks and credit card companies, but it was only last year that the charge was actually imposed on non-bank entities. (excluding banks and credit card companies).

Application of the law to banks has also been postponed until the 2019 process.
It should be noted that the law also lays down disclosure obligations towards borrowers, including the interest rate, the rate of all payments to the lender, such as commissions, indexation coupling, etc.

Is this good news or bad news?

Despite its good intentions, the law actually sets a high interest rate. This could lead banks to fall into line and raise their interest rates. A problem that the authorities will have to monitor closely to avoid abuse.

Car insurance discounts in Israel

The " HAR HABITOUAH - הר הביטוח "is an interface that was launched about a year and a half ago by the Ministry of the Financial Market in Israel. It enables everyone to receive, without payment, an up-to-date picture of their insurance status. That is, which insurance they pay for and which policy they hold.

From March 2019, the interface will also include a specific car report.

This will oblige insurance companies to certify the absence of claims, in order to reduce the premium. This report can be printed out and sent as proof of the absence of claims, without having to contact the insurance companies with which it was insured.

A significant time-saver.

Compulsory pension for the self-employed - beware of fines

Starting in 2017, every self-employed person is required to deposit retirement savings corresponding to the average wage in Israel.

In return, Bitouah Leoumi contributions have been reduced for most self-employed workers, and tax benefits for contributions to pension savings and training funds have been improved.

See also: Mandatory pensions for the self-employed in Israel

At the same time, it was determined that the tax authorities would forward a list of self-employed workers who had not deposited savings for their retirement to the Enforcement and Collection Administration once a year.

A self-employed person who fails to make contributions to save for retirement will be fined 500 NIS by the Enforcement and Collection Authority.

In reality, this penalty will begin in 2019 for those who have not saved for their retirement for 2018.

Telephone response within 6 minutes

In July 2018, an amendment to the Consumer Protection Act was approved. It amended the Insurance Act and the Savings Banks Act. The waiting time in the automated call routing system and until a professional human response is received may not exceed six minutes from the start of the call.

This is done in at least three types of service:

  • Dealing with malfunctions
  • Clarifying the accounts
  • Contract termination.

The amendment to the law defines the call routing options to which the consumer will be directed. This includes the addition of a "Leave a message" option. But the caller will not be directed to this option for the above types of services, unless they choose to do so.

The amendment will come into force on July 25, 2019. The law will also apply to the financial system, including banks, insurance companies, management companies and others.

Good and not so good

The changes in Israel for 2019 look set to improve our daily lives.

Some will only remember reforms such as limiting the species or fines for the self-employed not contributing to their pensions, as they are restrictive.

Others will find that they can borrow at lower rates or save money on car insurance.

Whatever the case, these changes are here and are already being implemented. The aim is to ensure greater purchasing power in Israel.

And you, which change will have the biggest impact on you? Leave us your answer in the comments.



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