General Information

Charge cards (or, as widely known, credit cards) are one of the most common and convenient instruments of payment. They can be used to carry out a variety of transactions such as cash withdrawal, payment for purchases at businesses, obtaining credit, forward transactions, standing orders, online or telephone payments, and transactions abroad, to name only a few. The purchase of a product or a service can be consummated in a few seconds from the moment the card is “swiped.”
While charge cards provide a relatively easy way of paying for goods and services, their use also comes with risks at both the consumer level and the criminal level (theft and fraud). This guide will give you important information about types of charge cards, how to use them correctly, and consumer arrangements that will protect you.

When purchases are made by means of a charge card, several participants are involved:

  • The customer - the owner of the charge card
  • The business - the entity that honors charge cards
  • The card issuer - the credit company or bank that issued the card to the customer.
  • A settlement institution - an entity that mediates between the card issuer and the business. It is the medium through which the business receives the payment for which the customer was charged.

When a transaction is made with a charge card, the simple way of explaining it is that the credit company undertakes to pay the business for the service or merchandise that the customer bought and then charge this sum to the customer.
In greater detail:

  1. The customer buys a product or receives a service at a business. S/he pays for it by means of h/her charge card.
  2. The customer is obliged to pay the card issuer (bank or credit company) the consideration for the transaction on the date when which the card is charged.
  3. The issuer undertakes to forward the consideration for the purchase to the business (via the settlement institution with which the business has contracted). The date on which the consideration is transferred from the settlement institution to the business is determined in an agreement between the business and the settlement institution.

Bank cards and nonbank cards

Charge cards may be obtained in one of two ways:

Bank cards

  • a card issued by the bank where the customer keeps h/her account. The bank issues the card by means of a credit card company with which it has an issuing, distribution, and operation arrangement. Since it is the bank that issues the card, the credit facility set up for the card is subordinate to the total credit facility in the customer’s current (demand) account.
  • Most cards issued in Israel are bank cards.
  • When the holder of a bank card wishes to switch banks, s/he has to cancel the card and transfer long-term transactions made with the card to a new card.

Nonbank cards:

  • A nonbank card is one that’s issued directly to the customer by a credit card company. If it is agreed to create a credit facility for the card, this facility is independent and additional to the one that belongs to the customer’s current (demand) account.
  • The credit card company gets paid for transactions made with the card by using a standing order to charge the customer’s bank account.
  • The advantages of having a nonbank card are the creation of a separate credit facility, supplemental to the one in the customer’s bank account, and the customer’s ability to move h/her current account to a different bank without having to transfer h/her credit card activity as well.
Types of cards

Banks and credit card companies offer a variety of types of cards that can be used in the domestic market (in Israel only) or anywhere (in Israel and abroad).

There are three main types of cards:
1. Deferred debit card - transactions made within a certain time frame (usually a month) are brought together and the cardholder pays for them on a date agreed upon in advance. In Israel, most cards in use are of this type.
2. Debit card - meant for payments and purchases in which the customer’s bank account is debited for the sum of the transaction as soon as the transaction is made.
3. Revolving credit card - these cards provide customers with a freely standing and separate credit facility with which they can carry out transactions. On the monthly payback date, the customer is allowed to pay off some of the debt and roll over the rest to the next month.
 
Many customers use these cards to augment or replace the credit facility that the bank has given them. It’s important to know that steep interest is usually charged for this kind of credit.

For further information about revolving credit cards.

Additional types of cards
Apart from charge cards, the following exist:
 
Cash cards
(for use at automatic teller machines on the basis of a secret code) - usable for withdrawing cash and obtaining information about the account.

Prepaid cards -
charged in advance with a certain amount of money for activity. Since these cards do not allow purchases to be made on credit, they are suitable for young people and those who wish to limit their use of “plastic.”

It’s important to know
—if a card that’s been charged is lost or stolen, the customer sustains the damage!
Cards of this kind can be charged with cash only. Since they cannot be used to debit a customer’s bank account, they are not charge cards as defined in the Charge Cards Law.
The arrangements that protect customers in the event of theft and misuse do not apply to these cards. If such a card is lost or stolen, the customer sustains the damage. However, the damage is limited to the amount of cash in the card only, since, as stated, the card cannot be used to debit a customer’s account or withdraw additional funds. In terms of their characteristics, in fact, these cards are more like cash than charge cards, which allow access to the customer’s bank account and have much more potential of causing harm.

Characteristics of different kinds of cards

Deferred debit card​ Immediate debit card​ Revolving credit card​ ATM card​ Prepaid card​
Credit facility​ Yes​ None​ Yes​ None​ None
Debiting of bank account​ Monthly​ Immediately​ Monthly​ Immediately​ In advance, when card is charged​
Size of monthly charge​ All transact¬tions made in preceding month + deferred payments​ None; account is debited as soon as transaction is made​ Predetermined sum or one that customer indicates in accordance with arrange¬ment with issuer​ None​ None​
Creditory interest ​ Customer is not charged interest for use of card unless s/he makes credit transactions; customer may be charged interest on h/her account if use of the card over¬draws account​ customer may be charged interest on h/her account if use of the card over¬draws account​ Customer is not charged interest but may be charged interest on h/her account if use of card overdraws account. Customer pays interest on balance of transactions rolled over to next month as card issuer determines​ None​​ None​​
Credit transactions allowed?​ Yes​ No​ Yes​ No​ No​
Protection and insurance​ Yes​​ Yes​​ Yes​​ Yes​​ No (card is like cash)​
 

Types of transactions with charge cards

Charge cards may be used to make a variety of transactions. The advantage of some of them is the ability to defer payment. One should, however, be mindful of the cost of deferring payment for a transaction and be aware of who bears this cost.

The following types of transactions are common:
Regular transaction - made in one installment. The customer’s account is debited for the transaction in accordance with the agreement pertaining to the card (monthly, immediately, etc.).
Installment transaction - payment is divided into several monthly installments. The cost of deferring payment (credit) is passed on to the customer, since the credit is given by the credit card company and the customer pays interest, usually at a steep rate.
Debiting of account by standing order—debiting of cardholder’s account under a long-term arrangement.

Ordering a card, canceling a card, and transferring activity

A customer may apply for a charge card from a bank or a credit card company, but the issuer is not required to answer in the affirmative. (It’s at the company’s business discretion.)

If the issuer agrees to issue a charge card, it incurs certain obligations:

  • It must present the customer with a charge card contract that is signed when the customer receives the card at the latest. The contract must be in writing and must be signed by the customer.
  • Transactions that the customer charges to the card become valid only after the customer receives the card physically and, if using the card requires a code, only after the customer receives the code.
  • The issuer must give the customer a monthly statement that itemizes the transactions made with the card. If transactions are made abroad, the issuer must give the customer, at h/her request, notice about each transaction within 17 days of the day on which the issuer debited the customer’s account for it.

The monthly statement must specify the following:
— the dates on which transactions were carried out;
— the sums of the transactions;
— the currency in which the transaction was made;
— the exchange rate at which the transaction currency was converted into NIS;
— the interest rate that is charged to the credit facility.

Expiration of card
Charge cards are issued for a limited period of time and carry an expiration date. In most cases, the charge card contract itself states that the contract may be renewed at the end of this period without the customer signing a new contract. That is, the issuer merely needs to send the customer a new card.

Cancellation of card
Each party—the customer and the issuer (credit company or bank)—may cancel the card at any time by informing the counterparty that this is its wish.

  • If the initiative to cancel a card is taken by the customer, the cancellation goes into effect the day the card is handed over to the issuer unless the card has been lost or stolen. In such a case, cancellation takes effect the day the issuer is notified.
  • If the initiative to cancel a card is taken by the issuer, the contract is terminated the day the customer is notified.

The party that wishes to cancel the contract is expected to do what’s necessary to effect the cancellation. Therefore, if you serve notice about the termination of the contract, you must return to charge card to the issuer or cut it up and then send it in.

Transfer of activity with credit card
The directives of the Supervisor of Banks regulate the issue of a new credit card and the transfer of activity in ongoing transactions (charge instructions). The procedure is automatic; it does not require intervention by the customer.
The issuer of the new credit card must share the information about the new card with the issuer of the old card, who must arrange with suppliers the transfer of ongoing transactions (e.g., a newspaper subscription) from the old card to the new card.
The issuer of the old card must tell you whether there are suppliers who did not honor its instructions and continued to pass along charges to your old credit card.
Note: ongoing transactions with a card automatically pass from the old card to the new one on the basis of notices from the issuer of the old card. However, loans and installment transactions need to be paid back before the old card is canceled and the activity is transferred to the new one.

For further information—see Guide to Switching Banks.

Cancellation of charges

Cancellation due to nondelivery
Sometimes it happens that a transaction is made using a credit card but the supplier fails to deliver the merchandise or the service (“failure to deliver full consideration”) or permanently stops providing goods of the kind that were purchased in the transaction. For example, you ordered a cupboard, paid for it with your credit card, and never received it.
In such cases, you may cancel the continuation of the charge to your card. You have to inform the issuer of the card (bank or credit card company), in writing, that the merchandise or the service had never been delivered to you. If you’re dissatisfied with the merchandise or the service for any reason, you may not cancel the continued charges and will have to work out the matter directly with the supplier.

Cancellation of authorization to charge card (“cancellation of standing order”)
It is many customers’ practice to make certain regular payments, such as electricity, municipal property tax, or telephone, by authorizing the service providers to charge their card. These recurrent (continuing) transactions are consummated with entities that receive your consent to charge your card for a regular or varying sum on a periodic basis.
Sometimes, the customer may cancel a transaction that s/he worked out with a supplier from a certain point forward or to refrain from renewing it. In such cases, when you wish to cancel the authorization to charge your card and to stop paying the supplier, all you have to do is tell the credit company or the bank (the issuer) that you have canceled the authorization. It is, of course, recommended that you tell the supplier as well, so that you do not run up an accumulated unpaid bill.
The Charge Cards Law requires the issuer to stop charging the card the moment you tell it in writing that you are canceling or not renewing the authorization

When are you not protected?
In the following cases, the cardholder is liable to all damage and will have to pay for transactions made by means of the card:

  • The card was used with the cardholder’s knowledge.
  • The uses are related to an act of fraud committed by the cardholder.
  • The cardholder gave the card to someone else under unreasonable circumstances (for example, together with the secret code) and the other person used the card without permission.
  • Even in cases where the cardholder informs the issuer that the card has been stolen and gets h/her money back, the issuer is entitled to re-debit the customer’s (cardholder’s) account if it finds out that the customer was liable for the misuse of the card.



Fees

The main fee that is charged to customers by issuers is the card fee. This is a monthly fee that is charged on the basis of the fee schedule that is posted in every bank branch and on the Web site of the credit card company or the bank that issued the card.
Since different issuers charge card fees at different rates, comparative market research is recommended.
You may also be charged additional fees when you use a credit card, such as:

  • deferred payment fee - a fee for making an installment transaction;
  • conversion fee - a fee for using your card abroad.

Note: you may obtain an exemption from or a discount on the card fee under terms that the issuer offers, for example, when you charge more than a certain amount to the card or when you belong to a club of some kind. It’s worth making inquiries about how to get a discount on the fee and which club offers the most convenient terms of use.
Here is a link to a calculator that you can use to compare the monthly cost of holding a credit card. Enter the monthly amount of purchases and get the cost of using various suppliers’ cards (excluding miscellaneous discounts and special deals).

More About Charge Cards