Inactive Accounts

13.4.2005
 
Inactive Accounts
 
The Banking Supervision Department advises that it is considering changes in the treatment of inactive accounts in the banking system. The current format for handling such accounts was determined in the 1980s, and gave rise to numerous problems, which the proposed system attempts to address.
The main points of the proposed changes
1. Definition of an inactive account
It is proposed to change the definition so that it relates not to a deposit with no activity but to an account with no activity, so that all deposits under one account number will be considered one account. This is a change from the current definition, which relates to individual deposits, and which defines an inactive deposit according to the period that has elapsed since the owner/s issued an instruction, such that every deposit or saving deposited for more than ten months is automatically defined as inactive even if it is held in an active account. The significance of the proposed change is that activity in one deposit in an account (including retrieval of data by the customer) turns the whole account into an active one.
The period of time after which an account will be defined as inactive will be shortened to six months. In situations where there is no repayment date such as a securities deposit, or deposits that are renewed automatically and there is no contact with the customer, the account will be defined as an inactive account activity after two years.
2. Method of handling an inactive
According to the proposal, as soon as an account becomes inactive, the bank will notify the customer that if he does not contact the bank, the money will be invested according to certain directives. If the customer does not contact the bank after the notification, the bank will try to find other addresses of the customer––the customer address as registered in the bank's books (if different from the mailing address), the address of other accounts he holds, or in the population registry––and the bank will send requests to those addresses for the customer to come to the branch. These requests will contain no information about the account, in order to maintain banking confidentiality and customer privacy. If the customer still does not contact the bank within two months from the attempts to reach him, the bank will invest the money in accordance with directives to be set by the Governor of the Bank of Israel (details of the proposed changes in the way the money is invested are shown below). If five years have passed from the time the account was defined as an inactive account and the customer has not contacted the bank, after the repayment date of all the deposits in the account it will be defined as a dormant account. The bank will again attempt to locate the customer, and will send notifications to the addresses it has found explaining that if the customer does not contact the bank, the money will be transferred to the Administrator General.
If there is no contact with the customer within a year from sending these notifications, the bank will transfer the money to the Administrator General. The draft proposes automatic transfer of the money, without the need for a court order for each account. This is different from the current situation in which banks report to the Administrator General about deposits in which there has been no activity for more than ten years, and the Administrator General tries to locate the customers through various means. If he reaches the conclusion that the account is an abandoned asset, he must obtain a court order empowering him to operate the account.
Under current legislation there is no uniformity regarding methods of contacting the customer, and in effect in many instances no practical steps are taken to locate an account holder apart from sending notifications to the address originally provided by the customer as his mailing address.
3. Investing the money
The Banking Supervision Department proposes changing the way the money is invested, so that liquid money (in current accounts, including deposits repaid and credited to the current account) is placed in a self-renewing monthly deposit. Interest on the deposit shall be no less than the (gross) yield to maturity on Treasury bills (no method has been established yet to determine a minimum interest rate on inactive foreign currency deposits). The new approach tries to combine the need to preserve the value of the money with its earning a reasonable rate of return without impairing its liquidity and availability to the customer.
Self-renewing deposits and securities deposits that become inactive accounts will be invested in accordance with the original conditions agreed with the customer.
Currently monies in inactive are invested via several channels, according to their source. Investment of current accounts depends on the sum involved, with amounts of more than NIS 5,000 being invested in government loans. In the course of time complaints were received about the way the money was invested. Some claimed that the investment impaired liquidity and did not allow customers wishing to do so to withdraw their money. Others claimed that the value of government loans declined over certain periods, and customers lost more than they would have done if the money had not been invested at all. Moreover, it was found that in many cases the interest paid on inactive accounts was lower than that paid on active accounts.
This issue is a sensitive and complex one, and advance publicity is intended to enable interested parties to submit their comments and suggestions. The policy proposal is at its rudimentary stages. Initial discussions will take place with the banks in May. When comments have been received from all the interested parties, a final proposal will be drafted covering the required legislative amendments to implement the new system.