New rules for the regulation of non-banking benefits given to customers of banking corporations

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The Banking Supervision Department today published an amendment to the directive restricting banking corporations in giving non-banking benefits, in order to make it easier for customers to compare the banking services and products offered to them and to prevent chaining customers due to a benefit they have received.

The Banking Supervision Department today published an amendment to Proper Conduct of Banking Business Directive 403 (hereinafter—the Directive), regulating the area of non-banking benefits given to the customers of banking corporations.

As part of the amendment, banks and credit card companies are permitted to give their customers banking benefits, such as a reduction or exemption from fees, reduced or additional interest and changes in the terms of payment.  However, as a rule, they are not permitted to give a non-banking benefit, such as a gift, particularly those that would chain the customer in any agreement or service.  The Directive sets forth an absolute prohibition against giving non-banking benefits as a result of opening or managing a current account, or due to the provision of other banking services, including making a deposit, issuing or utilizing credit, opening or managing an investment portfolio, investment counselling or pension counselling, clearances and deductions.  With that, the Directive does permit:

  1. Giving a non-banking benefit due to submitting a customer request to issue a credit or debit card, or holding or using such a card.
  2. Giving customers money at the time of opening a current account.
  3. Giving a symbolic object of little value, for the purposes of the banking corporation’s marketing, when opening a current account or when submitted a request to obtain settlement services, or when certain events take place (such as a holiday or birthday) due to the management of a current account or due to the use of settlement services.
  4. Giving discounts or exemptions from payment to businesses receiving settlement services from the bank, for the advertising of a non-banking benefit.
  5. Giving non-banking benefits directly connected with financial information campaigns.

This is all on condition that these non-bank benefits are not given through a contractual association with the banking corporation for any time period, or with a request to return them.  Furthermore, the banking corporation will not be able to condition the receipt of the non-banking benefit on the customer’s agreement to receive marketing and advertising materials from the bank.

The Directive also deals with the issue of a revolving credit card, with the objective of ensuring that customers choose the revolving credit service (a service the cost of which to the customer is usually higher) due to their interest in the service itself, and not in order to receive non-banking benefits that are offered as part of the marketing of the product.  For this purpose, the Directive sets out that a banking corporation shall not condition the provision of non-banking benefits on actually making the rolling credit service available, or on using the service.

In order to improve due disclosure to the customer, the Directive sets out that at the time of advertising a non-banking benefit, the banking corporation must present material information concerning the benefit.  In addition, if the banking corporation chooses to present the price of a product or service following the benefit in its advertising, it must also display the price prior to the benefit when such exists.  In addition, the banking corporation is required to advertise the full details of the non-banking benefit on its website.
The Directive will come into effect on January 1, 2015, while specific agreements with banking corporation customers that were reached prior to the Directive coming into effect, and which include non-banking benefits given under any conditions, shall remain valid until the date set forth in those agreements.

Supervisor of Banks David Zaken notes: “The objective of the amendment is to set out clear and uniform rules that will help customers compare the banking services and products offered to them, while being able to distinguish between the value of non-banking benefits and the value of the banking services.  In addition, the amendment ensures that the customers will be able to move their activities from one banking corporation to another, with the aim of improving the terms offered to them, without the impediment caused as a result of a non-banking benefit or “gift” given to them in the past, since the connection between the customers and the banking corporations needs to be based on the quality and price of the banking services they are receiving and their satisfaction with those services.”