The first of July is just a few short weeks away, and while that date may not hold the same degree of apprehension that January 1, 2000, did, for more than a few here in Israel the trepidation is - or should be - no less intense. Unfortunately, though, all too many are ignoring that coming date, and paying little heed to the fact that in less than 30 days the banking expectations they've come to rely on will be markedly different.
Overdrafts, which for decades have provided the filler between one month and the next, will no longer be something that can be taken for granted. And checks that have routinely been processed and paid will suddenly start bouncing.
Or will they? The changed regulations mandated by the Bank of Israel was supposed to go into effect on January 1 of this year, but wisdom prevailed. Despite the avalanche of publicity and letters of notification sent to account holders, very few actually paid attention to what was going on. The "yihyeh b'seder" approach was taken, and the average Israeli refused to believe that the banks would suddenly start playing hardball. So instead of arranging credit frameworks - as the new regulations required - the whole thing was shrugged off as something inconsequential. Bank of Israel Governor Stanley Fischer recognized the choppy waters that were being created, and decided to postpone for six months implementation of the new regulations. Additional time, he soundly realized, was needed to slowly ease the typical account holder into this unfamiliar situation, and to provide additional time for preparation, adjustment and readiness.
And somewhere in Jerusalem right now, I'll bet, numbers are being crunched and assessments evaluated to determine whether or not an additional postponement is called for.
THE CHANGES coming down the road couldn't be simpler. Banks will no longer have total discretion in defining overdraft privileges, and account holders will no longer be able to assume that their overdraft is roofless. The Bank of Israel now requires that each account holder enter into an agreement with his or her bank, an agreement that spells out in no uncertain terms credit limits and interest on overdrafts. Once that red line has been crossed, checks, standing orders and credit-card payments will not be honored. And, of course, cash withdrawals will be refused.
Heads, though, remain buried in the sand, and just slightly more than half of all account holders have actually sat down and worked out a credit agreement. And while banks have never been on my top 10 list of favored institutions, here I've got to give them, well, credit.
At least once every two weeks I receive a generic update of the upcoming regulation together with a reminder to come in and get a written credit framework on file, and each time I enter my bank - for whatever reason - the clerk makes sure that mine has been taken care of. Ignorance, here, will not be an acceptable excuse.
The banks, of course, have only themselves to blame for the billions of overdrafted shekels that Israelis are currently mired in. You can argue, I guess, that this situation is the evil twin of our supposedly growing economy; a liberal overdraft policy that encourages the brunt of the middle class to spend is what moves consumer goods, fills hotel rooms, and makes sure that we get essential medical services that may not be included in our insurance coverage. Things, though, have very clearly gotten out of hand; the piper, quite rightly, wants to get paid.
Insofar as I scratched out no more than mere B from an blessedly sympathetic professor of basic economics, I'll avoid speculating on what short- and long-range effects this new law will have. A Nobel Prize, though, is not required to recognize that those on the lower rungs of the ladder will be most immediately and severely hurt, and the press will find ample space to report on the burgeoning numbers who, in the coming months, will join those already below the poverty line. What other dominoes will wind up falling once these regulations come into effect remains to be seen, but a period of unpleasantness, to say the least, appears inevitable.
BUT WHILE I understand the need to clamp down on uncontrolled credit, the approach being taken by the Bank of Israel strikes me as being more than a little problematic. When the bank issued notification on December 28 of last year that the new regulation was being postponed for six months, the intent was to provide a period of adjustment and not merely an extension of time to get a credit agreement whipped up. This period should have been used to get account holders ready for the change, and instill in them the need to exercise financial accountability, responsibility and self-discipline, traits not particularly typical of most Israelis. It wasn't. And what will take place on July 1 amounts to cold-turkey withdrawal from overdraft reliance, and invites dangerous repercussions.
Which is why an additional postponement - or, rather, a real period of adjustment - is called for. Letters of warning, limits on cash withdrawals, and notifications to the recipients of standing orders that future payments may be in jeopardy will get the message across that soon, very soon, the party will end.
The government should provide or subsidize counseling on creating and sticking to a family budget, and debt consolidation and repayment schemes should be introduced. It is during this period that those knee-deep in the muck of overdraft should be thrown a lifeline, not pushed in even deeper.
Mr. Fischer, I hope, is mulling this over and drafting still another official notification, this one outlining a gradual, incremental implementation of the new regulation. A spirit of cooperation and assistance will help ready us for the behavior modification required of the new policy; disconnected electricity and nasty threats from collection agencies and lawyers won't.
The writer is a technical communicator.
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