Knesset Constitution, Law and Justice Committee chairman Nissan Slomiansky (Habayit Hayehudi) opposes setting a 20% interest rate ceiling in Amendment 3 to a bill regulating non-bank credit. In today's committee session, Slomiansky said, "I think the interest rate has to be limited to some extent, but certainly not by 20% as now proposed." Among other things, the amendment discussed today will set the maximum interest rate allowed for all credit providers: banks, credit card companies, and non-bank entities. Providing a loan at higher interest than the ceiling will be considered a criminal offense punishable by a three-year prison term. The 20% interest rate ceiling stipulated by the bill, which is supported by the Ministries of Justice and Finance and the Bank of Israel, is especially high - over 20%.
"I'm sure that the government intends to facilitate the provision of credit and allow the opening of the market to more lending and borrowing entities," Slomiansky said. "In the Constitution, Law and Justice Committee, we want to go along with this rationale, but it's not clear how this will happen as a result of the bill presented to us. It makes no sense to me that in order to lower the cost of living, they want to increase the interest rate on loans. If there's no interest rate ceiling, there may be competition between loan providers, but if the government sets this interest rate ceiling, it will make it easier for potential lenders to fix the rates." Slomiansky expressed support for setting an interest rate ceiling, but not 20%.
Representatives from the Association of Banks in Israel, Israel Insurance Companies Association, Israel Consumer Council, the Ministries of Finance, Justice, and Internal Affairs, Israel Bar Association, and other groups were invited to the discussion. Association of Banks in Israel head Moshe Pearl warned that if it is decided to set a lower interest rate ceiling for the banks than the ceiling for non-bank credit companies, the economically disadvantaged will suffer, because they will be unable to obtain bank loans.
Pearl made it clear that the interest rate is derived from the risk on the loan, so that higher interest should be charged when the risk is higher: "A situation in which a lower interest rate ceiling is set for the banks than for non-bank companies will necessary lead to a situation in which customers with lower repayment capability, for whom a higher-than-average interest rate is set, will be driven away from the banking system. These customers will lose the ability to choose between bank credit and non-bank credit, contrary to the intention of the reforms led by the government itself, which are designed to make non-bank credit accessibel to households."
Published by Globes [online], Israel business news - www.globes-online.com - on November 25, 2015
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