Switching Banks: How to Minimize the Hassle

Don’t take for granted everything the clerk tells you.

Last month N., a Bank Leumi customer, decided to switch to another bank offering better terms, but was told at her branch that the account couldn’t be closed because her credit card still had payments outstanding.

Knowing her rights, she asked to transfer the transactions to the other bank’s credit card or pay them off in cash, but the clerk repeated that this couldn’t be done.

N. persisted and the bank told her to pay off the card by phoning Leumi Card. The company sent her back to the bank, saying the transaction needed to be done there. The bank clerk finally promised it would be taken care of, telling her to wait at home for a fax which she should sign and send back.

But the fax never arrived and N. couldn’t reach the clerk by phone thanks to the bank’s call routing system. After several weeks being constantly shoved back and forth, N. finally managed to close the account.

Asked about it, Bank Leumi commented that it complies with Bank of Israel directives about closing accounts, and from time to time refreshes procedures to ensure that it’s done quickly and efficiently.

Cllients trying to switch banks often run into hassles. It feels the bank is doing all it can to frustrate them.

No official data are published on the number of households switching banks but the Bank of Israel estimates the figure has been a steady 9% each year since 2010 while the banks themselves put the rate at just 5%.

Members of the government panel for increasing competition in the banking system, headed by Banks Commissioner David Zaken, don’t deny there are problems. “Despite regulatory efforts to simplify closure of accounts, unquestionably it generally involves a hassle for the customer,” their interim report stated.

The central bank is therefore initiating reforms that will allow bank customers to ask their new bank to perform all the steps necessary for closing their old account, including the transfer of their automatic payment authorizations. But new legislation and revisions to the banks’ operating rules will be needed to implement the change.

However, one source in the banking system points the blame for the long and arduous task of switching banks at the Bank of Israel’s own rules requiring banks to undergo lengthy bureaucratic procedures in coordinating the move with credit card companies and businesses.

Four rules

1. Before closing an account, ask the bank for an “information form.”

The information form, available at no cost twice a year, lists all the customer’s assets, liabilities, and the costs involved in early repayment. The form can help customers map out the assets and debts that need to be dealt with when switching banks. The form can also be presented at the new bank to determine what terms may apply there.

Banks are aware that customers usually ask for this form when they’re interested in seeing what another bank has to offer. Often, when a bank detects that a customer is considering leaving, it activates its customer retention system and tries offering him better terms for staying.

2. Provide detailed instructions on what to do with your account.

Give instructions in advance for each item in the account appearing on the information form. And, to avoid the unnecessary hassle of repeated visits to the bank, the Bank of Israel recommends making sure that the account allows for relaying instructions by phone or fax. This will prevent any need that might arise for visiting the bank in the process of closing the account.

3. Don’t wait for all credit card transactions to be paid off.

In recent years the central bank has simplified the process of transferring credit card charges. The client can ask the new bank to issue you a new credit card and transfer and the transactions from the previous bank’s card. The new bank will relay the information on the new card to the bank where your account is being closed, and that bank will inform all the companies that the client has done business about the cancellation of the old card and details of the new card.

This is an important point that can save much hassle, but the banks often hide the possibility and don’t disclose this option to customers. Automatic payment authorizations direct from checking accounts, however, still can’t be automatically transferred to the new bank.

4. Don’t pay more than NIS 40.

The Bank of Israel limits the total amount of fees that can be charged in the process of closing an account to NIS 40. The same ceiling exists for closing an account with a credit card company. However, be aware that your bank could charge a fee for early repaying of any loans you have outstanding. The alternative is to leave the loan at your old bank while transferring most of your banking activity to the new one.

The fact that you may have loans outstanding in your current bank doesn’t necessarily prevent you from changing banks.

Your new bank will sometimes offer more attractive terms for a new loan at a lower interest rate that you can use to repay the loan at the old bank. Another fee that banks are entitled to charge in the process of closing an account is for the transfer of any securities that might be managed through the account.

Hila Peleg