It has been more than a year since the implementation of one of the biggest social and economic changes in Israel, and most Israelis still have no clue about how this is supposed to affect their future – whether it’s under their control or not. The establishment of the credit information database at the Bank of Israel, along with the credit rating of every one of us, flew relatively quietly under the radar of public discourse, in a period when the endless rounds of elections and a worldwide pandemic took up most of our attention.
Supposedly, in a country where accumulation of debts and bank accounts in the red have become routine parts of life, there is a lot of sense to a process to incentivize borrowers (to repay and on time) and lenders (to offer attractive interest rates). However, at a time when it hasn’t yet been proven that these advantages are materializing as promised, not enough has been done to raise awareness of the disadvantages of the credit information database – especially for weaker populations, whose fate the new system is liable to determine.
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The new credit database includes the financial information of most of the adult citizens in the country, whether they are aware of it. The information is transferred from the banks and non-banking credit organizations to private businesses that analyze the data. Every credit line and the conduct within it, every debt large or small, every loan and the way it is repaid, every check, every standing order and more – everything is gathered in the reports, along with a rating for every individual that summarizes his or her financial conduct.
A rating the existence of which, as noted, most Israelis are not aware, even when now, and then it is confirmed in passing in the context of complex “paperwork.” This sensitive information is available afterwards to those granting credit, and they supposedly can use it to identify good customers and compete for them.
This was precisely the declared aim of the Bank of Israel: to transfer the information from our bank to others giving credit, which will be able to offer us lower interest rates. Two years later, the Bank of Israel’s figures do not show that this vision has materialized. However, the other side of the coin is definitely beginning to show: loan refusals and high interest rates for clients with low credit ratings.
This week, for example, Jenya Volinsky reported in TheMarker that R., a 48-year-old woman from the north, was on one occasion late in paying her mortgage, by less than a day – and she became someone who is refused loans. When she sought the explanation, she found out for the first time in her life what her credit rating was. This is not an isolated case, of course. Volinsky has been documenting similar cases for quite a long time.
For example, S., an accountant who lives in the center of the country, went to the bank with his daughter to apply for a mortgage and was surprised to find an especially high interest rate because of a lien he didn’t know existed and a rating he didn’t know existed. “It will take more time until this (low interest rate) is manifested in the long term,” the person formerly in charge of the databank at the Bank of Israel admitted in June. The former bank official added that the damning information accumulated during the coronavirus period will not be eradicated because “we considered that, and we concluded that it isn’t justified.” Are the masses of Israelis who found themselves in debt during the pandemic aware of this?
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To make the new system’s advantages outweigh its disadvantages, the Bank of Israel must do much more to make it accessible to the public. This is so especially among populations that in any case are destined to be discriminated against in the granting of credit – among them Arab citizens.