Published for public comments: Draft Directive for Payment Companies Regarding Ancillary Services

Dear clients and friends, We would like to bring to your attention that on May 20, 2024, the Israeli Securities Authority (the “Authority “) published for public comments a draft “Directive for Payment Companies Regarding Ancillary Services” (the “Draft Directive“), which regulates customer protection aspects regarding ancillary services provided by a payment company. Section 22(c) of the Regulation of Payment Services and Payment Initiation Law, 2023 (the “Law“), permits payment companies, in addition to their primary regulated activities, to engage in providing ATM services, currency exchange services ancillary to payment services, credit ancillary to a payment transaction and  services listed in Part B of the Seventh Addendum (“Ancillary Services“) , without requiring an additional license. Accordingly, Section 22(e) empowers the Authority to establish directives regarding Ancillary Services to protect customers’ interests in all aspects arising from the provision of such services. In accordance with this authority, the Draft Directive regulates, among other things, the following:  

1. Consumer Credit Policy

The Draft Directive requires a payment company intending to provide credit ancillary to payment transactions to establish a consumer credit policy addressing matters outlined in the Draft Directive. This policy must be reviewed and approved annually by the company’s board of directors.  

2. Marketing, Advertising and Prohibition of deception

The Draft Directive regulates the manner in which payment companies should market and advertise Ancillary Services to customers. It prohibits any action that may mislead customers in advertisements or transactions related to Ancillary Services, whether by act or omission, in writing, orally, or otherwise, even after termination of the service contract.  

3. Undue Influence

The Draft Directive prohibits payment companies from engaging in activities that could constitute undue influence, thereby affecting customers’ decision-making regarding transactions with the company.  

4. Prohibition of conditioning the provision of one service on the provision of another service

The Draft Directive prohibits payment companies from conditioning the provision of one service, whether primary or ancillary, on the purchase of another asset or service, unless there is a reasonable business link between the requested service and the condition. However, the Draft Directive allows bundling of services as part of a business policy subject to regulatory approval.  

5. Disclosure Obligations while Providing Credit

• Loan Agreement: Payment companies must disclose loan agreement details to borrowers using the disclosure forms attached to the Draft Directive. Additionally, borrowers must receive a copy of the draft loan agreement, including the disclosure form, before the agreement’s conclusion.
• Payment Schedule: Payment companies must provide borrowers with a payment schedule shortly after signing the agreement, containing repayment amounts of the loan principal and other specified details.
• Remaining Loan Balance Disclosure: Upon request, payment companies must provide borrowers with details of the remaining loan balance, separated between principal and interest components.
• Defaults: In case of borrower’s default, payment companies must send a notice shortly after the default, specifying details outlined in the Draft Directive.

 

6. Additional Provisions

The Draft Directive also includes provisions regarding customer complaints handling, prohibition to provide credit to minors and prohibition on misleading or exploiting minors through advertising and marketing.   The draft is open for public comments until June 19, 2024. To view the Draft Directive [in Hebrew] >> Please click here.   Our office has extensive expertise and years of experience in the financial services sector in all its aspects. We closely monitor and advise on all regulatory developments in this field, assisting and advising leading financial entities in Israel and globally. We are available to assist with any inquiries or clarification regarding this publication or any other matter in these areas.