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Shop Till You Drop? Not If They Can Help It!
The ax is about to fall. From July 1, Israelis must live within their bank overdrafts. Yes, overdrafts.
Half of Israel maintains healthy overdrafts, withdrawing more money from their accounts than they deposit - and with the bank's blessing.
In fact, banks routinely grant clients once, twice, even three times their monthly salaries in what amounts to standing loans. This allows Israelis to buy today, yet pay the piper in the undetermined future. People literally live off the banks, which, in turn, rake in enviable profits by charging sky-high interest rates. Even on payday, many people never reach solvency, continuing to drag their overdraft with them month by month, like a lumpy sack of potatoes.
Big rollers typically embrace long-running credit payments on big items, like refrigerators, television sets and air-conditioners. Others, edging toward poverty, may rely on credit for the basics, the food on their plates and the clothes on their backs.
Until now, in a pinch, you could even go over your "over," as it is dubbed in Israel.
If your car needed emergency repairs, if you faced a growing mountain of bills, if you succumbed to that unbelievable end-of-the-season clothing sale, a quick call to your friendly banker could, in a flash, add an overdraft to your overdraft. You could easily extend a $5,000 to a $6,000 over and worry about returning the difference later.
Naturally, excessive credit resulted in a cycle of spiraling interest rates that drove overdrafts even higher, but who's counting?
The Bank of Israel originally targeted January 2006 for forbidding banks to top up their clients' overs. Thereafter, people would need to live within the overdrafts originally assigned by their banks.
Everyone anticipated an avalanche of checks, including those that stretched credit by even one blue-and-white agora, bouncing to Kingdom Come. Others predicted that Israeli-style automatic payments of utility bills from overextended checking accounts would halt. Some even spoke of financial and social chaos.
The purpose? Not to help the banks, who would be losing considerable profit, but - get this - to save us from ourselves. The new law was intended to squelch finally, at least in the world of banking, that typically Israeli laid-back reaction: "Relax, everything will work out fine."
Naturally, with its financial safety net to be removed, the whole country was in an uproar. Worried citizens attended money-management seminars. Social workers warned their clientele of the pitfalls to come. Even religious leaders offered emergency financial counseling to their flocks. The banks themselves, gearing up for a massive loss of interest-generated profit, sought lucrative alternatives to overdraft burnout.
Some offered bridge-loans, designed to nudge clients gently back toward the black. Others touted savings programs that automatically topped up a client's checking account in his hour of need. Besides educating the public, the banks also had to deal with an ocean of bureaucracy.
As D-Day approached, it became clear that they would not be ready in time.
So just days before the Overdraft Law was to go into effect, the Bank of Israel announced its postponement. The whole nation, naturally, breathed a sigh of relief - and, of course, kept spending.
As it stands now, we are slated to leave overdraft never-never land on July 1, but who knows? Many are still hoping that "everything will work out fine" this time, too.
Melody Amsel-Arieli is a writer living in Israel.