“Credit” Transactions

What is a “credit” transaction (“Iskat Credit”)?

This is another example of a uniquely Israeli way of buying with a credit card.

When purchasing any type of product in a store you may be asked by the seller if you prefer that the purchase be done by “credit”. Watch out! The meaning of the word “credit” here is more like a “loan” than a credit card purchase.

The Practical Aspect

To clarify this, I will give an example: Mr. Seller wants to open a business. He decided to open an electronics store. Mrs. Buyer wants to buy a new television. She enters Mr. Seller’s store and decides to buy a fancy new television set for 9,000 shekels. Mrs. Buyer, though, does not have the money on hand to buy the TV. She asks Mr. Seller if she can divide the amount of the TV into several payments.

Her first option was to give Mr. Seller nine post-dated checks (another Israeli creation). Mr. Seller refused this option, and for a good reason (As I have written in a previous article, thousands of checks are bounced daily in Israel). Mr. Seller offers Mrs. Buyer to divide the 9,000 shekels into three payments using her credit card, but Mrs. Buyer still cannot afford to pay 3,000 shekels a month. Therefore, she asks Mr. Seller to divide the purchase into more payments.

Mr. Seller now offers Mrs. Buyer a better deal. He offers her to pay using her credit card with up to 18 payments, as a “credit” purchase. Generally, all you are asked is the word “credit”?

The missing link here is that Mr. Seller did not inform Mrs. Buyer that a “credit” purchase will provide him with the full amount of the purchase (9,000 shekels) by the credit card company, but Mrs. Buyer is in fact taking a loan from the credit card company in order that Mr. Seller will receive the full amount of the purchase in one payment. Mrs. Buyer will pay a very high amount of interest (up to 20% or more a year) for this purchase.

If Mrs. Buyer had chosen to buy the TV in three payments, most likely those would be fixed, equal payments with no interest. Therefore, Mr. Seller would receive from the credit card company three separate payments, one for each month, with no interest being paid by Mrs. Buyer. This means that Mr. Seller has to absorb any loss that may come with this transaction.

The Legal Aspect

As I have written in a previous article, one of the very few reasons you are allowed to cancel a check or a payment made toward a purchase is when the product was not supplied (for example, if you buy a TV, pay by check and do not receive the TV because the store went out of business. If the check was not yet withdrawn, you are allowed to cancel it.) .In our case (a credit transaction) you may find yourself in the middle of a legal battle.

Remember that Mr. Seller had received his money (9,000 shekels) from the credit card company. If you are entitled to receive this amount back, it means the credit card company will most certainly loose this amount if they can’t get their money back from Mr. Seller.

Now you can understand the credit card company’s dilemma. They will be a kind of “mediator” between your interest and their own interest. Guess what? It’s not hard to understand the credit card company will try to find a “good reason” not to cancel the transaction.

Now you know. If you are asked: “credit”? Read it “Loan”!

Sincerely,
 

Tzvi Szajnbrum, Attorney at Law