Bank guarantee?

Here's the option you are not familiar with

There is no one who rents an apartment or office and does not know what a bank guarantee is: the bank provides a guarantee of several months' rent, but forces us to freeze the full amount in a deposit - and also charges us a high commission.

It turns out that there is a way that will not burden our cash flow, but the bank prefers not to know it

Liat Ron

18/01/2022

Tuesday, 18 January 2022, 11:56 Updated: 12:16

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Three months after Uri and Nati decided to move in together, they finally found an apartment in Tel Aviv, at a relatively reasonable price and in a reasonable condition. The pleasant nesting. But then an obstacle awaited them that almost made them return to their parents.

Uri picked up the phone to his bank, one of the three largest banks in Israel, and asked for a bank guarantee. "No problem," the clerk told him. "We will 'freeze' an amount of three months rent from your account, and pay a 6% commission per year."

"I was in the market," he says. "I did not have NIS 18,000 in current account that I could give to the bank. We study at university and work, we have no such surpluses. "If the parents had not transferred the money to my account, which I am supposed to return to them when we leave the apartment, we would not have had a chance to do so without taking a loan."

What the clerk did not say to the young couple, is that there is also another option, which the banks are not happy to offer their customers: a guarantee without a deposit against me, at a higher commission.

Why do they not do it?

Because it pays them to use that money for their own needs.

Who cares that the customer is suffocated due to a meager cash flow?

A guarantee is a promise of compensation in the event that an agreement between the parties is violated.

The guarantee is given by a third party and through it he assures the landlord, in this case, that he will receive the money in any case.

The bank serves as the third party in providing a "bank guarantee" and it charges a handsome fee for the service, and is obliged to transfer the amount of the guarantee when the landlord demands it without interfering and without asking for a justification.

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If the money is closed in a deposit in favor of the mortgage, why do you have to pay a commission of a few percent every year? (Photo: ShutterStock)

The bank's answer: "Most customers do not care"

As stated, the banks' default is to pledge a deposit, a sum of money locked up as a guarantee in the amount of the guarantee, to charge for its registration "establishment fee", around NIS 400 and an annual fee ranging from 4% to 6.5% per year. The requirement to set the entire amount in advance and the amount of the commission, make it difficult for tenants, small business owners, tenants, guarantors of tenders, most of whom are not in the top deciles.

The amount of the commission is puzzling. After all, the bank insures itself when it encumbers the entire amount of the guarantee, so that its risk is low or does not exist at all, and yet it charges a lot of money in exchange for the right to receive a paper from it with the bank's stamp. So it happens that on the one hand, the bank enjoys the money it has and uses it for investments, business activities and making profits, and on the other hand it takes advantage of the lack of choice and distress of those who are required to present a guarantee and charge high and draconian fees.

We sent two young customers to request a bank guarantee offer from the bank. Both were given the option to encumber the amount, one with a 5% commission per year, the other with a 5.5% annual commission. None of them won an offer of a higher commission without encumbering the money.

When I called my bank clerk, I received the exact same offer, but with an interest rate on an outstanding customer's sale, of only 2.5%. I said I know there is an option to pay a higher commission, rather than enslave the money, and he replied that he must talk to the branch manager to get approval.

When I asked why he did not bother to offer it to me, the clerk (who is not to blame of course, since he is a tiny screw in a large system and operates according to its guidelines), said that the bank prefers to insure itself, because there are all kinds of problematic customers and those with high credit ratings. Prefer not to, and in general "the customers of the branch do not make a fuss about it ...".

Bank guarantee, the least pleasant part of the lease.

Why does the bank not offer the more convenient option? (Photo: ShutterStock)

The Supervisor of Banks promised, so what?

As early as 2011, a discussion was held in the Knesset's Economics Committee on bank guarantee commissions.

, told the exact same story there: "I want to provide you with a personal story on this subject in front of my bank," Adv. Even Or said at the hearing.

"I was supposed to deposit a bank guarantee in court and I was required to give the bank NIS 15,000, the entire amount of the guarantee, and another 7% a year to the bank. Why is it possible that the bank has a 100% money guarantee and I have to pay some commission Parameters ".

, explained at the same hearing: “There is no competition for this commission, the customer is a captive customer of the bank and then the bank takes advantage of it and takes the percentages it takes. "I would like to remind the committee that this is exactly the case that the 'Customer Service Banking Law' referred to, when he spoke of cases in which there is room for the governor to declare service as supervisable."

At the end of the discussion

, promised that an inspection would be carried out regarding the level of fees.

To this day this promise has not been fulfilled.

It is important to note that by law the banks are not obliged to offer the customer both options, although it would have been appropriate for the Supervisor of Banks to at least oblige them to present them to him and let him choose.

"The services that banks are obligated to provide are fixed in the 'Banking Law for Customer Service,'" the Bank of Israel said in response.

"A guaranteed guarantee in a deposit is not one of the mandatory services. However, to the best of our knowledge, the product exists in the market and we are not aware of any refusal to offer it," said the weak response, which is typical of banking supervision.

Need a bank guarantee to rent a property?

Despite its name, it is not necessary to take it from the bank (Photo: ShutterStock)

The greedy bank?

There is an alternative

Those who are unwilling or unable to put handsome sums of money aside for a guarantee, can use the services of companies that give a non-bank guarantee.

is the only one among the fintech companies that gives a guarantee to private tenants (as well as those who need it for all sorts of other reasons) and offers a digital guarantee without a deposit, without bureaucracy and without a bank, with a 6.5% commission per year - also for business and commercial rentals.

, gives guarantees to businesses only for the purpose of renting a property.

The startup "

, which works in cooperation with Mizrahi Bank and other entities, according to the "eligibility check" and provides a guarantee of up to NIS 2,000,000 for businesses only, for renting property, tenders and purchases

. , For businesses only that clear their transactions using the Max credit card.

It is true that this is a limited range of solutions, but given the boldness of the banks, who are working to hide the option not to pledge a deposit in favor of the guarantee, it is worth comparing the non-bank guarantees to those offered by the bank. We have the officials.

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• Banks

• The Supervisor of Banks

• Bank of Israel

• Fintech

• Bank guarantee

• bail

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