Price Display in Credit Transactions: What Are the Obligations?

The Haifa District Court recently handed down a ruling in a motion to certify a class action filed against Ofir Tours Ltd. by its customer. The plaintiff bought an Eilat hotel vacation through Ofir Tours, paying in credit card installments. Ofir Tours’ website displayed the inclusive transaction sum, accompanied by information about the interest rate on the transaction. The plaintiff alleged the interest data Ofir Tours displayed on its website reflect the additional interest actually charged on the transaction, and not the additional interest according to an annualized calculation. The plaintiff asserted the law mandates the disclosure of the annual interest rate, and that its absence from the transaction details resulted in a misleading impression of lower interest charges.

Consumer Protection Regulations

The Haifa District Court’s ruling focused on the obligations prescribed in the Consumer Protection Law about the manner in which price is to be displayed for credit transactions. These regulations obligate businesses to specify the interest rate per annum on credit transactions.

While in the past, businesses customarily offered a substantial interest-free deferred payment  arrangements and absorbed the transaction’s financing costs, in recent years, many businesses have stopped offering such extensive interest-free payment solutions. Instead, businesses customarily set different prices for transactions with a single payment or a limited number of payments and transactions in which they offer customers installment plans over a lengthy period.

In this context, the court clarified that any additional amount a consumer must pay in a credit transaction, regardless of how the parties may label it, is considered interest. As such, a business must present this amount in accordance with the relevant regulatory requirements.

Wise Consumerism

The court emphasized that the financial arena and all legislation addressing interest require the presentation of the “interest rate per annum.” Financial institutions specifically use this term to present the cost of credit. Accordingly, in consumer transactions as well, companies must provide customers with the interest rate payable by them according to an annualized calculation. This ensures customers can make accurate comparisons between the various sources from which they can obtain credit. Consumers’ ability to comparison shop is essential for choosing the most suitable financing channel for them.

Licensing

It is important to note that the offering of consumer credit, including installment plans for purchase of goods or services, may require a business to obtain a license to provide credit, if the price exceeds ILS 30,000 for a single transaction. Thus, for example, a furniture business that allows installment payments and collects a surcharge for installments may find it is obligated to obtain a license to provide credit.

In light of this, it is important for all businesses charging surcharges for installment plans to review how they display their transactions to customers, in order to ensure the price is displayed in a compliant manner.

Even if installment payments involve a third party providing credit, businesses must ensure this collaboration does not result in legal violations regarding price display. It is crucial to comply with pricing regulations.

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Barnea Jaffa Lande’s regulation team is at your service to answer any questions about the Consumer Protection Law and other issues.

Adv. Anat Even-Chen is a partner and heads our firm’s regulation practice.