Instructions No. (5) of 2023 Regarding Market Discipline and Protection of Customer Rights

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Palestine Monetary Authority PALESTINE MONETARY AUTHORITY

Instructions No. (5) of 2023 Regarding Market Discipline and Protection of Customer Rights

Based on the provisions of Law No. (9) of 2010 concerning Banks, particularly Articles (2, 40, 43, 72) thereof, In accordance with the powers delegated to us, And in pursuit of the public interest, We have issued the following Instructions:

Article (1) Definitions

The words and phrases contained in these Instructions shall have the meanings specified below, unless the context indicates otherwise:

Customer:	The natural or legal person who obtains any product or service from the Bank.
Customer Rights:	A clear contractual framework that defines the relationship between the Bank and the Customer in a manner that enables the Customer to obtain sufficient and transparent information regarding the services provided, and to improve the knowledge and skills necessary to manage the relationship with the Bank and make informed financial decisions.
Credit:	Facilities or financing granted by the commercial bank or Islamic bank.
Over-indebtedness:	The Customer's expansion of credit to the point of being unable to repay the debt as planned, or the Customer's expected cash flows being unable to cover their liabilities towards the debt.
Total Income:	The sum of the individual's or family's monthly or annual net income, including any other income documented with the Bank.
Data Confidentiality:	Maintaining all data obtained by the Bank, as well as financial operations and transactions.
Data Privacy:	Taking all necessary measures and safeguards to ensure that no data or information related to the Customer is disclosed to any party or used for other purposes without the Customer's prior consent or in accordance with the provisions of the law.
Printed Advertisement:	An advertisement published through newspapers, magazines, websites, social media, or any other similar method.
Partial Printed Advertisement:	An advertisement published through an advertising brochure or flyer.
Short Printed Advertisement:	An advertisement published through a billboard, web banner, or any other similar method.
Audio Advertisement:	A non-written advertisement published through radio, websites, telephone, or any other similar method.
Visual Advertisement:	An advertisement published through television stations, websites, display screens, or ATM screens at service provider branches, or by any other similar method.
Annual Percentage Rate of Borrowing (APRB):	An annual percentage of the loan amount calculated based on the value and term of the amount received by the Customer, along with repayment amounts and dates, including all fees and commissions, excluding late payment penalties, taking into account the continuous reduction in the loan principal after each payment.
Program:	The program for calculating the Annual Percentage Rate of Borrowing.
Net Exposure:	The remaining net value of the credit due from the Customer on a specific date.

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Article (2) Objective and Scope of Application

1. The provisions of these Instructions aim to enhance the protection of customer rights through the following: a. Regulating market conduct rules to discipline it and maintain price stability. b. Consolidating principles of transparency, disclosure, and accountability in dealings with customers. c. Empowering customers to understand the products and services offered by banks and choose those that suit their needs. d. Limiting unfair practices and the risks of over-indebtedness. e. Enhancing trust in the banking sector and maintaining financial stability.
2. The provisions of these Instructions apply to all banks licensed by the Palestine Monetary Authority to conduct banking business in Palestine.

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Article (3) Conditions for Granting Credit

1. The Bank must comply with the following when granting credit: a. Clarifying to the Customer the details, types, conditions, calculation mechanisms, and direct and indirect costs of credit. b. Determining interest rates/yields on credit, commissions, late payment penalties, insurance fees, and other charges. c. Pricing products and services based on mechanisms derived from market factors, competition, risks, and costs. d. Determining whether the interest/yield is variable or fixed, and explaining the calculation differences to the Customer, taking into account financing formulas in Islamic banks. e. Determining acceptable guarantees for credit granting, ensuring that required guarantees are commensurate with the level of credit risk. f. Assisting the Customer in selecting the most suitable banking solutions in terms of conditions and prices. g. Verifying, when reviewing the application, that credit conditions are compatible with the Customer's ability to repay installments on the specified dates. h. Ensuring that credit is executed to finance the targeted activities specified in the credit application. i. Standardizing the number of days in a year for calculating interest payable and receivable. j. Not converting the interest/yield calculation method for credit without obtaining the prior written or documented consent of the Customer and guarantor. k. Granting credit in the same currency as the Customer's income, and in case of currency mismatch, the Bank must alert the Customer to the potential exposure to exchange rate risks. l. Directing Customers to choose the most suitable and lower-cost product and service. m. Not exceeding interest rates on the revolving current account debit product for individuals and interest on overdrafts in current accounts by more than 2% above the approved interest rates for loans and current accounts in the Bank, according to customer risks.
2. The Bank must provide a system and develop a methodology for classifying and evaluating credit risks (CRR), such that the system provides a risk profile for the borrower and classifications based on quantitative and qualitative assessment of risk factors, and necessary models must be built to apply control factors to derive the required risk classifications that determine different risk levels.

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Article (4) Changes in Credit Prices After Granting

1. The Bank must comply with the following: a. Planning interest/yield increase levels on credit at a pace commensurate with inflation rates in Palestine. b. Evaluating the risks of raising the yield/interest on credit granted to infrastructure projects and production projects that finance basic and vital goods, and assessing the impact of raising interest rates on increasing default rates on one hand and raising the cost of these goods on the end beneficiary on the other. c. Notifying the Customer of any increase or decrease in interest/yield rates on credit at least three months prior to the effective date of the change on credit and banking systems. d. Ensuring that the installment value does not exceed 50% of the borrower's registered income under any circumstances, including interest rate increases. e. Explaining to borrowers how their variable interest rates are determined (including in case of price increases), especially for mortgage loans, and providing information on other products offered by the Bank that reduce costs, in case the borrower faces an increase in mortgage installments, facilitating the transition to another product or switching to another bank, and obtaining the borrower's consent thereto. f. The Bank must exercise responsibility and ensure that granted credit remains affordable for the borrower, especially individual borrowers.
2. Subject to the provisions of paragraph (1) of this Article, the Bank may agree with the Customer on debt restructuring in case of objection to an interest rate increase or if the installment value exceeds 50% of income, and agree on a new repayment schedule. In this case, the Bank may extend the loan term by a maximum of 24 months beyond the original loan term.
3. The Palestine Monetary Authority may request the Bank to set up a special reserve equivalent to the margin difference if the interest margin exceeds 4% between received and paid interest. This reserve shall be allocated to address expected default risks resulting from customers' inability to repay due to high credit interest rates.

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Article (5) Contracts and Documents

The Bank must comply with the following:

1. Preparing credit-related contracts in Arabic, with clear and legible font. If contracts are concluded in a foreign language, an Arabic translation must accompany the text, with Arabic being the primary language for interpreting the provisions of such contracts.
2. Approving all contract templates and documents by the Bank's Legal Department or Legal Advisor, and approval by the Sharia Supervisory Board in the Islamic Bank.
3. The contract must include the following: a. The credit value in numbers and words, and its purpose. b. The credit term, grace period (if any), and repayment schedule. c. The interest rate/yield and annual credit cost (percentage and amount), and any costs not included in this percentage. d. A separate statement of the principal amount apart from interest/yields, commissions, and expenses. e. The mechanism for calculating interest/yields on credit within the contract or a special annex thereto. f. Determining the index adopted for calculating interest/yields, and specifying the additional interest/yield margin the Bank wishes to charge. g. Clearly indicating in the contract the possibility of installment value changes if the interest/yield is variable. h. Details of guarantees and sureties, conditions and terms related thereto, and obligations that may fall upon the guarantor in case the Customer breaches their obligations to the Bank. i. Specifying the number of installments, their value, due dates, and providing them to the Customer. j. Conditions for early credit repayment and specifying any additional fees that may be incurred as a result. k. Late payment penalties, commissions, and any other expenses that may result from breaching the contract provisions. l. Controls and standards related to the confidentiality and privacy of the Customer's and guarantor's data. m. Conditions for terminating the contract before its expiration date, requiring in this case to notify and warn the Customer in writing to their approved address. n. Specifying the legal procedures to be taken in case of death.
4. Granting the Customer the right to cancel and withdraw from the contract within a maximum of two business days from the date of signing, in case they do not receive the credit and in case the Bank does not issue a commitment letter to any party within the framework of granting credit, without any expenses being incurred by the Customer as a result.
5. The Customer and guarantor must sign the credit terms form attached to these Instructions.
6. The Customer or guarantor must not sign any contracts, documents, checks, collection papers, or guarantees without writing down all details pertaining to them.
7. Granting the Customer and guarantor sufficient time to review all contract clauses, answer all inquiries, and ensure their understanding of all rights and obligations before signing the contract.
8. Ensuring the Customer and guarantor sign all pages of contracts and documents pertaining to them and any amendments thereto.
9. Providing the Customer and guarantor with an original or duly certified copy of all contracts and documents signed by them, with proof of receipt provided. The Bank must provide a certified copy upon the Customer's request, regardless of whether there are pending court cases between the parties, with the delivery process documented properly.
10. Providing the Customer and guarantor with a credit data summary according to Annex No. (1), and their signature acknowledging receipt.
11. Not making any amendments to any clause of the contract signed with the Customer or guarantor, including restructuring or scheduling, without obtaining the Customer's and guarantor's written consent according to the actual situation.

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Article (6) Credit Execution and Annual Cost

The Bank must comply with the following:

1. Executing credit electronically, and refraining from disbursing credit in cash to Customers.
2. Calculating the Annual Percentage Rate of Borrowing for a customer wishing to obtain a loan by entering the necessary data into the program according to the program's guidelines, Annex No. (4).
3. Providing the Customer with a printed copy of the APRB calculation result issued by the program, when the Customer inquires about a loan at the Bank. The APRB provided to the Customer is valid for only 8 business days from the date of printing the cost calculation document.
4. Providing the Customer with a printed copy of the APRB calculation after obtaining and actually executing the loan at the Bank, upon the Customer's request.
5. Making the program available to at least one employee at all branches and offices.
6. Providing the APRB calculation service free of charge to all Customers.
7. Clarifying to the Customer the types of indices relied upon for pricing credit, and the differences between them.
8. Completing the true data in the program according to data extracted from the banking system.
9. Completing data in the program in the designated fields according to the program usage guidelines attached to these Instructions.

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Article (7) Procedures and Disclosures After Repayment

The Bank must comply with the following:

1. Providing the Customer with a free certificate of full settlement upon full discharge of their obligations upon request. The Bank must provide the Customer with a certificate of full settlement or obligation certificate once more or within three business days at the latest from the date of request.
2. Formally requesting competent departments and authorities to lift the pledge indicator on the Customer's funds and pledged guarantees to the Bank upon the Customer's request and full settlement of their obligations to the Bank according to regulations.
3. Ensuring provision of necessary data to the Palestine Monetary Authority to update the credit information database.

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Article (8) Credit Reports

The Bank must provide Customers, upon their prior request, with their credit reports extracted through the credit reporting system, duly stamped according to regulations, and allow them to object to the data through all its branches and offices, in compliance with prevailing Instructions.

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Article (9) Default and Late Interest

The Bank must comply with the following:

1. Preparing work procedures for dealing with Customers and guarantors in case of default, specifying conditions for restructuring, scheduling, follow-ups, judicial procedures, debt collection mechanisms, and write-offs.
2. Notifying the Customer of the commencement of legal procedures to execute on guarantees in case of default.
3. Not determining the value or percentages of judicial fees and expenses to be borne by the borrower; this shall be decided by the court.
4. In case the Customer fails to fulfill their obligations, the Bank must notify both the Customer and guarantor in writing (physically or electronically) within a maximum period of (30) thirty days from the date of breach. The notification must state that the guarantor's accounts will be accessed to settle outstanding balances and that this will be pursued legally.
5. In case of deferring any installment, it must be done via a written request submitted by the Customer with the guarantor's consent, provided that the Customer is clearly informed of the additional costs that will be incurred.
6. Calculating late interest only on the outstanding debt value.

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Article (10) Credit Restructuring and Irregular Credit

1. The Bank may restructure or schedule credit upon the Customer's request.
2. The Bank must invite the Customer to restructure or schedule credit if the installment value rises by more than 20% of the installment value for any reason.
3. The Bank must organize the restructuring or scheduling process in writing via a separate contract considered an annex to the main contract.
4. The Bank is prohibited from raising the interest rate specified in the main contract in case of credit restructuring or scheduling.

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Article (11) Early Repayment

1. The Bank must comply with the following when the Customer makes early full or partial repayment of their debt: a. Not imposing any penalties on the Customer under any name in case they pay any amount before the due date. b. Not making any changes to contracting terms or raising the interest rate in case the Customer makes partial or full repayment. c. Recalculating any interest/yields on early repaid credit installments. d. Refunding all interest/yields deducted in advance that were charged on the early repaid balance to the Customer. e. Providing the Customer, upon request, with a statement reflecting all posting and repayment transactions on their account, including the credit repayment schedule, paid and outstanding installments.
2. The Customer is exempt from early repayment commissions if they wish to repay credit early due to rising interest rates, provided the interest rate increase exceeds 2% above the interest rate on the date of contract signing. The Bank must announce this to Customers.
3. The Bank must collect early repayment commissions according to the percentage specified in Instructions issued by the Palestine Monetary Authority.

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Article (12) Collateral and Equivalent

The Bank must comply with the following:

1. Not collecting checks or promissory notes as collateral from the Customer for a value exceeding the debt and interest value.
2. Ensuring the value of checks and promissory notes collected as collateral is determined on the date of obtaining the credit.
3. Not collecting cash guarantees from the Customer without interest. The Bank may agree in writing with the Customer to reduce interest rates on credit in case of collecting zero-interest cash guarantees.
4. Ensuring that collected collateral is real and liquidatable in case of Customer default.
5. Not exaggerating in collecting collateral, as this has negative effects on market behavior and Customers' willingness to obtain credit.
6. Obtaining realistic appraisals to verify the true value of collateral before granting, and maintaining periodic appraisals by more than one appraiser in case of default.
7. Ensuring the execution of pledges on collateral and mortgaged assets in accordance with legal provisions.

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Article (13) Relationship with Guarantor

1. The Bank must clarify the legal and economic consequences resulting from guaranteeing the Customer.
2. The Bank is prohibited from obtaining guarantees from more than two persons for granting credit to a single Customer, except for consolidated loans and financing or those granted to first-degree relatives.
3. Subject to paragraph (2) of this Article, the Bank is prohibited from obtaining guarantees from more than one person in case movable or immovable collateral is available, unless the value of the collateral is less than the granted credit.
4. The Bank must collect the due installment(s) from guarantors in case of Customer default equally, or proportionally, and in all cases, the deduction value must not exceed 50% of the total transferred income.
5. The Bank is prohibited from taking any action against guarantors until (30) thirty days have passed from the date of notifying the Customer physically or electronically of their default, provided a copy of the notification is sent to the guarantors.
6. The Bank must exercise due care and inform both parties in a marital relationship of the consequences of a spouse's guarantee in case of separation.
7. The Bank is prohibited from accepting a spouse's guarantee for mortgage loans and housing loans unless the mortgaged property or assets are registered in the names of both spouses.

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Article (14) Life Insurance for Customer/Natural Person

1. The Bank must issue a life insurance policy for the Customer obtaining credit for a period exceeding 48 months, with a coverage ratio of 100% of the net exposure value, to be endorsed in favor of the Bank.
2. The Bank must alert the Customer to the risks of inaccurate or improper disclosure of health status and its impact on fulfilling insurance policy obligations.
3. The Bank is prohibited from charging the Customer life insurance premiums except up to the cost only, without generating revenue. In case of refunding amounts related to insurance, the Bank must refund these amounts to the Customer.
4. In cases where the Customer bears the policy coverage value, the Bank must distribute the value over the credit period in equal monthly installments.
5. Subject to paragraph (1) of this Article and insurance policy conditions, the Bank must settle the credit through the insurance company in case of the borrowing Customer's death. The Bank is prohibited from collecting credit installments from heirs or guarantors in this case, except if the insurance company rejects coverage.

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Article (15) New Products

The Bank must comply with obtaining prior approval from the Palestine Monetary Authority for any new programs, products, services, or technologies. It must also notify the Authority in case of modifications to previously approved products, services, and technologies, including new programs attached to existing products or services at the Bank. The request must be accompanied by a report proving the Bank has done the following:

1. Identifying and evaluating all risks associated with the new product, service, or technology, or modifications thereto, including money laundering and terrorist financing risks.
2. Identifying all controls and measures to manage and mitigate risks.
3. Obtaining approval from the Bank's Sharia Supervisory Board for new products and their implementation mechanisms.

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Article (16) Protecting Customers from Over-indebtedness Risks

The Bank must comply with the following:

1. Adopting work procedures and mechanisms that enhance customer protection and limit over-indebtedness risks.
2. Analyzing Customer data, evaluating their risks, identifying high-risk Customers, and limiting over-indebtedness risks.
3. Studying the financial status and investigating credit information of the Customer and guarantor, documenting it with necessary documents at granting or renewal.
4. Ensuring the repayment period is suitable for the Customer's repayment capacity according to income sources, and adhering to deduction ratios from the total income of the Customer or guarantor documented with the Bank for fulfilling obligations as a borrower or guarantor as follows: a. Maximum 35% of the Customer's total income if the Customer is a borrower only and in a currency different from their income currency. b. Maximum 40% of the Customer's total income if the Customer is a borrower only and in the same currency as their income. c. Maximum 50% of the Customer's total income if the Customer is a borrower and guarantor for one or more credits. d. Contrary to the provisions of clauses (a, b, c) of this paragraph and paragraph (1/d) of Article (4) of these Instructions, the Bank may exceed the mentioned ratios by a margin not exceeding an additional 20% if the net remaining salary after deducting the installment and direct and indirect obligations exceeds (800) eight hundred US dollars.
5. Considering the due date of the monthly credit installment on the Customer's account, commensurate with their income sources.
6. In case the credit contract is joint with other parties, the capacity and financial suitability of each party must be studied separately and independently. Borrowing on behalf of another person or for their benefit is not permitted unless there is a power of attorney.

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Article (17) Disclosure and Transparency

The Bank must comply with the following:

1. Advertising interest rates/yields payable and receivable, and approved fees and commissions at the Bank clearly and legibly in all branches and offices and on the website.
2. Publishing interest rates and credit/deposit rates monthly, and stating interest rates against offered programs.
3. Explicitly disclosing the collected commission value in all contracts, documents, and service/product request forms.
4. Clarifying the differences between credit types, and all rights and obligations arising therefrom, including early repayment.
5. Not providing partial or biased disclosure to attract the Customer, avoiding presenting only the positive aspects of the product and/or service, and delaying disclosure of the product's full characteristics.
6. The Customer must sign a declaration of the accuracy and correctness of all required information, and the necessity to inform the Bank of any modification or change to their address, phone numbers, or any other relevant information.
7. In case the Bank rejects the Customer's request for credit or any other service, it must inform them of the reasons for rejection.

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Article (18) Financial Literacy

The Bank must comply with the following:

1. Providing educational brochures for Customers in all branches and offices, on its website, and on its social media platforms, containing detailed information about its services and products, interest rates/yields, specifying whether the interest rate/yield rate is fixed or variable with illustrative examples, total product or service cost, required guarantees, risks associated with the service or product and how to avoid them, target categories and sectors, and any other conditions, updating them periodically and as needed.
2. Publishing booklets explaining the responsibilities of the Customer and guarantor, the necessity of providing complete and accurate information, ensuring their understanding of signed contract texts and their right to inquire about any unclear clause, and granting them sufficient time to absorb and understand information related to the service/product.
3. Educating the guarantor and obtaining their signature on a document acknowledging awareness of guarantee risks and their obligations in case the Customer delays fulfilling their obligations under the credit contract.

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Article (19) Protection from Fraud

The Bank must protect its Customers, savings, and other financial assets within their dealings with the Bank from fraud through implementing efficient and effective control and protection systems aimed at limiting fraud and embezzlement and preventing recurrence in the future, with continuous follow-up to ensure the efficiency of used systems to keep pace with changes in fraudulent methods, in accordance with the law and prevailing legislation.

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Article (20) Data Confidentiality and Privacy

The Bank must put in place supervisory systems, mechanisms, and policies that ensure the protection of Customer data confidentiality and privacy from unauthorized access and inspection. The Bank must also maintain the confidentiality of Customer data and accounts, and they shall not be inspected or disclosed except in accordance with prevailing legislation.

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Article (21) Competition

1. The Bank must comply with providing sufficient information to the Customer to enable comparisons between banking and financial services and products offered by the Bank and those offered by other banks.
2. The Bank is prohibited from including in the account opening contract, credit contract, or any other contracts and their annexes any clauses binding the Customer to continue dealing with the Bank, or imposing obstacles that prevent the Customer from easily transferring their dealings to another bank.

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Article (22) Outsourcing

The Bank must, when wishing to contract with a third party to provide outsourcing services on behalf of the Bank, include in the contract signed with the third party a commitment to maintain the confidentiality and privacy of the Bank's Customers' data, and any data or information obtained as a result of performing outsourcing operations on behalf of the Bank.

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Article (23) Conflict of Interest

The Bank must adopt a policy and work procedures to limit conflicts of interest within the Bank. It must also continuously evaluate compliance with them and their sufficiency in limiting conflicts of interest, and submit periodic reports on the results to the Bank's Board of Directors or its authorized delegate.

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Article (24) Work Behaviors and Ethics

1. Adopting a code of conduct containing organizational and institutional values, professional and ethical behavior standards in dealing with the Customer and guarantor, and clear and specific mechanisms for monitoring and enforcing compliance, disseminating it to employees, and obtaining their signature acknowledging awareness, understanding, and commitment to its provisions.
2. Providing necessary guidance to Customers to select credit or services commensurate with their needs, empowering them to understand fundamental related risks, and assisting them in making decisions that suit their needs and capacities.
3. Providing the Customer with statements related to their debt, containing all necessary details and data, at a minimum as follows: a. Credit principal value. b. Interest/yield percentage and value. c. Expenses, commissions, and any other costs. d. Installment schedule and paid payments. e. Value and number of due installments and interest/yields due. f. Outstanding credit balance.
4. Ensuring the employee dealing directly with Customers possesses the following: a. Honesty in performing duties, working efficiently and effectively professionally, and providing prospective and current Customers with correct information. b. Sufficient knowledge of products and services as required to assist and educate Customers. c. Necessary professionalism and functional independence, and not performing any work or entering into any companies with Customers. d. Holding the necessary academic and practical qualifications to provide advice and execute transactions.

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Article (25) Dealing with Customer and Guarantor with Fairness and Respect

The Bank must comply with the following:

1. Including in the Code of Conduct mentioned in Article (22) of these Instructions professional behavior standards and prohibited behaviors