- ACRI
Our Stance Was Accepted: Interest On Outstanding Payments – Incentive to Pay in Place of Penalties
Today (April 3, 2022), the Ministerial Committee for Legislation approved two bills regarding reducing interest rates for debts owed.
For years, we at ACRI and the Civil Litigation Clinic at the University of Haifa have claimed that the interest rate mechanism in Israel is outdated and violates debtors’ rights to human dignity and property. In the position papers we submitted, attorneys Debbie Gild-Hayo of ACRI and Reut Cohen of the Clinic noted that interest on outstanding payments is intended to motivate people to pay on time, yet the incentive doesn’t work on debtors who lack the economic capacity to pay off the debt. In such cases, interest solely serves a punitive purpose—as a "poverty tax" of sorts. We further claimed that when a debtor begins to pay off debt after a payment order has been determined in accordance with their means, it is illogical for the outstanding payment to continue to accrue interest, as the objective has been achieved.
We are pleased to announce that our position was finally accepted! The bills that the Ministerial Committee for Legislation approved today, which will be advanced in the Knesset, significantly reform the issue of interest rates on outstanding payments. The name of the interest will be changed to arrears fees, and it will be made clear that they aim to motivate debtors to pay on time. This change is not merely semantic but also essential, as it signifies the understanding that interest neither belongs to creditors, nor does it aim to compensate them, and most importantly, that interest does not aim to punish debtors.
The most significant change is in its execution: the arrears fee will cease to accrue interest on the debt once the debtors commence to pay the payment orders, which will be determined in accordance with their financial capacity. This change expresses the perspective that low-income debtors should not be punished by the fact that their debt will continue to swell even once they commence payment.
In addition, executives’ and registrars’ authorities were expanded in implementing the reduction of arrears so as to realize their aim of incentivizing debt payment in accordance with their respective means, in order to pay off – rather than reduce – debt. We hope that these authorities will be used to enable debtors to pay off debts and wipe the slate clean.