Israel Bans Non-Bank Lenders from Rewarding Mortgage Brokers with Luxury Trips
The Capital Market Authority has issued a final ban on non-bank credit companies offering luxury trips and gifts to mortgage brokers for client referrals, effective January 2027.
The trips next year to Las Vegas, Ibiza, and Corfu, with which non-bank credit companies tried to lure mortgage brokers to refer clients to them, will likely not take place. The Capital Market Authority published a final circular banning non-bank credit companies from granting mortgage brokers commissions, grants, prizes, or any other benefit in exchange for client referrals.
The directive, which was first published as a draft last May, will take effect in three months, in January 2027. At the same time, the Authority published a similar draft circular that will apply to institutional bodies. Unlike the directive concerning non-bank credit companies, the regulation for institutional bodies is still subject to public comments and has not yet become binding.
Ending Conflicts of Interest
The move is designed to put an end to a practice exposed in a series of reports in Calcalist over recent years, in which credit companies competed among themselves not only on the terms offered to borrowers, but also on the level of rewards granted to brokers referring clients. For example, Direct Finance offered brokers a vacation in Las Vegas, Alcal Mortgages advertised a campaign for a flight to Ibiza, LoanWise tempted them with a flight to New York, and Gishur Fund offered a vacation in Madrid. In another campaign, Pama Mortgages offered a couple's voucher for an overseas vacation worth 10,000 shekels, alongside electrical appliances and gadgets.
The problem with these campaigns is not the gifts themselves, but the conflict of interest they create. A mortgage broker is supposed to represent the client and help them choose the most appropriate and cost-effective loan. However, in the non-bank market, a model has developed where the same broker receives a fee from the client while also enjoying rewards from the company to which they refer the client.
Regulatory Enforcement and Open Questions
The final circular broadly defines the types of prohibited rewards, including commissions, discounts, advertising, and economic benefits. The ban also applies to the indirect transfer of rewards through operational companies and intermediaries. At the same time, the final text allows companies to participate in financing conferences and professional training or sponsor them, provided they deal explicitly with professional and theoretical content concerning housing loans. Even in these cases, companies are prohibited from funding flights, travel, lodging, and related hospitality services.
However, even after the directive takes effect, one central problem will remain unaddressed: mortgage brokers themselves are still not subject to dedicated licensing and direct supervision. The bill to regulate the profession has not yet been completed, and the new directive does not limit the fees they can charge from their clients.
