Israeli Banks Face Multi-Billion Shekel Class Action Over Unpaid Interest

A district court in central Israel has approved a class-action lawsuit against four major Israeli banks: Bank Leumi, Mizrahi Tefahot, Discount Bank, and International Bank. The lawsuit alleges that these banks have failed to pay interest on credit balances held in customers' checking accounts (known as "Osh" accounts).

The plaintiffs, Noam Brodsky, Natalie Sharban, Saar Brodsky, and Tzvi Hoch, claim that the damages to customers between 2022 and 2025, prior to a Bank of Israel mandate requiring interest payments, amount to between 3.6 and 5.1 billion shekels. They argue that the banks breached their duty of good faith and trust by not offering interest on these balances or informing customers about the option to deposit funds into interest-bearing accounts.

The banks countered that no legal provision obligates them to pay interest on credit balances or automatically transfer funds to deposit accounts. They asserted that their agreements with customers explicitly addressed this matter and that the plaintiffs' claim of an unfair contract term is baseless. The banks also argued that the principle of good faith does not compel them to pay interest.

However, Judge Shmuel Bornstein found a reasonable chance of success for the claim based on unjust enrichment. He cited remarks from Bank of Israel Governor Amir Yaron in November 2024, who stated that banks' high profitability relies significantly on substantial public balances in checking accounts, which serve as a cheap funding source for banks while yielding no proper return for customers. Bornstein noted that banks profit from these funds without paying interest, suggesting this enrichment might be unlawful.

Bornstein elaborated that while the presence of funds in checking accounts is legal, the banks' enrichment from these funds, specifically the portion derived from not paying interest, is questionable. He concluded that the banks' use of customer funds for profit, without customer consent or compensation, potentially fulfills the criteria for unjust enrichment under Israeli law. The judge acknowledged that banks are generally permitted to use checking account funds, but questioned their right to profit from this usage without sharing any of it with customers via interest payments.