Israeli Court Approves Class Action Lawsuit Against Banks Over Checking Account Profits

A district court in Israel has approved a class action lawsuit against several major banks, including Leumi, Mizrahi Tefahot, Discount, and International, alleging they profited from customer checking account funds without fair compensation. The lawsuit, which could involve damages exceeding 15 billion shekels, focuses on the period from the start of interest rate hikes until legislation in 2025 mandated banks inform customers about investment alternatives. A separate case against Bank Hapoalim is scheduled for trial in January.

Judge Shmuel Bornstein ruled that the banks may have unjustly enriched themselves by earning significant profits from customer deposits while paying negligible interest. The court authorized the lawsuit on the grounds of unjust enrichment, rejecting claims of breach of good faith, trust, and misrepresentation. The compensation sought is for past damages, specifically from April 2022, when interest rates began to rise, until May 2025, when new legislation took effect.

This legislation requires banks to actively inform customers with checking account balances above 15,000 shekels for a quarter about investment options. The court determined that future claims beyond this legislative change were not actionable within this suit. The plaintiffs, represented by attorneys Yitzhak Aviram and Shahar Ben Meir, include Noam Brodsky, Natalie Sharban, Saar Brodsky, and Tzvi Hoch.

Total funds in checking accounts are approximately 400 billion shekels, with household and small business balances around 236 billion shekels as of July. Banks reportedly earned close to market interest rates on these funds while paying customers an average of only 0.1%. For instance, in 2025, banks earned about 430 shekels for every 10,000 shekels held in checking accounts, while customers received only 10 shekels.

The lawsuit, initially filed in June 2023, was supported by an economic opinion estimating damages between 3.62 and 5.06 billion shekels up to that point. The approved period significantly extends this, likely increasing the total claimed damages. The court acknowledged the vast sums involved and the large number of affected customers, stating that the banks' profits from these dormant funds, even if customers chose to keep them there, warrant judicial intervention.

The Bank of Israel's Supervisor of Banks opposed the lawsuit, arguing that regulatory intervention in interest pricing could harm market mechanisms and competition. The Supervisor also contended that checking accounts' immediate availability differs from fixed deposits and that automatic fund transfers could disrupt customer payments. However, the court ruled that these policy considerations do not negate the banks' past unjust enrichment, which is actionable under the law. The banks' defense, based on account agreements giving them sole discretion over interest payments, was also rejected, as the court found that such contracts do not permit unjust enrichment.