Israeli Court Allows Major Lawsuit Against Banks Over Client Funds

Israel's Central District Court in Lod has permitted a class-action lawsuit seeking over 15 billion shekels (approximately $4 billion USD) against four of the country's five largest banks: Leumi, Mizrahi-Tefahot, Discount, and Beinleumi. The lawsuit, reported by mako, alleges that these banks illicitly profited from customer funds held in checking accounts between 2022 and May 2025 by paying virtually no interest while utilizing the hundreds of billions of shekels for their own financing and investment, thereby earning substantial returns. Judge Shmuel Bornstein ruled that there is a reasonable probability the plaintiffs' claims will be upheld.

The core of the legal claim revolves around "unjust enrichment." Plaintiffs argue that while banks are not explicitly obligated by account agreements to pay interest on checking accounts, this does not grant them the right to profit significantly from customer money without providing commensurate compensation, especially after interest rates began to rise in 2022. The banks' defense that funds remain accessible to the client at any time was not deemed sufficient by the court to dismiss the case.

The lawsuit's timeframe extends until May 2025, when an amendment to the Banking Law took effect, requiring banks to actively inform customers with large checking account balances about alternative investment options. Bank Hapoalim is currently not a defendant, reportedly due to its "checking account netting" mechanism, which allows positive account days to offset negative overdraft days within the same month, potentially saving customers money.

While the court's decision allows the lawsuit to proceed, it does not guarantee that the banks will be ordered to pay the claimed damages. The banks are expected to appeal the ruling to the Supreme Court. In the interim, customers are advised to manage their funds actively, avoiding large, idle balances in checking accounts and considering short-term deposits or money market funds for unneeded cash.