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

An Israeli court has authorized a class-action lawsuit against four of the country's five largest banks: Leumi, Mizrahi-Tefahot, Discount, and International Bank. The lawsuit, filed with the Central District Court in Lod on September 22, alleges that these banks failed to pay customers interest on funds held in their current accounts, often referred to as "overdraft" accounts. The plaintiffs claim damages estimated at over 15 billion shekels, accumulated from the start of interest rate hikes in 2022 until a law mandating banks to inform customers about alternative investment options takes effect in 2025.

A separate class-action request concerning the same issue is pending against Bank Hapoalim, with a hearing scheduled for January 2026. If successful, the lawsuit could cost the banks billions of shekels, prompting speculation they may appeal to the Supreme Court. The core of the claim is that while banks pay negligible interest, around 0.1%, on current account balances, they profit significantly from these funds, earning close to the national interest rate. For every 10,000 shekels held in current accounts, banks reportedly made about 430 shekels in 2025, while account holders received only about 10 shekels.

Israeli citizens collectively hold approximately 400 billion shekels in current accounts. The lawsuit specifically covers the period from April 2022, when interest rates began to rise in Israel, until May 20, 2025, the date a banking amendment required banks to more actively inform customers about investment alternatives. This amendment mandates banks to notify customers with balances exceeding 15,000 shekels for a quarter about other options. The court, presided over by Judge Shmuel Bornstein, authorized the lawsuit based on unjust enrichment, dismissing claims of bad faith, breach of duty, and misleading practices.

The plaintiffs, represented by attorneys Yitzhak Aviram and Shahar Ben-Meir, include Noam Brodsky, Natalie Sharban, Saar Brodsky, and Tzvi Hoch. The court has defined the group to include customers whose account balances exceeded 3,000 shekels for at least one business day, or 1,000 shekels for three or more business days, during the specified period. The Bank of Israel's Banking Supervision Department opposed the lawsuit, warning it could reduce competition and lead to non-competitive interest rates. They also argued that current accounts are designed for immediate access, unlike deposits, and that automatic transfers could disrupt payments. However, the judge ruled that the regulator's concerns did not preclude customers from seeking compensation for past profits earned by the banks.