Israeli Banks Face $4 Billion Lawsuit Over Customer Account Interest
Israel's Central District Court in Lod has approved a class-action lawsuit against major Israeli banks, including Leumi, Mizrahi Tefahot, Discount, and First International Bank. The suit alleges these banks profited from customer current account balances without paying adequate interest, particularly during a period of sharply rising interest rates starting in April 2022.
According to the "Calcalist" analysis, banks held hundreds of billions of shekels in customer current accounts while offering minimal interest, averaging around 0.1%. During this time, banks could use these funds for financing or generate returns, earning an estimated 430 shekels per 10,000 shekels held, compared to the 10 shekels a customer might receive as interest.
The court's decision allows the lawsuit to proceed, covering the period from April 2022 to May 2025, before new legislation took effect. The core legal argument is "unjust enrichment," with the court finding that a bank-customer agreement doesn't automatically grant banks the right to profit from current account funds without compensating customers.
While the potential damages are estimated at over 15 billion shekels, the final amount is yet to be determined. The lawsuit highlights that a significant portion of funds, approximately 37% of current account balances (around 220 billion shekels), is concentrated in a small percentage of accounts holding over 250,000 shekels. This means larger account holders might receive the bulk of any compensation, rather than small account holders.
The case could reshape banking practices, potentially forcing banks to offer higher interest rates on current accounts. The Bank of Israel has previously cautioned against direct intervention in interest rate pricing, warning of impacts on competition and market operations. Banking supervision also noted that current accounts differ from deposits due to immediate accessibility, and imposing deposit-like interest could affect service and credit pricing, potentially leading to adverse consumer outcomes or banks increasing fees to offset losses.
Banks are expected to appeal the decision to the Supreme Court, prolonging the legal process. A separate case against Bank Hapoalim is also progressing. This lawsuit represents a significant test of the bank-customer relationship in Israel regarding the compensation for funds held in current accounts amidst fluctuating interest rates.
