Israeli Banks Face Class Action Over Unpaid Interest on Checking Accounts

A district court in central Israel has approved a class-action lawsuit against four of the country's five largest banks: Leumi, Discount, Mizrahi-Tefahot, and International. The lawsuit alleges that these banks should have paid customers interest on their checking account balances or at least informed them of the option to earn interest through fixed deposits. The claim is based on a significant shift in the economic environment, with interest rates rising on both loans and deposits.

Judge Shmuel Bornstein ruled that banks holding customer funds without paying any interest, while using those funds to generate income from loans, are unjustly enriching themselves. He stated that the profit derived by the banks exceeds what they would earn if they paid fair interest to their customers, justifying judicial intervention. The banks are expected to appeal the decision to the Supreme Court, with Discount Bank indicating it is seriously considering this step.

The lawsuit, filed by customers Noam Brodsky, Natalie Sharban, Saar Brodsky, and Tzvi Hoch, covers the banks' activities between 2022 and 2025. Leumi holds the largest share of checking account funds (about 50%), followed by Mizrahi-Tefahot (24%), International (14%), and Discount (12%). The plaintiffs estimate the total amount of non-interest-bearing deposits in these four banks at around 400 billion shekels, with the alleged damages ranging from 3.62 to 5.06 billion shekels.

Legal experts are divided on the implications of the ruling. Supporters view it as a necessary correction to the banks' unfair profits, while opponents consider it a dangerous legal innovation that contradicts the banking supervisor's stance. Some experts suggest that even if the Supreme Court overturns the decision, the ruling itself might prompt banks or regulators to implement changes, leading to customer benefits in the future. However, others warn that a retroactive financial penalty could negatively impact future pricing of banking services and credit for all customers.

Separately, a different lawsuit against Poalim Bank regarding checking account management is scheduled for evidentiary hearings in January. The core issue in that case is how to make fund transfers from checking to deposit accounts accessible to the public.