Israeli Banks Agree to Pay 9.2 Million Shekels in Mortgage Fee Class Action Settlement
After a prolonged mediation process, a settlement agreement was approved by the Tel Aviv District Court requiring three major Israeli banks, Bank Hapoalim, Mizrahi Tefahot, and Bank Leumi, to pay a total of 9.2 million shekels to a dedicated fund. The case involved allegations that the banks violated banking regulations by not allowing customers to offset negative discount rate differences from early mortgage repayments against early repayment fees across different loan tracks, but only within the same loan track. Plaintiffs argued that this practice misled mortgage borrowers, causing financial harm, as loan agreements and explanatory documents suggested such offsets would apply across all loans.
The banks contended that the Bank of Israel did not intend to permit offsetting negative discount differences from one loan against positive differences from another. The original claimed damages were in the hundreds of millions of shekels, but the settlement amount reflects difficulties in identifying and compensating individual affected customers. The banks agreed to clarify disclosures in loan agreements and explanatory materials to ensure transparency about how offsets are applied.
The settlement fund will be distributed due to the challenge of locating specific customers who were misled, as well as the complexity of calculating individual damages. Mizrahi Tefahot will pay 5.5 million shekels, Bank Hapoalim 2.6 million, and Bank Leumi 1.04 million. Legal fees totaling 2.08 million shekels were also approved. The plaintiffs are represented by attorneys from the Kalei Rozen law firm, while the banks were represented by various law firms including Meitar and Agmon.
The case highlights the complexities of early mortgage repayment fees in Israel, particularly the "discount fee" designed to compensate banks for losses when interest rates fall below the loan rate at early repayment. The dispute centered on whether banks must offset gains from some loans against losses from others, with the settlement emphasizing improved transparency rather than a change in legal interpretation.
