Court decision sends shudders through Israel's banking system

The Lod District Court approved a class action against four major Israeli banks for failing to pay interest on current account balances, citing unlawful enrichment. The lawsuit, covering 2022-2025, claims the banks held about NIS 400 billion without crediting customers. The decision has shaken the banking system, with banks expected to appeal to the Supreme Court. Legal experts are divided on the ruling's legal basis and potential economic consequences. Industry sources warn of possible cost pass-through to the public.

The Lod District Court has approved a class action lawsuit against four of Israel's five largest banks — Leumi, Discount, Mizrahi Tefahot, and First International Bank (FIBI) — for failing to pay interest on customers' current account balances. Judge Shmuel Bornstein ruled that the banks' practice of holding customer money without crediting interest while using those funds to generate revenue from loans constitutes unlawful enrichment. The lawsuit covers the period 2022-2025, during which the banks collectively held approximately NIS 400 billion in non-interest-bearing current accounts. Claimants estimate total damages between NIS 3.62 billion and NIS 5.06 billion. The banks are expected to seek permission to appeal to the Supreme Court. Discount Bank has already notified the Tel Aviv Stock Exchange that it is considering such a step. A separate suit against Bank Hapoalim is expected to reach the evidence stage in January 2027. Legal experts are sharply divided: some view the decision as a bold corrective to unfair banking practices, while others call it legally unprecedented and predict the Supreme Court will reverse it. Industry sources warn that a large retroactive liability could lead banks to reprice products, potentially passing costs onto the public. The Bank of Israel's supervisor of banks supported the banks' position in the proceedings, making the court's divergence from the regulator's stance notable.