Israeli Court Approves Billion-Shekel Class Action Against Major Banks Over Checking Account Interest
An Israeli court approved a multi-billion shekel class-action lawsuit against major banks for failing to pay interest on 500 billion shekels in current accounts, sparking intense economic debate.
The Israeli banking sector faced a major legal blow after Central District Court Judge Shmuel Bornstein approved a class-action lawsuit against Israel's leading financial institutions: Bank Hapoalim, Bank Leumi, Mizrahi Tefahot, Discount Bank, and the First International Bank. The core allegation centers on approximately 500 billion shekels of public funds sitting in current accounts (checking accounts), which banks allegedly use as a cheap source of funding without paying interest to depositors. While the judge dismissed several claims, he ruled that the unjust enrichment claim holds substantial merit.
The Cost of Inaction and Transmission Rates
Economist Gilad Mano, who served as the expert witness for the plaintiffs, estimated the financial damage to customers who left their capital in checking accounts at between 3.6 billion and 5.1 billion shekels. According to Mano, the clock did not stop on the day of the filing, and the damages continue to accumulate daily as banks maintain their current practices. Since April 2022, the Bank of Israel raised its benchmark interest rate from 0.1% to 4.75% within roughly a year. Mano explained how the theoretical damage to savers was calculated, pointing to the concept of monetary transmission.
"When the Bank of Israel raises interest rates, it aims to cool demand in the economy: making consumer loans harder to obtain and encouraging the public to save. On the lending side, banks quickly raised rates, which we felt intensely in mortgages and consumer credit. But they failed to raise deposit rates sufficiently, leaving current accounts at zero," Mano stated in his first interview since the ruling.
Oligopoly and Financial Literacy
Addressing the argument that customers willingly leave their money in zero-yield accounts, Mano pointed to a lack of public financial literacy and the severe lack of bargaining power. For a decade and a half, the Bank of Israel's interest rate remained near zero, conditioning the public to expect no returns. Furthermore, with the market dominated by a tight oligopoly of commercial banks, consumers had no competitive alternative offering interest on checking accounts.
Balancing Stability and Fairness
Bank representatives argued that judicial intervention undermines the central bank's authority, noting that Governor Amir Yaron previously opposed mandatory pricing regulations to protect financial stability. However, Mano challenged this view, arguing that a fair transmission rate would merely moderate the banks' extraordinary profit growth rather than threaten their stability. While a May 2025 amendment to the Banking Law now requires banks to notify customers whose current account balances exceed 15,000 shekels for a consecutive quarter about investment alternatives, it still does not mandate interest payments, leaving the legal battle over retroactive damages as the primary avenue for consumer restitution.
