Early repayment fee on a "supplementary loan": Mizrahi Tefahot will refund overcharged fees

Background and facts: the early repayment fee on a "supplementary loan" at Mizrahi Tefahot

The details here are based on a report on ynet (in cooperation with Psakdin) of June 12, 2013, and on the contingent liabilities note in Mizrahi Tefahot's financial report. The full text of the decision was not found openly online. According to the report, the motion to certify the claim as a class action was filed in May 2011, in the amount of NIS 181 million.

According to ynet, in 2003 the customer took several loans to buy an apartment. Two years later he repaid one of them by means of an additional loan. In 2011 he asked to repay the balance of the loans, and discovered that he had not received a discount on the early repayment fee for supplementary loans.

The parties' arguments

According to the customer, a refinancing loan taken to improve the terms, where the parties and the purpose remained the same, is a supplementary loan that entitles the borrower to a reduction of the fee.

According to ynet, the bank did not deny that some customers did not receive the discount. It explained that this was a computer error, and announced that it would credit the affected customers with linkage differentials and interest. However, it insisted that a loan to repay an existing loan is a new loan and is not supplementary. According to the report, the bank argued in its response of March 2012 that, in accordance with a Bank of Israel decision, it recognizes as supplementary both loans given before the directed loan and loans given after it.

What the court held: the terms of the settlement

According to ynet, the background to the settlement was a directive of the Supervisor of Banks of March 16, 2009, which divided the loans into two types:

• Loans given after the government-assisted directed loan: considered supplementary, and entitled to a refund of excess fees collected in the seven years preceding the decision.
• Loans given before the directed loan: considered supplementary only from the date of the Supervisor's decision onward.

Under the settlement, the bank will automatically refund the full amount overcharged due to the error in the computer systems. Customers who took a supplementary loan before the directed loan, and repaid it before the Supervisor's directive, will be able to contact the bank and receive a credit. This is on condition that the repayment was made in the seven years preceding their request. The bank's policy of not giving a discount on refinancing loans remained in place.

Judge Tamar Bazak-Rappaport approved the agreement and held that it is the efficient and fair way to decide the dispute. She noted that although the plaintiff himself is not entitled to the discount, his claim led to the error being found, to many customers being credited and to more customers being informed. The plaintiff was awarded a fee of NIS 100,000 and his lawyer legal fees of NIS 200,000. According to the report, the settlement was approved in June 2013 and given the force of a judgment.

Who is eligible and what to do

• Customers affected by the computer error: the refund is supposed to be made automatically.
• Customers who took a supplementary loan before the directed loan and repaid it before the Supervisor's directive: they must contact the bank on their own initiative, on condition that the repayment was in the seven years before the request.

What it means for Mizrahi Tefahot customers

The settlement shows that the calculation of the early repayment fee depends on the classification of the loan. A customer who repaid a mortgage early can ask the bank for a breakdown of the fee calculation and for the classification of each loan. More information appears on the page Mizrahi Tefahot early repayment fee.

Sources

• ynet (in cooperation with Psakdin): Class action settlement, Mizrahi Tefahot will refund excess fees, June 12, 2013
• Mizrahi Tefahot financial report, contingent liabilities note

Frequently asked questions about court rulings against Mizrahi Tefahot Bank

The full text was not found openly online; details according to a report, not yet verified against the text of the decision

How to cite

Not stated in the sources (early repayment fee class action: "supplementary loan"), Not stated in the sources (a district court). Source: Net HaMishpat (Israeli courts database), case Not stated in the sources (early repayment fee class action: "supplementary loan").