Class Action 2959-01-19 Keren Aviv: Mizrahi Tefahot ordered to pay NIS 82.4 million over a warning notice fee

Background: from the partial judgment to the calculation of compensation

On August 27, 2024, Judge Zvi Weizman of the Central District Court (Lod) gave a supplementary judgment in Class Action 2959-01-19, Keren Aviv v. Mizrahi Tefahot Bank. The judgment determined how much money the bank must refund to customers who were charged a fee for warning letters, and how the refund will be carried out.

The question of liability was decided earlier. In a partial judgment of April 5, 2021, it was held that the note in the fee schedule, under which the fee is charged "from the second notice", refers to a second notice about the same excess. An appeal against the partial judgment was dismissed by the Supreme Court on May 16, 2022. The reasoning is detailed on the page the partial judgment in the Keren Aviv case.

On November 15, 2022, the court appointed accountant Ehud Retzabi as a trustee. He was asked to examine the number of class members from January 2, 2012 to November 12, 2019, the amount of the fees charged and their value under three revaluation methods. The opinion was filed on January 1, 2024, and the trustee was cross-examined on it on March 31, 2024.

The trustee's findings: 2.49 million warning letters

The trustee identified two types of letters: "Letter 90" on arrears in repaying a mortgage loan, and "Letter 325" on exceeding the credit line. According to his review, during the relevant period the bank sent about 2.49 million letters of these types to about 423 thousand accounts. The total of the fees unlawfully charged stood at about NIS 72 million.

The trustee found that in some cases the fee was not actually collected, because of a credit or because of a debt write-off in an arrangement. In 2022, the rate of credits stood at 1.02% of the fees. For private customers charged NIS 5 the rate was 0.09%, and for businesses charged NIS 90 it was 2.15%. The rate of debt write-offs was found to be 6.33%.

The trustee also found that about 60% of the accounts that were overcharged are still active at the bank. About 40% of the overcharging was from about 95,000 former customers, in a nominal amount of about NIS 27 million.

The parties' arguments on the amount of compensation

The plaintiff argued that the fees should be refunded in full without reductions. In her words, the fact that the bank gave the benefit voluntarily should not be taken into account, since otherwise banks would publish benefits knowing they would not be honored in full. She agreed to a proportional reduction for debt write-offs, and asked for the amount to be revalued according to the bank interest charged to customers with a debit balance.

The bank argued that the interpretation adopted is not the one it intended, and that it is not fair for it to lose millions because of imprecise wording of a benefit. It raised arguments of contributory fault, estoppel and laches. It also relied on section 17.2 of the general terms for managing an account, which requires a customer to object to a charge within 90 days. The bank asked to deduct the full write-offs, to refrain from revaluation and to limit the legal fees.

What the court decided in the supplementary judgment

A duty to refund the fee in full

The court held that a duty of full refund applies to the fee itself, and nothing should be offset from it because it is a voluntary benefit. It rejected the argument of contributory fault. In its words, if the absence of a claim by most customers meant they waived their right, it would not be possible to file a class action at all.

Section 17.2 of the general terms did not exempt the bank either. The court noted that this was a fixed method of the bank and not an accidental error, and that it is doubtful whether an ordinary customer would have noticed a charge of NIS 5. It also noted that the opinion shows that some customers did contact the bank about the fee.

Deducting credits and write-offs

Regarding credits, the trustee's proposal was adopted: a deduction of 1.5% for the years 2012 to June 2015 and 1.02% from July 2015 onward. For 2015, in the middle of which the amount of the fee changed, an average deduction of 1.26% was set. Regarding write-offs, the bank's position was adopted, and the full rate of 6.33% was deducted. The court reasoned that an individual calculation is hardly feasible, and that the gap between the parties' positions on this point is only about 2.4%. The nominal amount set for refund is NIS 66,508,037.

Revaluation: linkage differentials and interest as provided by law

The court chose a middle path: linkage differentials and interest as provided by law, and not bank interest. The trustee explained that bank interest cannot be calculated precisely, because doing so requires reconstructing every account. Such a calculation would therefore be only a rough estimate. With the revaluation, the compensation amount reached NIS 82,414,646, plus linkage differentials and interest from December 31, 2023 until actual payment.

Award and legal fees

The court relied on the Supergas rule and on the proposed Amendment No. 16 to the Class Actions Law, published on July 22, 2024. It reduced each tier in the proposal by 2%, because of the way the proceeding was conducted by the plaintiff's counsel, who objected to the appointment of an expert at an early stage. The following tiers were set:

• Up to NIS 5 million: legal fees 19%, award 4%.
• Between NIS 5 and 10 million: legal fees 15%, award 3%.
• Between NIS 10 and 30 million: legal fees 11%, award 2%.
• Between NIS 30 and 60 million: legal fees 9%, award 1%.
• Above NIS 60 million: legal fees 7%, award 1%.

Half will be paid within 45 days, and the balance after the trustee and the court approve that implementation has been completed.

Quotes from the decision

"As to the duty of restitution itself, which is a basic duty with respect to a monetary component charged unlawfully, it seems that nothing should be offset or reduced."

Paragraph 27, page 13 of the supplementary judgment (translated from Hebrew).

"This is not an accidental or occasional error, such as an erroneous charge to the bank account, but a fixed method adopted by the bank of charging a fee also on a first letter after a new debt arises"

Paragraph 29, page 15 of the supplementary judgment (translated from Hebrew).

"The judgment reflects, among other things, the enormous sums charged by the banks through fees that appear to be negligible."

Paragraph 42, page 27 of the supplementary judgment (translated from Hebrew).

Who is eligible and what to do

The class includes the bank's customers who were charged a fee for a first notice of a payment arrear or an excess balance. The trustee examined the period between January 2, 2012 and November 12, 2019. According to the judgment, payment is to be made as follows:

• A customer with an active account at the bank: a direct credit to the account, after a written notice that mentions the case number.
• A former customer owed NIS 50 or more: the bank will act to locate him and transfer the payment to him according to the details he provides.
• A former customer owed less than NIS 50: the amount will be transferred to the class action monies fund.
• A customer who was not located or did not cash a cheque, and whose amount exceeds NIS 500: his details will be passed to class counsel for locating him. If locating fails, the balance will be transferred to the fund.

Accountant Ehud Retzabi was appointed to supervise implementation and to update the linkage and interest until the date of refund. His fee is at the bank's expense. The bank was ordered to publish a notice in two daily newspapers, and through a prominent link on the home page of its website.

According to a report in Calcalist of January 20, 2025, the bank appealed to the Supreme Court. According to the report, Justice Yechiel Kasher stayed execution of the supplementary judgment toward all class members until the appeal is decided. The stay was conditional on the bank not charging bank interest on the fee amounts in the debit balance, but only linkage differentials and interest as provided by law. Therefore the date of payment depends on the outcome of the appeal.

What it means for Mizrahi Tefahot customers

The judgment shows that a fee of NIS 5, which seems negligible, can add up to tens of millions of shekels when it is charged systematically. According to the judgment, a customer does not lose the right to a refund merely because he did not object to the charge in time.

A customer who received warning letters in the years 2012 to 2019 can check his account statements. The question is whether a fee was charged for a first notice of a new excess. Further rulings against the bank are collected in the rulings database and on the class actions page.

Sources

• Supplementary judgment, Class Action 2959-01-19, August 27, 2024 (PDF)
• Calcalist, January 20, 2025: stay of execution in the bank's appeal to the Supreme Court

Frequently asked questions about court rulings against Mizrahi Tefahot Bank

The bank appealed to the Supreme Court, and the payment was stayed until the appeal is decided (Calcalist, January 20, 2025)

How to cite

Class Action 2959-01-19 (Keren Aviv v. Mizrahi Tefahot Bank), supplementary judgment, Central District Court (Lod), 27.08.2024. Source: Net HaMishpat (Israeli courts database), case Class Action 2959-01-19 (Keren Aviv v. Mizrahi Tefahot Bank), supplementary judgment.