Settlement approvalClass action

Class Action 35618-05-11 Dimri: Mizrahi Tefahot will align inflated debt balances in execution files

The court approved a settlement under which the bank will align inflated debt balances in execution files with the balance in the bank's books and compensate debtors whose files were closed, due to late reporting of payments and interest gaps.

Background and facts: debt balances in Mizrahi Tefahot execution files

On March 25, 2021, Judge Esther Stemmer of the Central District Court (Lod) approved a settlement in two motions to certify a class action against Mizrahi Tefahot Bank. The first is Class Action 35618-05-11 (Dimri). The second is Class Action 34452-12-12 (Shitrit).

Both motions concerned execution (enforcement) files that the bank opened against its customers. According to the claims, the debt balance in these files was higher than the balance recorded in the bank's books.

The Dimri claim: late reporting of payments

According to Dimri, the bank did not report to the execution file payments received in the debtor's account, or reported them late. Under regulation 17A(a) of the Execution Regulations, reporting must be made within seven days. He also argued that the bank filled in the reporting forms improperly. Therefore, according to him, the payment was revalued in the file under the Adjudication of Interest and Linkage Law and not according to the higher bank interest.

The Shitrit claim: interest gaps

According to Shitrit, the interest rates the bank reported to the Execution Office on debts from the commercial sector were higher than the rates it was entitled to charge under the agreements or the judgments. According to her, they were also higher than the rates that applied to the same debts in the bank's accounts.

The parties' arguments and the position of the Enforcement and Collection Authority

The bank denied the claims. It argued res judicata, estoppel and preclusion, and argued that the Enforcement and Collection Authority is the proper respondent. In its words, in mortgage debts the debt according to the bank's books, including legal fees and expenses, is lower than the debt in the execution file. In most commercial debts, in its words, it collects less than the debt in its books. The bank argued that no damage was caused, and that the duty to match the type of interest to the payment lies with the Execution Office.

The Enforcement and Collection Authority filed a position. According to it, until about November 2010, when a creditor did not fill in the fields in the form as required, the system operated by default and revalued the amount under the Adjudication of Interest and Linkage Law. In about November 2010, the Authority corrected its computer system.

Mediation between the parties did not succeed, and they conducted direct negotiations. A joint motion to approve a settlement was filed on November 7, 2017, was amended twice, and a first approval decision was given on January 5, 2020.

What the court decided: main terms of the settlement

The classes

The Dimri class was expanded to all the bank's customers, including guarantors, also those who gave a pledge or mortgage, against whom the bank conducted execution files from May 20, 2004 until the date of the debt adjustment. Files opened after October 30, 2010, the date the execution system was corrected, are not included. The Shitrit class includes customers of the commercial sector, including guarantors, from December 18, 2005. The court allowed the amendment of the class definitions.

Arrangement for the future

The bank will report payments to the execution files on the dates set by law. In the open files of the Shitrit class in which maximum current account debit interest (Table 101) was set, the bank will instruct the Authority to charge maximum overdraft account interest (Table 204). The update will not apply to files in which the reported interest is lower than Table 204.

Open files: comparison with the bank's books

In all the open execution files of class members, the bank will reduce the debt balance in the file to the balance in the bank's books on the adjustment date. If the balance in the file is lower than the balance at the bank, no adjustment will be made. In mortgage files, the adjustment will not include awarded or approved legal fees. The bank will send the debtor a notice of the adjustment within 75 days.

For debtors whose debt at the bank was written off in whole or in part, a sample will be taken, the method of selecting which will be set by the trustee. According to the average gap rate in the sample, the balances in their open files will be reduced.

Closed files: individual review and refund

The bank will locate class members with closed files who paid more than their full debt according to the bank's books. For each of them, it will be examined whether payments were made outside the execution file, whether more than one day passed between payment and reporting, and what the interest in the file was. The debt will be reconstructed, and if it turns out there is a credit balance, the bank will refund it to the customer.

Confidentiality of the total amount

The parties agreed that the total amount of the adjustment and the total reduction rate would be confidential. The Attorney General objected, arguing that the settlement and the legal fees cannot be examined without knowing its value. The judge rejected the objection. In her words, the settlement returns the amounts in full to most class members, and the total figure affects almost only the legal fees, which can be examined in other ways. She also rejected the demand to impose the costs of locating customers on the bank.

Amendments added by the court

The court added two provisions. Monies that do not reach former customers will be transferred to the fund under section 27A of the Class Actions Law, and will be dedicated to the rights of bank customers. Before passing the details of a customer who did not respond to class counsel, the bank will verify his address in the Population Registry and contact him again.

Trustee, legal fees and award

Accountant Arie Rappaport was appointed trustee for implementation of the settlement, including taking the sample and setting the benefit amounts. He will report to the court at least once every four months. No examiner was appointed. The legal fees for counsel of both classes together were set at NIS 4,200,000 plus VAT, in installments according to implementation, with 20% left for the final stage. The court also approved an award to the applicants.

Quotes from the decision

"For the alleged breaches in the past, the bank undertook to reduce the debt balances in the execution file and adjust them to the debt balances in the bank's books in the open accounts."

Paragraph 25, page 9 of the judgment (translated from Hebrew).

"The settlement gives a full answer to most class members, in a way that returns the amounts to them without examining their claims, which the bank denied."

Paragraph 29, page 10 of the judgment (translated from Hebrew).

"The settlement the parties reached itself shows the public importance of the claim, and the achievement obtained for the class members"

Paragraph 36, page 12 of the judgment (translated from Hebrew).

Who is eligible and what to do

  • Debtors with an open execution file from the Dimri and Shitrit classes: the balance in the file should be reduced to the balance in the bank's books, and the bank should send a notice of the adjustment.
  • Debtors whose file was closed who paid more than the full debt according to the bank's books: the bank should review the file, and send a notice of entitlement to payment with the amount and how to receive it.
  • A customer who did not make contact: after verifying the address in the Population Registry and a further approach, his details will be passed to class counsel for locating him.

According to the judgment, a class member who encounters a problem with implementation of the settlement may contact class counsel. They will handle his complaint with the bank without him having to pay legal fees. The bank was ordered to publish a notice in two daily newspapers and on its website throughout implementation.

What it means for Mizrahi Tefahot customers

The settlement is not an admission. The bank denied the claims, and the refund was made without examining them. However, it shows that a debt balance in an execution file may differ from the balance in the bank's books, and that it is possible to ask for a comparison between them.

A debtor in a bank execution file can ask for the breakdown of the debt in the bank's books and compare it with the balance in the file. An explanation appears on the page how much you really owe Mizrahi Tefahot and on the page collection proceedings at Mizrahi Tefahot.

Sources

Frequently asked questions about court rulings against Mizrahi Tefahot Bank

What were the Dimri and Shitrit claims against Mizrahi Tefahot Bank about?

Dimri argued that the bank reported late, or did not report, to execution files payments it received. Shitrit argued that the bank reported in the files interest higher than it was entitled to charge. The bank denied the claims.

What did the settlement provide for open execution files?

The bank undertook to reduce the debt balance in every open file of class members to the balance in the bank's books on the adjustment date, and to send the debtor a notice within 75 days. If the balance in the file is lower than the balance at the bank, there is no adjustment.

What does someone whose execution file was closed receive?

The bank should locate class members who paid more than their full debt according to the bank's books, reconstruct the debt and refund a credit balance if one is found.

Why was the total amount of the settlement not published?

The parties agreed that the total amount would be confidential. The Attorney General objected, but the court rejected the objection and held that the figure mainly affects the legal fees.

Who supervises implementation of the settlement?

Accountant Arie Rappaport was appointed trustee for implementation. He is also responsible for the sample and for setting the benefit amounts, and reports to the court at least once every four months.

How to cite

Class Action 35618-05-11 (Dimri v. Mizrahi Tefahot Bank); Class Action 34452-12-12 (Shitrit v. Mizrahi Tefahot Bank), Central District Court (Lod), 25.03.2021. Source: Net HaMishpat (Israeli courts database), case Class Action 35618-05-11 (Dimri v. Mizrahi Tefahot Bank); Class Action 34452-12-12 (Shitrit v. Mizrahi Tefahot Bank).

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