Class Action 30742-08-18 Tidan: Mizrahi Tefahot will credit businesses for quarterly management fees

Background: quarterly management fees for a "large business" account at Mizrahi Tefahot

Class Action 30742-08-18 was filed by Tidan Building Company Ltd. against Mizrahi Tefahot Bank. It concerned the "account management fee", a fixed amount that the bank charged at the start of each quarter to customers it calls a "large business". These are customers who are not an "individual" or a "small business" under the Fees Rules.

According to the motion, the company instructed the bank to close its account, but did not get back the proportional part of the management fee for the period between the requested closing date and the end of the quarter. According to the company, this is contrary to section 2(g)(1) of Proper Conduct of Banking Business Directive 415, which requires a proportional refund of a periodic fee when the service is stopped before the end of the period.

The parties' arguments

The bank argued that it complies with Directive 415 and refunds the proportional part when an account is closed before the end of the quarter. According to the bank, the applicant's account was closed at the end of the quarter, so it was not entitled to a refund. The bank added that there was a slight delay in closing because of the year-end workload, and that a class was not proven.

The applicant replied that the relevant date is the date on which the service was actually stopped, and not the closing date in the bank's records.

What the court decided

A first settlement was filed on August 3, 2021. Following clarifications the court required, it turned out that the scope of the refund was significantly smaller than stated, and the parties appointed an outside expert, accountant Gilad Gross. The final settlement was filed on November 24, 2023, and Judge Lior Gelbard approved it on November 28, 2023.

Terms of the settlement

According to the bank's review, there were cases in which, due to human errors and contrary to the bank's guidelines, "large business" accounts closed in the middle of a quarter were not credited with the proportional part. The amount not credited stands at NIS 729,815 in nominal terms, and a full refund of it was agreed.

The refund is nominal, without linkage and interest. According to a calculation of September 5, 2023, revaluation would have added about NIS 127,000, meaning a waiver of about 16%. For the future, the bank changed its charging method from the last quarter of 2022: the charge is made every month or close to the closing of the account, and not in advance for the quarter.

Reasons for approval

The court held that the argument that the applicant had no personal cause of action is not relevant to the other class members, for whom an error was found. The bank's argument that a class was not proven was given limited weight, because the motion was based on a single case. In the court's words, the risk must be examined in advance, according to the evidence in the file when the settlement was filed, and not according to the new information revealed in the settlement itself. The court added that not giving weight to this consideration might give defendants an incentive not to settle at an early stage. The court rejected the argument that human errors are not suitable for examination in a class proceeding.

According to the bank's argument at the hearing, the refunds were calculated on strict assumptions. The court gave this limited weight, because according to the expert's opinion it was difficult to examine in the bank's systems the reason for the credits, and a manual review was required. The court found no need to appoint an examiner of its own, in light of the opinion and the affidavits.

According to the judgment, the refund together with the award, the legal fees and the costs of the proceeding exceeds the revalued refund amount. No objections or opt-out requests were filed, and the professional bodies of the State did not express a position.

Award and legal fees

Following the court's comments, the settlement was amended so that the award and legal fees will be paid in addition to the compensation to the class, and not deducted from it. An award of 4% of the credit amount and legal fees of 18% plus VAT were approved. The court held that the second payment will be made only after its approval. The bank was ordered to publish a notice of the approval in two of the four most widely circulated daily newspapers, and to report to the court by affidavit on completion of implementation, and if it is not completed, to give an update by December 31, 2024.

Quotes from the decision

The mere fact that these are human errors does not make the claim one that is unsuitable for examination in a class proceeding.

Paragraph 27 of the judgment (translated from Hebrew).

It appears that these were indeed human errors, and there is no indication that this was deliberate conduct.

Paragraph 28 of the judgment (translated from Hebrew).

Who is eligible and what to do

• Eligible: customers who held a "large business" account, whose account was closed during a quarter between August 14, 2011 and September 30, 2022, and who, due to an error, were not credited with the proportional part of the management fee.
• Those who have an account at the bank with the same ownership structure: the credit will be transferred to the existing account, if the amount exceeds NIS 5.
• Those who do not have such an account: an eligibility check form can be filled in within 30 business days of publication of the notice in the press. The bank will send text messages with a link to the form to the registered contact persons.
• Amounts below NIS 5, or that cannot be transferred: will be transferred to the fund for managing and distributing monies awarded as relief.

The court ordered the bank to set up a web page with the full text of the settlement and the judgment, linked from the home page under the heading "Settlement in Class Action 30742-08-18".

What it means for Mizrahi Tefahot customers

According to the bank's review described in the judgment, even when the bank's procedure requires a proportional refund, the refund was not always actually made, due to human errors. A business customer who closed an account in the middle of a quarter can check in the last account statements whether it was credited with the proportional part of the management fee.

Another proceeding over fees of business customers at Mizrahi Tefahot concerned the classification of corporations as a "large business": Class Action 28695-05-16 Shefagat. Further rulings are collected in the rulings database.

Sources

• The judgment in Class Action 30742-08-18 (November 28, 2023), on the Mizrahi Tefahot Bank website

Frequently asked questions about court rulings against Mizrahi Tefahot Bank

How to cite

Class Action 30742-08-18 (Tidan Building Company v. Mizrahi Tefahot Bank), Tel Aviv Magistrates' Court, 28.11.2023. Source: Net HaMishpat (Israeli courts database), case Class Action 30742-08-18 (Tidan Building Company v. Mizrahi Tefahot Bank).