Class Action 39049-04-21 Cyberlogic: Mizrahi Tefahot will refund securities redemption fees

Background: the securities redemption fee charged at the teller rate at Mizrahi Tefahot

Class Action 39049-04-21 was filed in the Central District Court (Lod) by Cyberlogic Ltd. and two other applicants (Cyberlogic et al.). The respondents were Mizrahi Tefahot Bank and Discount Bank.

According to the applicants, when a customer's account is credited with a securities redemption, the banks charge the regular fee for a transaction with a teller. This is although the redemption is carried out in the direct channel, without any interface with a teller. According to the claim, the banks should have charged the lower direct channel fee.

The parties' arguments

The applicants relied on section 2(c) of the Banking (Customer Service) (Fees) Rules, 5768-2008, which came into force on November 1, 2017, and on the benefits appendix to the fee schedules. They referred to Class Action 36478-09-18 Lapiner v. Bank Hapoalim, which was certified as a class action on April 11, 2021 on a similar claim. A motion for leave to appeal against that decision was dismissed by the Supreme Court on November 22, 2022.

According to the judgment, the banks relied among other things on judicial findings in similar class proceedings. The judgment does not set out their arguments beyond that.

What the court decided in the Mizrahi Tefahot settlement

The motion to approve the settlement was filed on September 8, 2023. On October 22, 2023, Judge Shmuel Bornstein held that the settlement should not be dismissed outright, and ordered it to be published and the position of the Attorney General and the Supervisor of Banks to be requested. On December 17, 2023, the professional bodies at the Ministry of Justice and the Bank of Israel filed comments. On January 31, 2024, the judge decided to approve the settlement subject to changes. The amended settlement was filed on February 12, 2024 and approved in a judgment of February 14, 2024.

Refund rates

• Individuals and small businesses, from April 4, 2014 to November 1, 2017: a refund of 20% of the difference between the teller fee and the direct channel fee.
• Individuals and small businesses, from November 1, 2017 until the judgment: a refund of 50% of the difference.
• Large businesses, for the entire period: a refund of 20% of the difference.

Mizrahi Tefahot estimated the refund amount for all types of its customers, as of June 18, 2023, at NIS 1,125,500. Discount estimated its share at NIS 800,000. The final amount will be calculated at the date of approval of the settlement.

The refund to customers whose account is closed differs between the banks. Mizrahi Tefahot sends a letter asking for account details, while Discount sends letters with cheques. Amounts not claimed, and cheques not cashed within 90 days, will be transferred as a contribution to the fund for managing and distributing monies awarded as relief. At the end of the claims period, the banks will update the applicants' counsel in writing on the amounts actually refunded. Approval of the settlement constitutes res judicata toward the class members.

Clarification in the fee schedule

The banks will add to the benefits appendix a clarification that securities redemption does not entitle the customer to the direct channel discount, and will also clarify this in Part 4 of the fee schedules to the extent required. The change will be made within two months of approval, subject to the approval of the Bank of Israel to the extent required.

Reasons for approval

The judge noted that the parties' arguments had been clarified, including the argument of similarity to the Lapiner case and to similar claims, as well as the banks' arguments based on case law in similar proceedings. The judge held that weighing the prospects against the risks, and the resources that would be required to conduct the proceeding, justify approving the settlement. He noted favorably the amendment under which the banks will check the Population Registry to locate addresses of customers whose account was closed. No objections were filed, and the professional bodies did not express an objection in principle.

Award and legal fees

The court approved the recommendation. Mizrahi Tefahot will pay legal fees of NIS 281,375 plus VAT, about 25% of the estimated refund, and an award to the applicants of NIS 56,275, about 5%. 75% will be paid within 30 days of the judgment, and the balance after the court approves that the refund has been made.

The banks were ordered to publish a notice of the approval of the settlement in two widely circulated daily newspapers, in letters at least 33% larger than set in the regulations, with a reference to a web address where the settlement and the judgment can be viewed. At the end of implementation, they must file with the court a notice and an affidavit on completion of the undertakings.

Quotes from the decision

I was further impressed that the settlement in its current wording embodies significant advantages for the class.

Paragraph 18 of the judgment, page 7 (translated from Hebrew).

The chance increases that more customers will actually receive an individual refund.

Paragraph 18 of the judgment, page 7, referring to checking the Population Registry (translated from Hebrew).

Who is eligible and what to do

• Eligible: Mizrahi Tefahot customers, past or present, including large businesses, whose account was credited with a securities redemption in Israel or abroad from April 4, 2014 until the judgment, and who were charged a redemption fee at the teller price.
• Open account: the refund will be paid directly into the account within 180 days of approval of the settlement, without a fee.
• Closed account and a refund above NIS 50: Mizrahi Tefahot will send a letter to the registered address, and you must reply within 30 days with account details. The bank may ask for proof of identity.
• Closed account and a refund below NIS 50: the amount will be transferred to the fund under the Class Actions Law.

What it means for Mizrahi Tefahot customers

The settlement does not determine that the bank acted unlawfully. Under it, Mizrahi Tefahot agreed to refund part of the difference to customers who were charged a teller fee on a securities redemption credited to their account. On the other hand, the settlement provides that from now on the fee schedule will clarify that a redemption does not entitle the customer to the direct channel discount.

A customer who held securities that were redeemed can check in the account statements the fee charged on each redemption and whether a refund was received. Further fee proceedings are collected on the class actions page.

Sources

• The judgment in Class Action 39049-04-21 (February 14, 2024), on the Discount Bank website

Frequently asked questions about court rulings against Mizrahi Tefahot Bank

How to cite

Class Action 39049-04-21 (Cyberlogic et al. v. Mizrahi Tefahot Bank and Discount Bank), Central District Court (Lod), 14.02.2024. Source: Net HaMishpat (Israeli courts database), case Class Action 39049-04-21 (Cyberlogic et al. v. Mizrahi Tefahot Bank and Discount Bank).