The one item of information that the bank did not disclose

CA 4619/08 Mercantile Discount Bank v. Me'Onot Ezrat Yisrael. - A precedent ruling in Banking Law issued by the Israeli Supreme Court – holding that the bank has fulfilled its obligation not to mislead its clients, by making its commission rates public, and by informing the clients periodically about the commissions – in accordance with the regulations set by The Central Bank of Israel. The court also ruled that the bank does not have an obligation to its clients, to inform them of their options to reduce their paid commission. The present author will offer a short critique of this ruling.
 

Brief summary of the case-

 Me'Onot Ezrat Yisrael (hereinafter: M.E.Y) was a client that held an account in Mercantile Discount Bank (hereinafter: the Bank), it would deposit checks in the bank from time to time, the checks were of two kinds: the first were regular checks that could be cashed on the spot, the second were delayed checks. For these deposits the bank would charge a registration commission – the rates of the commissions were made public on the bank's ‘commissions board’. M.E.Y had noticed that while a single registration commission would be charged for the regular checks cashed on the same day, regardless of the amount of checks cashed; the bank would charge separate registration commissions for each delayed check on the day of its cashing, regardless of the fact that on some days a number of delayed checks would be cashed simultaneously- The bank would still charge a separate registration commission, for each delayed check. Moreover, M.E.Y had discovered that this policy was not uniform, and that other clients of the bank, would be charged only a single registration commission, for all delayed checks that were to be cashed on a particular day.
 

In a lawsuit brought against the bank, in the District Court of Tel-Aviv, the court ruled that the bank did not explain to M.E.Y the difference in the rate of commissions, and did not present the option, some of its client would ask for, to concentrate the delayed checks to certain cashing days when they would be charged a single registration commission for all checks cashed. The district court also ruled, that this practice was uncommon in any other big Israeli bank and therefore found the bank guilty of violating Article 3 of the Israeli Banking Law (Customer Service) of 1981 (hereinafter: Article 3), which prohibits any deception or misleading conduct by a banking corporation of its clients. The bank had appealed the ruling to the Israeli Supreme Court, as the court of civil appeals.
 

The Supreme Court in a brief unanimous ruling issued by Justice (retired) Eliezer Rivlin, reversed the ruling of the District Court and offered an alternative interpretation of Article 3, deceptive or misleading conduct on the part of a bank must be measured against the service that the client had expected to receive based on the facts that the bank had presented (or failed to present) to her. In this case, the court ruled the bank had clearly publicized the rates of the various commissions, that it charged of its clients, on the bank's ‘commission board’, and that M.E.Y was well aware of the difference in the way registration fees were charged between regular and delayed checks. And that the bank had periodically informed the clients about the commissions it charged.
 

The most important point in this ruling, in the present author's opinion was in paragraph 9 of the ruling, Justice Rivlin ruled that:
 

“The one item of information that the bank did not disclose has to do with the fact that a client that would negotiate with the bank, may gain a "discount" in registration commission for delayed checks, that are paid on the same date. This lack of disclosure however, is not sufficient, absent any obligation of the bank to actively inform the client of the existence of such a discount. The bank's aspiration to increase its revenue is legitimate up to certain bounds, and the mere fact that profits are gained, among others, by charging a registration commission is not to be considered a wrong. As much as the cause of deception does not require the bank to give up charging the registration fee, in order to assure the client is receiving a service for the minimal cost, so should it not demand the bank to advise the client of the possible ways that she may decrease the rate of the commission…”

Further thoughts on the case-

1. Considering the fact, that banking commissions are quite literally the reduction of the clients property that is held in the hands of the bank, it is therefore, based on Israeli constitutional law- basic law: human dignity and liberty, an infraction on the basic right for property, it is allowed as long as the bank is fulfilling what should be a high level of fiduciary responsibility towards the client, this must set upon the bank an active obligation of disclosure that is to be expected in a relationship of reciprocity between the bank and its clients. Article 3 therefore, must be interpreted in light of this basic right of property and the bank's fiduciary obligation to include the active divulgence of information that can be beneficial to the client. And to clarify, the bank is not obligated to operate against any interests it may have in terms of profit and rate of commissions, just to inform the client of existing rates – including the various discounts available, this can be done under certain conditions that the bank may impose on the client. But the ultimate choice of whether to accept the discount for all its benefits and shortcomings should be available to the client, and not taken unilaterally by the bank.
    
2. Justice Rivlin also did not take into sufficient account the natural information asymmetry that exists between a strong institution such as a large bank, and its clients. The client trusts the bank's professional expertise, and the average or "reasonable client", even if this client is a small company is not at a bargaining position that can allow him to actively pursue information the bank is not willingly disclosing. Therefore this imbalance requires the bank to use its good judgment and avoid a situation where the many who lack bargaining power and expertise, become the vicarious subsidizers of the few and powerful that have the privilege of enjoying a more adversarial and ultimately beneficial relationship with the bank. The alternative to the banks judiciousness will certainly be the further involvement of various government regulators that will impose practices that will often be driven by populist political motives, and will end up costing those same banks much more money, while considerably restricting their flexibility and maneuverability in their relationships with various clients.[1]  

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[1] For a more in depth alternative critique that offers suggestions of a more regulatory and judicial nature to the problems raised by this case see (in Hebrew):

לירן חיים, "עמלה בנקאית- אחריות הבנק בקביעתה ובגבייתה: בעקבות רע"א 4619/08 בנק מרכנתיל דיסקונט נ' מעונות עזרת ישראל", משפטים על אתר ה תשע"ג.