Yes, You Can Sue the Bank and Win

1. A bank is not an ordinary commercial entity. The fiduciary and duty of care obligations imposed on it by law far exceed those imposed on any other business – and their breach can constitute a cause of action.
2. Did you rely on advice from a bank officer that led you to a loss? You may have a claim – even without a signed document.
3. Did the bank extend credit to you and withdraw it at the worst possible time for your business? This too can constitute a breach of duty of care that can be sued upon.
4. The bank’s duty of care is not limited to its customers alone – it also applies to third parties who can reasonably be expected to be harmed by its conduct.

Why the Bank Is Different from Any Other Business

When you contract with a commercial company, both parties act in their own interest and both know it. When you contract with a bank, the situation is fundamentally different. The bank charges fees for its services, holds information that is not accessible to you, and is perceived by the public as a professional authority. Therefore, the law imposes obligations on it that no other business entity has.

The Banking (Customer Service) Law requires banks to act transparently, prohibits them from misleading their customers, and mandates compliance with strict procedures. However, the broader framework is derived from case law. The Supreme Court held in CA 4880/19 First International Bank of Israel Ltd. v. Gezuntrait (published in Nevo) that a special relationship exists between the bank and its customer, based on trust, information asymmetries, and the high degree of reliance customers place on the bank and its officers.

When Does the Bank Breach Its Obligations

Common breaches recognized by the courts as genuine causes of action include several scenarios.

Deficient Advice or Misrepresentation: When an officer advises a customer on a financial product without examining their risk profile, or when the bank sold a customer a product that did not suit their needs – the court has ruled on numerous occasions that this constitutes a breach of the duty of disclosure imposed on the bank. Case law has established that the bank owes a duty to disclose material details to its customers by virtue of the fiduciary obligations imposed upon it – even beyond the ordinary obligations imposed on parties to a contract.

Withdrawal of Credit at a Damaging Time: A bank that decides to terminate a business’s credit facility without reasonable notice, at a time when the damage is maximal, may be liable in tort. Case law has established that the bank has a duty of care both in the manner in which it manages credit relations with its customers and in the manner and timing of their termination.

Unlawful Collection of Fees and Charges: Charges that do not conform to the bank’s tariff, interest rates that exceeded what was agreed upon, or terms in a standard contract that constituted exploitation of customers – all of these have been challenged in case law. The Supreme Court has addressed exploitative terms in standard banking contracts on numerous occasions pursuant to Section 3 of the Standard Contracts Law, 5743-1983.

Breach of Duty of Care Toward Third Parties: In LCA 6547/12 Omer v. Bank Leumi (published in Nevo), the Supreme Court held that the bank’s duty of care applies not only to its direct customers, but also to third parties who can reasonably be expected to be harmed by the bank’s negligence. This duty is derived from the contractual obligation to act in an accepted manner and in good faith, and in the absence of contractual relations – from general tort law principles.

What to Do When You Feel You Have Been Harmed

The first step is documentation. Keep every email, every communication with the bank, every document you received – including account statements, explanatory letters, and transaction confirmations. A lawsuit against a bank is ultimately an evidentiary dispute, and those who come to it with organized documentation are in a better position from the outset.

The second step is a professional examination of the case. Not every sense of injustice vis-à-vis a bank constitutes a cause of action, but there are cases in which the breach is clear and a lawsuit can yield substantial compensation. Distinguishing between the two requires a professional eye familiar with case law in this area.

The third step – and no less important – is to examine whether administrative complaint mechanisms are available. The Supervisor of Banks and the Supervision Department of the Bank of Israel allow the filing of complaints, and sometimes a well-organized administrative complaint before pursuing legal proceedings produces results more quickly and efficiently.

Even When You Are the Stronger Party, the Bank Does Not Act on Your Behalf

Business owners and entrepreneurs tend to think of the bank as a partner. It is not. The bank pursues its own interest, and the relationship with it – even the most sensitive one – is commercial. The best protection is to understand what the bank owes you under the law, and to conduct negotiations and business relations with it with a full understanding of the rights available to you – before matters reach a crisis point.

Have you encountered banking conduct that feels wrong? Before giving up – it is worth checking.

© Tidhar Tzur Law Firm | This article is for general information purposes only and does not constitute individual legal advice.