Dear Clients and Friends,
We are pleased to present you with our quarterly update on banking, finance, and insurance law for the second quarter of 2025, including a summary of recent legislative, and case law developments.
Legislative Updates
1. Legislative Update: Promoting Competition in the Banking Market – Graduated Licensing Framework for New Banks
Draft Law for Promoting Competition in the Banking Market (Legislative Amendments), 2025 (published by the Ministry of Finance, November 5, 2025)
The Ministry of Finance and the Bank of Israel are proposing comprehensive legislative amendments aimed at increasing competition in the banking system, with an emphasis on services for households and small and medium-sized businesses. The main proposal is a graduated licensing framework that will enable the entry of small banks and micro banks with regulatory relief, alongside restrictions on large banks during a transition period. The purpose of the initiative is to reduce concentration, encourage innovation, and expand the range of financial services available to the public.
Main provisions of the draft law:
- Graduated Licensing Framework: It is proposed to define in the law new types of banks: “Small Bank” (asset value up to 5% of total bank assets in Israel) and “Micro Bank” (asset value up to 2.5%). This definition will enable regulatory adaptation to the scope of their operations.
- Cancellation of Outdated Licenses: Banking licenses that are no longer relevant will be cancelled, such as mortgage banks, investment financing banks, and financial institutions.
- Expansion of Activity Areas for Small Banks: The Supervisor of Banks will be authorized to approve additional activities for Small Banks, including the buying and selling of digital currencies, with the aim of encouraging innovation and maximizing competitive potential.
- Regulatory Relief for New Banks:
- Exemption from the obligation to provide the full range of banking services, subject to providing a reason for the refusal.
- Relief in the implementation of disclosure rules, provided that material information for the customer is presented in an alternative and efficient manner.
- Exemption from the account portability obligation for the first three years.
- Exemption from the fixed fee rules under the law for five years, but they will be required to publish a clear tariff.
- The executive compensation law will not apply to a Small Bank for 10 years, in order to enable the recruitment of senior personnel.
- Regulation of Control and Ownership Relations: Relief in permit requirements for holdings in Small Banks, and exemption of Micro Banks from restrictions on parallel control in institutional entities.
- Unique Insolvency Regime for Banks: A special framework will be established for handling failing banks, requiring the consent of the Governor of the Bank of Israel to initiate insolvency or liquidation proceedings, in order to maintain the stability of the financial system.
- Restrictions on Large Banks: Large banks will be required to use operating companies for the issuance of debit cards and may not operate more than 40% of new debit cards through a single operating company, for a transition period of four years.
- Monitoring Team: An inter-ministerial monitoring team will be established to examine the implementation of the law and its impact on the financial system.
2. Bill: Temporary Attachment for Small Debts – Protection of Credit Rating
Bill for the Banking Law (Customer Service) (Amendment – Temporary Attachment), 2025
The bill seeks to establish a “temporary attachment” mechanism for debts in small amounts (up to NIS 5,000), with the aim of preventing immediate and unnecessary harm to the credit rating of bank customers. According to the proposal, in the case of an attachment order for a small debt, the bank will impose a temporary attachment and send an automatic notice to the customer. If the debt is settled within five days, the attachment will not be registered as permanent and will not harm the credit rating. The bill is intended to create more proportionate and efficient enforcement, while protecting customers from unnecessary financial damage.
Main provisions of the proposed arrangement:
- Definition of “Temporary Attachment”: An attachment imposed on a customer’s account for an amount not exceeding NIS 5,000, valid for five days only, until the debt is settled.
- Implementation Mechanism: When a banking corporation receives an attachment order for a debt not exceeding NIS 5,000, it will impose a temporary attachment on the account in the amount specified in the order.
- Automatic Notice to Customer: Concurrently with the imposition of the temporary attachment, the bank will send the account holder an automatic notice that will include the amount of the debt and the party that imposed the attachment. The Supervisor of Banks will establish directives regarding the methods of delivering the notice.
- Debt Settlement and Cancellation of Attachment: The customer will be given five days from the date of sending the notice to settle the debt (through direct payment to the attaching party, cancellation of the attachment order, or another payment method to be determined by the Supervisor). If the debt is settled within this time period, the temporary attachment will be cancelled.
- Permanent Attachment: If the debt is not settled within five days, the temporary attachment will be registered as a permanent attachment.
- Protection of Credit Rating: It is proposed to amend the Credit Data Law, 2016, and stipulate that a credit bureau will not take into account data regarding the imposition of a temporary attachment on a customer’s account for the purpose of determining their credit rating.
3. Making the Temporary Stay of Proceedings Order a Permanent Arrangement in the Insolvency Law
Insolvency and Economic Rehabilitation Law (Amendment No. 9) Bill, 2025
The bill is intended to permanently regulate the main principles of the “temporary stay of proceedings order” mechanism, which was established as a temporary provision during the COVID period, and to enable early rehabilitation of debtors by means of a temporary halt to legal proceedings against them, before the commencement of insolvency proceedings.
Main provisions of the proposed arrangement:
- Permanent Arrangement for Temporary Stay of Proceedings Order: A corporation or individual, who has not been granted a stay of proceedings order in the last 12 months, may request from the court a temporary stay of proceedings order for the purpose of formulating a debt settlement with their creditors, for a limited period, with the possibility of limited extension.
- Conditions for Granting the Order for Companies: Granting the order is conditional upon the court being satisfied that there is a reasonable chance of economic rehabilitation, that there is no concern of harm to creditors, and that there are means to finance the company’s operations during the period of the order.
- Conditions for Granting the Order for Individuals: Granting the order is conditional upon the court being satisfied that there is a reasonable chance of approval of the debt settlement, absence of concern for material harm to assets, and in the case of a business – the existence of means to finance operations.
- Appointment of Settlement Administrator: The court will appoint a settlement administrator who will supervise the management of the proceedings, preserve the debtor’s assets, and assist in formulating the settlement.
- Restrictions During the Period of the Order: During the period of the temporary stay of proceedings order, the debtor (corporation or individual) is restricted from carrying out unusual transactions, distributions, or taking credit without court approval, is prohibited from repaying past debts, collection proceedings against them are frozen, and they are subject to supervision and ongoing reporting to the settlement administrator and to the court.
- Clarification Regarding Insolvency Proceedings: It is expressly stipulated that a debt settlement cannot be viewed as a plan for economic rehabilitation within the framework of insolvency proceedings – this is an independent and separate proceeding, intended to serve as a preliminary stage or alternative to insolvency proceedings.
- Applicability: The law will come into effect on February 1, 2026 and will apply to new proceedings only.
Case Law Updates
1. The insurer’s obligation to bear legal expenses even beyond the insurance amount, but shared with the insured
The Supreme Court ruled that the Insurance Contract Law obligates the insurance company to bear court costs awarded to the opposing party (in addition to the legal expenses incurred by the insured for their defense), even beyond the insured amount. However, when the total insurance benefits exceed the agreed insured amount, the expenses will be divided between the insurer and the insured in proportion to the ratio between the agreed insured amount and the remaining liability.
CA 405/23 AIG Israel Insurance Company Ltd. v. Anonymous (Minor)
(Supreme Court sitting as a Civil Appeals Court, before the Honorable Justice Yael Willner, the Honorable Justice Alex Stein, and the Honorable Justice Yehiel Kasher, delivered on August 7, 2025)
Summary of the Judgment:
- A minor was injured in an accident while staying with her parents at her uncle’s house, when she was scalded by hot water from a kettle. The minor, together with her parents, sued the uncle and his insurer, AIG. The District Court ruled that the uncle and AIG were liable for the damage and ordered AIG to pay court costs and attorney’s fees awarded to the minor and her parents (in addition to the legal expenses incurred by the insured for his defense).
- AIG appealed, arguing that it should not be required to pay legal expenses beyond the agreed insurance amount, and certainly not those awarded to the opposing party.
- The Supreme Court ruled:
- Section 66 of the Insurance Contract Law is a mandatory provision, intended to protect the insured from the unexpected risk of legal expenses, as part of the principle of damage mitigation.
- The obligation includes both legal expenses incurred by the insured for their defense and expenses awarded to the opposing party, as they arise directly from the conduct of the legal proceedings.
- The reasonableness of the expenses is examined in light of the purpose of Section 66 of the Insurance Contract Law, which is based on the principle of damage mitigation. The insured must act reasonably to mitigate their loss, and the insurer must indemnify them for reasonable expenses incurred as a result. The reasonableness is assessed at the time the decision to conduct the proceedings is made and according to the circumstances – the complexity of the case, its prospects, and the scope of liability. It was determined that these considerations apply mainly to expenses incurred directly by the insured, whereas expenses awarded to the opposing party are generally deemed reasonable unless they are punitive in nature.
- However, when the total compensation amount exceeds the insured amount, there is no justification for imposing all expenses on the insurer. The expenses will be divided between the insurer and the insured according to the ratio between the insured amount and the remaining tort liability borne by the insured.
2. International Sanctions and the Scope of the Bank’s Duty to Provide Essential Services
The District Court largely dismissed the claim of David Davidovich against Bank Hapoalim, ruling that the bank is entitled to impose restrictions on the account of a customer subject to international sanctions, provided that such restrictions are reasonable and balance the bank’s risk management needs with the customer’s right to essential services. However, it was held that the immediate freezing of the account without a prior hearing was improper.
CA 8487-05-22 David Davidovich v. Bank Hapoalim Ltd.
(Tel Aviv–Jaffa District Court, before the Honorable Judge Gershon Gontovnik, delivered on September 3, 2025)
Summary of the Judgment:
- Davidovich, a businessman holding both Israeli and Russian citizenship, was included in 2022 on British and Canadian sanctions lists. Although the sanctions do not apply directly in Israel, Bank Hapoalim immediately froze his account. Later, as part of interim proceedings, some of the restrictions were lifted, and he was allowed limited use of the account for personal needs.
- According to Davidovich, the bank unlawfully violated his rights, since the State of Israel has not adopted the sanctions regimes, and the bank’s concern about potential future harm cannot justify sweeping restrictions. Conversely, Bank Hapoalim argued that maintaining an account for a customer designated under sanctions exposes it to real risks with foreign banks and to severe reputational damage; therefore, the imposed restrictions are part of a reasonable and proportionate risk management policy.
- The court ruled that:
- Although banks are providers of essential services and therefore have an enhanced duty to provide services, this duty is not absolute. As providers of essential services, banks are subject in their decisions regarding the provision of services to the test of “economic reasonableness.”
- Inclusion on a political sanctions list alone is not sufficient to justify a sweeping account freeze; each case must be examined on its own merits.
- In this case, Davidovich sought to convert a secondary account into a main business account through which tens of millions of dollars, including transfers to foreign beneficiaries, would pass – a change that increased the risk that the bank would be perceived as assisting in circumventing sanctions. Therefore, the bank’s refusal to remove the restrictions entirely was deemed reasonable.
- However, it was held that the immediate freezing of the account without prior notice to the customer was improper, and this affected the court’s decision regarding costs.
- Ultimately, it was determined that Davidovich would be permitted to use the funds existing in the account for personal needs and investments in Israel, but he would not be allowed to transfer funds from abroad into the account or make transfers abroad, except for limited personal uses.
3. Cancellation of a Fee Charged by a Mortgage Consulting Company – Fee Conditional Upon Actual Loan Approval
The District Court accepted the appeal of Nitza Dvir regarding her obligation to pay a fee to Homewiz Mortgages Ltd., ruling that under the agreement between the parties, the right to a fee arises only upon the actual receipt of a loan, and not upon the receipt of a preliminary approval. Since the loan was not granted, it was determined that the contractual conditions entitling the company to payment were not fulfilled.
CA (Central District) 31182-01-25 Nitza Dvir v. Homewiz Mortgages Ltd.
(Central–Lod District Court, before the Honorable Judge Yiska Rottenberg, delivered on May 4, 2025).
Summary of the Judgment:
- Nitza Dvir, who was undergoing divorce proceedings, entered into an agreement with Homewiz Mortgages Ltd. for credit consulting and assistance in obtaining a loan to purchase her husband’s share in their residence. It was agreed that the company would handle the mortgage process on Dvir’s behalf, in return for a commission of 8% of the loan amount plus VAT.
- The company obtained a preliminary loan approval from a non-bank institution (IBI), but the loan was not actually taken. The Petah Tikva Magistrate’s Court ruled that Dvir unilaterally withdrew from the engagement and ordered her to pay the company a reduced fee.
- On appeal to the District Court, it was determined that:
- Under the agreement, the company’s obligations include not only obtaining preliminary approval but also handling the actual loan arrangement, including representation before the bank and registration of the mortgage.
- Accordingly, the fee was set as consideration for fulfilling all obligations, primarily the receipt of the loan. Since no loan was granted, the conditions entitling the company to payment were not met.
- The court emphasized that the purpose of the agreement is the receipt of funds, not merely obtaining preliminary approval, and that such approval does not guarantee the actual granting of a loan.
- It was further held that this is a consumer agreement and therefore must be interpreted in favor of the client and in accordance with principles of good faith and fairness.
- The company’s claim that Dvir herself prevented the granting of the loan was rejected, since the lawsuit was filed as a contractual claim for fees, not as a claim for reimbursement of expenses or for quantum meruit.
4. A credit consulting company is entitled to a fee even if the client did not actually take the loan
The court ruled that Premium Credit Solutions Ltd. is entitled to the full fee after obtaining for Sharon Regforker a preliminary loan approval – even if he chose not to take the loan in practice.
SC (Small Claims) 65691-01-24 Premium Credit Solutions Ltd. v. Regforker
(Haifa District Court, before the Honorable Judge Batina Tauber, Deputy President, delivered on July 25, 2025)
Summary of the Judgment:
- Shitrit v. Regforker, a claim for payment of attorney’s fees in the amount of NIS 46,215, based on a promissory note signed by Regforker to secure payment for consulting and assistance services in obtaining a non-bank loan. Regforker argued that the company exploited his financial distress, had him sign an agreement under onerous terms, failed to act diligently to obtain a loan on reasonable terms, and offered him a loan with an excessively high interest rate. He further claimed that he did not fully read the agreement and was unaware of his obligations.
- The court rejected Regforker’s defenses, ruling that there was no defect in the signing process of either the agreement or the promissory note, and that Regforker had signed them of his own free will. It was held that no grounds for cancellation of the agreement were proven, neither on the basis of exploitation nor due to the loan terms, and that the company acted with reasonable diligence to obtain the best possible loan terms under Regforker’s circumstances, as he was undergoing receivership proceedings. The company approached several financing entities and obtained for Regforker a preliminary loan approval in the amount of NIS 650,000 from Delta Capital Group, with the document presented meeting the contractual requirements.
- It was further held that the entitlement to the fee arises upon obtaining a preliminary loan approval, even if the client chooses not to take the loan in practice. Regforker failed to cooperate after receiving the approval, did not complete the required signatures, and breached his obligations under the agreement. Therefore, Regforker was ordered to pay the full fee, and the enforcement proceedings against him will continue. In addition, he was ordered to pay court costs and attorney’s fees in the amount of NIS 6,500.
5. Realization of an Autonomous Bank Guarantee Is Possible Even in Insolvency Proceedings
The Tel Aviv District Court cancelled an interim order that prevented the realization of the balance of an autonomous bank guarantee provided by Bank Leumi for the benefit of the landlord and ruled that there is no impediment to realizing the guarantee even when the company is in insolvency proceedings. The existence of a contractual dispute between the parties also does not justify delaying the realization of the guarantee, in the absence of exceptional circumstances of fraud or extreme bad faith.
Insolvency (Tel Aviv) 2442-03-25 Skybox Security Ltd. v. The Official Receiver for Insolvency and Economic Rehabilitation Proceedings
(Tel Aviv-Jaffa District Court, before the Honorable Senior Judge Hagai Brenner, delivered on August 13, 2025)
Summary of the Judgment:
- Skybox Security Ltd. entered insolvency proceedings, and Beit Ampa Herzliya Ltd. sought to realize the lease guarantee that had been provided for its benefit by Bank Leumi. The trustee requested to prevent the realization of the balance of the guarantee, and the Tel Aviv District Court granted his request and issued an interim order prohibiting the realization of the guarantee until the dispute between the landlord and tenant regarding payments under the lease agreement is resolved.
- The landlord filed an urgent motion to remove the order, arguing that the company has significant debts to it for rent, management fees, and a loan provided for the purpose of adapting the leased premises. The trustee argued in response that this is an arbitrary and bad faith demand, and that it is necessary to wait for a decision on the motion to cancel the lease agreement or within the framework of a proof of debt claim.
- The court held that the principle of independence of an autonomous bank guarantee remains valid even when the company is in insolvency proceedings. The guarantee is not an asset of the debtor but rather an independent undertaking by the bank to the beneficiary, and therefore there is no impediment to realizing it except where the case law exceptions apply – serious fraud or extreme bad faith on the part of the beneficiary.
- It was determined that in this case, no fraud was proven, and no extreme bad faith on the part of the landlord was proven. The mere existence of a contractual dispute between the parties does not justify delaying the realization of the guarantee. The court emphasized that the trustee will retain the option to sue for the return of the funds if it later turns out that the landlord collected funds to which it was not entitled.
- Accordingly, the interim order that was previously issued was cancelled, and the landlord is entitled to realize the balance of the bank guarantee.
6. Cancellation of Interest Terms in Non-Bank Loans Due to Illegality and Lack of Good Faith
The Ashdod Magistrate’s Court partially accepted a claim for cancellation of loan agreements and a mortgage on a residential apartment and ruled that Li-Ami Property Management and Holdings Ltd. acted in bad faith, without a valid license in some cases, and while charging excessive interest. The court ordered the cancellation of the interest clauses in the loan agreements and determined that only linkage differentials to the Consumer Price Index would be added to the loan principal. In addition, the company was prohibited from realizing the mortgage for amounts given in cash or without a license.
CA (Tel Aviv) 7761-03-23 Eli Alush v. Li-Ami Property Management and Holdings Ltd.
(Ashdod Magistrate’s Court, before the Honorable Judge Yehuda Livlin, delivered on September 1, 2025).
Summary of the Judgment:
- Eli Alush signed loan agreements with Li-Ami Property Management and Holdings Ltd. and mortgaged his residential apartment as collateral, at the request of his late brother-in-law, Tzvika Ben Shabbat, of blessed memory. Ben Shabbat, who was in insolvency proceedings, sought to finance business activity through a company he owned, and Alush guaranteed the loans. Alush claimed that he did not understand the meaning of the documents he signed, and that the agreements are tainted by exploitation, fraud, and illegality, inter alia due to the defendant’s lack of a license to grant credit and excessive interest rates.
- The court ruled that:
- The plaintiff knowingly signed the documents, and the court rejected his claims of lack of understanding or exploitation, noting that the plaintiff changed his versions and attempted to evade providing answers.
- The defendant acted in bad faith by granting loans to a person in insolvency proceedings, while risking the plaintiff’s residential apartment.
- The second loan was granted by the defendant at a time when it did not have a valid license to engage in providing credit, and therefore it is tainted by illegality.
- A sum of money from the first loan was delivered in cash to Ben Shabbat, in violation of the provisions of the Cash Law.
- The interest rates set in the agreements significantly exceeded the maximum permitted interest under the Fair Credit Law.
- The borrowing company was merely a “corporate shell” intended to disguise Ben Shabbat’s activity, and therefore the Fair Credit Law applies to the loans.
- Therefore, the claim was partially accepted:
- The interest clauses in the loan agreements were cancelled, and in their place only linkage differentials to the Consumer Price Index will be added to the loan principal.
- The defendant will not be entitled to collect through the mortgage on the residential apartment amounts that were given in cash or without a license.
- Amounts paid to date will be credited first to the principal of the first loan.
- The defendant was ordered to correct the application for execution of the mortgage deed and to pay the plaintiff court costs and attorney’s fees.
We are at your service for any questions or clarifications via email or phone: 03-3075000
Best regards,
Banking, Finance & Credit Insurance Department
Shibolet & Co.
The information in this memorandum is provided for general informational purposes only and should not be relied upon in any specific case without obtaining additional legal advice.
