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Bank Leumi has started to retain 10 percent of the fees awarded to lawyers who handle cases of defaulting debtors for the bank.

The fees are paid by the borrowers as instructed by the court.

In January, Nahum Bitterman - the bank's first executive vice president, chief legal adviser and manager in charge of legal risks - and Hani Aviram, who supervises the work of free-lance lawyers, notified all of the free-lance lawyers with whom the bank works of the new procedure. Bitterman and Aviram explained that this was "part of the bank's adaptation to the economic circumstances of 2002 and of the streamlining measures that the bank is implementing." This announcement created much opposition among the free-lance lawyers.

In March 2002, Bitterman and Aviram sent another letter stating that in cases in which the debtor pays his debt in full, including legal fees, interest and all other related expenses, the bank will not deduct the 10 percent. In most cases, however, debtors end up paying an amount somewhat lower than that originally sought by the bank, which means that this statement is almost meaningless in practice.

Several of the lawyers that work with Leumi have asked the Israel Bar Association and Attorney General Elyakim Rubinstein to check the legality of the bank's move. Their main argument is that the bank is either generating a new source of income that is not part of the corporation's core business, or else it is collecting a commission. Israeli corporate law requires that all of a corporation's operations be consistent with its core business as defined in its bylaws. And the banking laws require any type of commission collected by a bank to first be approved by the Bank of Israel.

The commission argument has also been raised recently in connection with a similar practice implemented by Bank Mishkan - Hapoalim Mortgage Bank. This case is still under investigated.

Leumi's spokesperson said in response: "The bank pays each lawyer [if the court decides against the bank or if the debtor does not repay the debt] his or her fees as agreed. Sometimes the fees are in the amount instructed by the court and sometimes they are higher [as stipulated in the agreement between the lawyer and the bank]. In any case, the bank never enriches itself at the expense of the client or of the lawyer, since the bank does not collect a penny from the fees that the lawyers receive from the client. In most cases the bank is the one to pay the lawyer's agreed fees while the client pays the lawyer nothing. The attorney general was asked to intervene by a single lawyer whose work with the bank was terminated and who has since been harassing the bank with unjustified grievances."