The Israeli Bank That Opens Its Doors to Everyone - Except Arabs

Mizrahi Tefahot Bank's new ad campaign "From Dan to Eilat" has been hard to miss since taking to the airwaves several weeks ago. With a life preserver around his neck, actor Dvir Benedik climbs aboard his sidecar-equipped motorcycle along with his dog Rambo, and the pair sets out to solve a riddle: Why don't people switch banks?

As Mizrahi's pitchman, Benedik has been telling us to switch banks for four years now. But it turns out that despite his cross-country expeditions, Mizrahi has been systematically skipping entire sections of Israel – particularly areas inhabited by Arabs. It also turns out that the bank's doors aren't actually wide open to all Israelis.

In early 2012 several Mizrahi call center reps referred Arabs looking to open an account to the branch in Kiryat Shmona. After a while the officer at the branch in charge of recruiting new clients – we'll call her "L." – phoned the call center with a request: Stop sending us Arab customers or you'll receive a "negative denial."

What she meant was the referral of a client to a branch that didn’t result in an account being opened, something that would appear as a black mark on the rep's record.

L.knew that under Israeli law a client asking to open an account can’t be turned down, so she instructed phone reps to convince Arab callers to drop the idea – mainly by making it clear that the bank doesn't provide credit at the time a new client opens an account, but only after several months have passed. A phone conversation between L and the call center that reached Haaretz reveals what occurred at the branch.

L.: So, about the cousins – do you know what "cousins" are?

G., the call center represenative: No, I don't know. What does it mean?

L.: The…Arabs. Arabs, Druze…whatever you call them. We don't provide credit immediately, only after half a year; between four to five months…

G.: Let's say a client is in the best economic shape, by definition because he's Arab then that's how it is?

L.: A new account, a new account! You offer him all sorts of things. So don't offer. Tell him, pay a visit if you really want. Say that we don't give it right away - only in four to five months. I closed three of your referrals.

G.: But what's the deal? Another customer is great and an Arab isn't?

L.: I don't want…I, I can't say it on the phone, but I'm telling you so you can understand between the lines. There are things that go unsaid, but I'm sorry, that's simply how it works at this bank, at our branch. There are no authorizations here. They aren't given immediately, only after five months. Why? Because they live in villages across the line [1967 borders]: It's Mas'ade [in the Golan] it's Ashar [apparently, a mistaken reference to Ghajar, part of which is in Lebanon] … We're afraid of giving here at the branch, because there's been bad experience with these people, you understand? That they took the money and ran off, and we have a new manager and deputy manager here who aren't willing to do it.

G.: And if he's from a village that isn't within those lines, is it okay?

L.: No. I'm telling you again, no. No. No go. If you want to make an effort, don’t make it on the cousins, okay? I'm telling you so you'll simply understand, because it would be a pity if I close on a negative.

G.: The truth is I've been having a very hard time with what you're saying. If you were talking specifically about Mas'ade or a certain village you would be making a logical argument.

No logical argument

L.: There is no logical argument - it's the argument of this branch. I'm explaining to you so you won't have a bunch of turndowns.

G.: I don't care about the turndowns. You're saying something that's hard to listen to.

L.: I know it's hard, but that's how it works at this branch. It always has been that way.

G.: Then alright, I'll do my job and I'll refer anyone who's a good client, and you decide whether to close him.

L.: No problem. But you should know they're very angry at me. [They say] 'Why do they promise me something at the call center…'

G.: I don’t promise anyone anything. For everything, I say it is [contingent] on the branch's approval. But if there's a good client, I'll send him, I won't say … unless you say living in a certain village, then it's logical. Beyond that I can't understand.

L.: There's no problem. I'm just telling you our side. We don't provide credit immediately. There were two here yesterday. One left upset. He wants to sue me personally and the bank [for credit] that I'm not ready to give him, and why did they promise him and he isn't getting. We'll get a lawsuit here...We'll certainly receive something from the Bank of Israel. The other one was angry and I managed to calm him down, but he'll wait five months with the expectation that he'll receive it. I want to minimize damage at the outset so that's what I say. Because it's an instruction from above, from the highest place in the branch, that we don't give them – perhaps after five months, half a year. If they execute a standing order to save NIS 1,000 to NIS 1,500 [a month] maybe they'll think about it, about some small credit of NIS 3,000 – even an eight or nine (thousand shekel) credit line. That's about the size of it. You simply need to understand, if they don’t have collateral then there's nothing.

L.: I'm really sorry. It's terribly important for me to explain to you that I very much want to recruit clients. It's my job at the branch. I want to help everyone walking in, and it's important for the other side working with me to understand me. It comes from a good place, not a bad place…

On hearing the recording, a former employee at one of the large banks explained: "The typical customer arriving at a bank asks for a line of credit, a credit card and sometimes loans too. L. is actually instructing the reps to tell him: 'Listen, in the first half year you won't receive credit, no line and no card.'

"If we're talking about someone without a regular salary or who got entangled in debt – then it is a risk to the bank and could be understood," explained the banker. "But if it's someone with a regular salary and a record of repaying his loans, he's immediately given credit, and generally also at the level of three times his income. A potential customer who's told he won't receive anything for half a year understands that's he's simply not wanted."

Before joining Yair Lapid in the Yesh Atid political party, Jacob Perry, the former head of the Shin Bet security service and now science and technology minister served as chairman of Mizrahi Tefahot. This is the same Jacob Perry who said in the documentary film The Gatekeepers, "After retiring you become a bit leftist." Alongside him, serving as the bank's CEO, was Eli Yones who addressed Israel's labor market when speaking at a major economic conference at the end of 2012.

"Arab women, Arabs and Haredim are enormous groups that we don't encourage or help to become part of the overall effort," said Yones. "They long to integrate into the job market."

Bank denies 
shunning Arab clients

But as the recording reveals, things were entirely different at the northern branch. For decades Mizrahi Tefahot, founded in the 1920s by the political religious-Zionist World Mizrahi movement, has shunned Arab localities. Until 2012, when it opened a branch in Nazareth, not one of the 165 branches of country's fourth-largest bank around the country could be found in the Arab sector.

"The deployment of Mizrahi Tefahot branches is cut off from the Arab sector," said an expert in the field of credit, adding that it's not a result of explicit policy but rather of the bank's history and religious-Zionist "identity." A senior banker also said that Mizrahi has the weakest presence of any bank in Arab society, surmising: "Perhaps it's from fear or lack of familiarity with the sector."

"The bank has many customers from the Arab sector in all fields of its activity and our declared policy is to unceasingly strive to increase their numbers," Mizrahi said in response. "This policy is clearly the bank's official, declared, and sole policy in this regard, and the entire bank throughout all its units and branches operates accordingly. The policy of the Kiryat Shmona branch is no different on this matter.

"We have forwarded the part of the recording transcript you provided us to the Kiryat Shmona branch manager, and through him to all the senior officials and to a number of the branch's 'customer bankers,'" Mizrahi said.

"The unequivocal and authorized response is that anyone with authority or permitted to act in the area of private and business client recruitment at the branch never said these things, neither face to face nor by telephone. If someone among the Kiryat Shmona branch's rank and file employees said anything contradictory to the bank's policy then it's definitely a grave matter, but it still remains an individual and exceptional act, lacking either permission or authority. In no way should conclusions about our bank...be reached from this episode.

"About a year ago our board arrived at a decision to make an additional effort toward boosting our activity in the Arab sector, even weighing the opening of a branch in an Arab locality," added Mizrahi.

"The reason the opening of the branch hasn't yet been carried out is twofold: Either the places taken into account from a business perspective have an abundance of other banks, or feasibility studies carried out proved that opening a new branch in one locality or another would be economically unsound.,” it said.

Mizrahi Tefahot isn't the only bank creating difficulties for Israel's Arab population. According to a recent expose by Ronen Bar and Avi Amit broadcast on Channel 10, Bank Hapoalim doesn’t always allow its Arab customers to transfer between branches on the basis of maintaining "absence of ties to a branch." Jewish customers brought to the same branches and to the same bankers in the framework of the investigation weren't asked at all about their ties with the branch to which they asked to move their accounts.

Meanwhile, a 2012 report by the Knesset Research and Information Center on banking servicves for the Arab sector - the first ever to examine the matter - found that Arab clients paid a lot more for banking services, both in fees and rates of interest.

Less competition

One reason is that there is even less banking competition in Arab areas than in Israel generally. Only 7% of all branches are located in Arab communities, even though Arabs make up a fifth of the country’s adult population.

Banks do not release data on servcies for their Arab clients, but one way Knesset researchers could detect the differences was by examining fees by two lenders - Arab Israel Bank, which is part of the Bank Leumi group, and Mercantile Discount. The two of them, they account for 62 of the 98 branches located in Arab communities. Some 93% of Arab Israel Bank’s branches serve Arab towns as do about a third of Mercantile’s.

The Knesset study found that at the end of 2011 average monthly fees for an ordinary checking account at the two institutions ranged from between NIS 21 and NIS 22.60, compared with NIS 12.60 to NIS 17.60 at the top five banks. The interest rates spread averaged 9.6% at Arab Israel Bank and 9.06% at Mercantile while at the top five banks it was 6.9%.

In response, Arab Israel Bank said that according to Bank of Israel reports its fees are consistently among the lowest in the banking system. Regarding interets rates spread, the bank noted that it does not make mortgages, a segment characterized by lower rates of interest.

“We serve all sectors in Israel, including the Arab sector, and the list of commissions is uniform for all sectors and available to examine,” Mercantile responded. “Arab clients more often use clerks for banking services and make less use of direct channels, where charges are much lower. “

The Bank of Israel's bank supervisory department responded that it had recently received, for the first time in years, several complaints about differences in bank dealings with the Jewish and Arab sectors. “The issue is being monitored."