Judge Claps Cap on Gray-market Interest

The courts have evidently decided to intervene in gray-market practices. Tel Aviv Magistrates Judge Ruth Ronen ordered the Mister Money corporation to sharply reduce the interest it charges on a loan in arrears.

Mister Money, which provides loans and mortgages, had lent NIS 310,000 to Malka Almagor, her husband, and her son. Four months later, after the family was late in repaying, the husband died. The widow used his insurance money and repaid Mister Money NIS 319,000.

The company claimed that Almagor owes it NIS 180,000 more, partly based on interest rates, partly on compensation, and partly on "arrears interest" of 0.11% a day.

Algamor sued, claiming Mister Money was charging higher interest than it may under the law regulating non-banking loans.

The company argued that the law did not apply to the loan extended to Almagor, because it had been greater than NIS 25,000, which was the limit the law covered.

The court calculated that Mister Money was charging 49.37% interest a year, an amount high enough to warrant intervention even without the law governing ex-bank loans.

Relying on a ruling from Justice Elyakim Rubinstein in the Rodriguez case, Ronen ruled that judicial intervention is possible under the Contracts Law and the basics of the Israeli justice system.

She ruled that Mister Money's interest for the loan in arrears could run no higher than 3 times the rate the banks charge, which is 4.5%. Nor may the company charge the defendant the agreed-on compensation due to tardy repayment, Ronen ruled.

The interest on the loan in arrears already compensates the lender for the damage, and therefore added compensation would have to be considered doubled compensation.