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Q & A

1. Question:

A Jewish finance company refuses to sign a heter iska because they are afraid to commit in writing to such an agreement. Can I structure something or do something or perhaps just write something in an email that would avoid ribis without requiring them to sign anything?

Answer:

Ideally, a heter iska should be put in writing (see Shu't Tzemach Tzedek Y"D 88). 

In any event, it is crucial that both parties understand the nature and mechanics of the heter iska and commit to it in order for it to be valid (see Shulchan Aruch Harav, laws of Ribis and Iska, par. 46).

In summation, if the Jewish company refuses to sign, ribis cannot be avoided and you shouldn't borrow from it.

2. Question:

Is there a problem of ribis if a camp were to offer a cheaper price to those who pay in full at an earlier date? I have noted the heter of Rav Elyashiv (quoted in R. Reisman’s “The Laws of Ribbis”, chapter 7 , footnote 30), allowing early registration discounts for schools because school administrators are paid contractors to whom the rules for the sale of merchandise do not apply. 

Can this be relied upon? If not, can you please provide for me a heter iska document that can bypass the prohibition?

Answer:

To preface, camp fees include two components: goods and services.

The heter quoted above regarding contractors cannot be relied upon because the Laws of ribis also apply to contractors (see Shulchan Aruch Harav, laws of Ribis and Iska, par. 15). (There is no prohibition however if the camp staff begin to work (or are already working) at the time of payment (ibid)).

The second item to be considered is that by paying the camp fees, one is also purchasing goods, such as food, from the camp. Two different prices cannot be advertised where the cheaper price is available to those who pay earlier, even if the earlier price is not advertised as an early bird discount, and the cheaper price is actually the going rate, unless the camp already has all of the items it intends to provide (ibid, par. 24-25).

Due to the above-mentioned issues, the Chabad Lubavitch day camp here in Melbourne offers a discount to those who confirm attendance by a particular date, even if they do not pay earlier than others.

Finally, it should be noted that a heter iska only works on business loans where there is an expected profit.

3. Question:

What are the limitations concerning loans in various currencies?

Answer:

In short:

1. A loan may be advanced in local currency with a stipulation that it be returned, without interest, in a foreign currency, provided that the stipulated exchange rate is the one which will be current when the loan is repaid. 

2. A loan may be advanced in foreign currency with a stipulation that it be returned, without interest, in the same currency, if the borrower already possesses, when receiving the funds, at least something (one dollar or even one cent) in that currency. 

3. A loan may be advanced in foreign currency with a stipulation that it be returned, without interest, in local currency if the stipulated exchange rate is the one current at the commencement of the loan.

4. A loan may not be advanced in foreign currency with a stipulation that it be returned, even without interest, in a different foreign currency. 

5. The above notwithstanding, if the contract is worded in such a way so that the terms used between the lender and borrower do not imply an explicit loan but rather could be understood as a purchase of foreign currency conversion at the current rate, then the funds may be advanced in any currency with a stipulation that it be returned, without interest, in a different currency, provided that the “borrower” already possesses, when receiving the funds, the full amount s/he will be required to return on the due date. If one is purchasing local currency, then this provision does not apply. 

6. For actual currency conversions, that is, not a loan, one may always purchase currency if the buyer does not have to wait to receive the funds he purchased, even if the buyer or seller profits from the transaction.

For greater detail, see here.

4. Question: 

As a Company, we accept payments from customers made via their credit cards. We are charged by the bank for each transaction a fee of 0.91% of the transaction. Can this fee be passed on to the customer? We don't charge everyone this fee. Assuming we are allowed to pass on this fee to our customers, can a higher fee be charged to some of our customers, in order to cover the overall credit card fees charged by the bank?

Answer:

You may pass on to the customer the charge that you incur for making the transaction and there is no prohibition of ribis. You are merely passing on the expense of the transaction. You may also do so selectively, charging this expense to certain customers while allowing others to pay with their card fee-free. 

One would even be allowed to charge a customer over and above the expense incurred on the purchase because technically speaking, his "borrower" is the bank and the bank's "borrower" is the customer. Since ribis is only prohibited when paid by the borrower to the lender (see Shulchan Aruch Harav, laws of Ribis and Iska, par. 60), charging the customer over and above the charge incurred to the bank does not constitute a breach of the ribis laws since the customer hasn't borrowed any money from you.

On the other hand, one shouldn't tell the customer that the extra charge is because the funds will only be received in a few days for it would appear as if he was charging him more for a item due to the payment being made sometime later (ibid, par. 18). 

5. Question:

If a Jew lends money to another Jew with interest using a "Heter Iska" form, is it also permitted to have the borrower sign a promissory note guaranteeing the repayment of principal and interest?

Answer:

One may advance an interest bearing loan and also sign a separate heter isko agreement so long as it is clearly stipulated that the former is subject to the latter so that the terms "loan" and "interest" used in the loan agreement are legally understood and interpreted in line with the binding heter isko agreement. 

For the transaction to be halachically acceptable, both parties must understand the dynamics of the heter isko agreement.

6. Question:

Someone went to the author of a sefer to buy his sefer for $20. The person didn’t have money but the author let him take the sefer anyway and to pay him back at a different time. When the guy came to pay for the sefer he gave him a $100 instead, intending to fulfil the great Mitzvah of supporting a Torah scholar. Is there any problem of ribis with this?

Answer:

Generally speaking, to return a loan with a little extra is considered ribis. Even where the repayment is for a purchase, one shouldn't add a little bit extra as a gift. Although some Poskim (see Shach 160:4) permit this because the repayment can be seen as an adjustment in price, the Beis Meir (to YD 160:4) and the Alter Rebbe (cf. Shulchan Aruch Harav, laws of Ribis and Iska, par. 8) disagree. 

In the case mentioned above, the increase in price is substantial and therefore the above mentioned leniency would not apply even according to the more lenient view (see Shulchan Aruch Harav, laws of Ribis and Iska, par. 8 and Pischei Tshuva 173,4). 

Nonetheless, if the additional sum was given with the intention of supporting a Talmid Chochom in a dignified manner, the additional amount does not look like ribis and is therefore permitted.

7. Question:

Shimon borrowed $1000 from Reuven and it's due in 6 months. Reuven now offers Shimon a discount to pay early. He is prepared to accept $600 if Shimon pays up immediately. May Shimon agree to this arrangement?

Answer:

Shimon may agree. Since debts can be sold (see Shulchan Aruch Ch"M chapter 66 for further details), Reuven should "sell" his $1000 debt to Shimon for $600 (see Shulchan Aruch Y'D 173,4 and Shulchan Aruch Harav, laws of Ribis and Iska, par. 58) and the debt is effectively annulled.

8. Question:

Am I allowed to add a late fee clause in a lease for a Jewish tenant or is it ribis?

Answer:

As a general rule, one may not add a late payment fee clause for failure to pay on time, even as a single “fine” for late payment. The reason for this is as follows: 

The Rabbis forbade charging a "penalty" for not paying a debt on time because it would appear to be no more than a trick to get around the Biblical prohibition of ribis. This is called haromas ribis (Shulchan Aruch Y'D 177,14 and Shulchan Aruch Harav, laws of Ribis and Iska, par. 47). If the fine increases over time (for example, $5 for every day the payment is late), it would be a violation of ribis min haTorah (ibid par. 48).

An easy way to encourage the lessee to pay on time is to structure the rental agreement as such that if payment is made before the due date, a discount would be applied. This is allowed as long as the time to receive the discount option is before the end of the rental period. For example, if rent will be due on the 29th of each month, a discount will be applied if he pays by the 28th. If he is paying before the day he moves in, the lessee must immediately 'acquire' the rental and secure the finality of the transaction. Since the rental in question is "land", this could be done by entering the house and locking the door and then unlocking it. Some say that a kinyan sudar is sufficient (see Ch"M 192:3 and 195:9). No 'acquisition' is necessary if payment is made on the day he moves in or afterwards (see Shulchan Aruch Harav, laws of Ribis and Iska, par. 15-16).

If your question refers to a long-term lease, and the lessee will continue to occupy the premises past the due date, a higher rate can sometimes be charged for paying after the due date (see Shulchan Aruch Harav, laws of Ribis and Iska, par. 16). 

[Where this is the case, one may voluntarily pay more than the agreed amount when paying late, as long as he doesn't specify the reason he is doing so. The reason for this leniency is that ribis me’ucheres (lit. late interest) is only rabbinically prohibited and therefore where the nature of the transaction is a sale or a rental, the 'ribis' (lit. extra) is permitted. The additional funds would be seen as an "adjustment in price" and therefore the ribis is not outwardly apparent (cf. Shulchan Aruch Harav, laws of Ribis and Iska, par. 8). The same applies to money owed for labor where an employer voluntarily pays his worker more than he is owed because he is paying him late, and the worker will continue to work for his employer. Although generally, one is not permitted to pay a lot extra as it would highlight the person's real intentions (ibid), in the case of a rental property or wages however, this limitation does not exist since land and wages are not subject to the laws of Oinoh, as explained in Chosen Mishpat ch. 227 (cf. Shulchan Aruch Harav, laws of Ribis and Iska, par. 21 and 47). The allowance suggested here is not straightforward for some authorities rule that a purchaser may not voluntarily pay extra for an item he received before he made payment (see Minchas Asher to par. 8 that the halacha follows this view). Nevertheless, one can be lenient in this instance since the lessee will continue to occupy the premises and the worker will continue his working for his employer. In practice, a seasoned Rabbi should be consulted.]

9. Question:

I was offered a job with the following remuneration:

$50,000 per year, the use of a company car and an interest-free $200,000 loan.

I know I can probably get a better salary elsewhere, but the loan element is quite attractive. Can I accept the offer?

Answer:

Since your acceptance to work at this discounted rate ($50,000 per year, plus the use of the company car) is dependant upon the additional loan element, such a stipulation would be prohibited by the Torah as ribis ketzutzo (see Shulchan Aruch Harav, laws of Ribis and Iska, par. 14).

10. Question:

I've lent a friend $20,000 for 12 months and it's now past the due date. He has now offered to pay me interest until he can afford to pay me back in full. Can you please assist with the preparation of a kosher heter iska document which will allow me to receive from him interest?

Answer:

The most common 'heter iska' arrangement that is used can be found printed in "Kitzur Shulchan Aruch". For your convenience, you can access a copy of a slightly amended version here in hebrew. An english version can be accessed here. Here's a similar option. If the investor only wants to secure his investment and is happy to share the profits 50-50, he can use an agreement such as this one. Please note that for the heter to work, both the borrower and the lender must understand the dynamics of the agreement and the money must be in fact 'invested' so that there can be an expected profit. Since the money is already on loan, in order to establish an iska arrangement, your friend must first return to you at least half of the money he borrowed and only then 'reinvest' it, on trust, as explained in Shulchan Aruch Harav, laws of Ribis and Iska, par. 42. If your friend will be unable to do this, or if he wants to use the money for his own personal needs, you can receive a return by using a mechanism referred to as ribis derech knas.  For your convenience, you can access a generic copy of such an agreement here. A tailored version of his can be emailed to you upon request. One should always seek appropriate rabbinic (and legal) counsel before entering into such an agreement. The most Mehudar way to set this up is derech schirus (see Shulchan HaRav seif 50), and this too should only be attempted with the help of a competent rabbi. 

11. Question:

Can I lend someone money on condition that he gives a few dollars to Tzedaka?

Answer:

Such a stipulation is forbidden as ribis ktzutzo (lit. interest set at the onset), which is biblical in nature. In fact, even if it was the borrower, on his own initiative, who said he will do this, the lender may not lend him the money with this stipulation (Shulchan Aruch Harav, laws of Ribis and Iska, par. 59). 

12. Question:

I run a legal firm and would like to know whether we may include the following clause in our disclosure documents:

"We will charge an additional administrative fee on all invoices equivalent to the RBA cash rate plus 2%, calculated from the day the invoices are issued. If invoices are paid in full within 30 days, these additional administrative fees will be waived."

Answer:

This clause is Biblically forbidden because once payment is due, the amount owing is a financial debt and charging ribis is Biblically prohibited (see Shulchan Aruch Harav, laws of Ribis and Iska, par. 48).]

You may however offer a discount for paying before the fees are halachically due. For the purposes of this heter, payment would be due upon completion of the work (see Shulchan Aruch Harav, laws of Ribis and Iska, par. 15-16).

Furthermore: Legal firms send out monthly invoices for works performed. Sending out an invoice does not mean that all the work in relation to the matter has been completed. In most cases, matters require ongoing legal work which may involve work that takes many months or even years to complete. Therefore, the sending of an invoice does not mean that the works have been completed, rather its purpose is to ensure that the amounts owing to the firm get paid off on a monthly basis and do not get out of hand.

Therefore, since when they send an invoice, the vast majority of the time the work is yet to be completed (the only exception being if the invoice is the final invoice to be sent out in relation to a matter when all work is completed), the amounts are not halachically due yet and therefore one could apply the relevant heter to the ribis clause. The ribis clause would offer a discounted rate for those that pay the invoices (which are for works not yet completed and therefore not halachically due yet) within 30 days of the invoice.

Of course, this heter would not work for an invoice sent and payable after all the work is done.

Need help setting up a halachicly acceptable contract? Email us and we will be happy to assist. 

13. Question:

I've recently read in the news that Quicken Loans, a primarily Jewish finance company, is backed by a Heter Iska. Is this reliable and may I borrow from this company? It appears that numerous Rabbonim have signed the Heter. On a related note, I’ve noticed several Jewish businesses, such as book stores or publishing companies, advertise below-market prices provided that the buyer pays for the items in advance (naturally this is Ribis, as explained in Shulchan HaRav Laws of Ribis paragraph 23), and they declare that they have a Heter Iska in place. Can I rely on their declaration and benefit from the sale?

Answer: 

At the moment, no. For a Heter Iska to be halachicly valid, it must be transparent and enforceable. A Heter Iska is a binding agreement between the “borrower” and the “lender”. If one of the parties is not privy to the contract, it isn’t binding according to Halacha and therefore does not satisfy Ribis requirements. When Quicken Loans was asked (via email) to produce the Heter Iska document, a Loans Client Relations employee by the name Pennee Vorarath-Pary responded (via email) that Quicken will be "unable" to share it.

One of the rabbis (who requested anonymity after he admitted there were “problems” with the alleged “Heter”) that was involved in setting this up acknowledged that a Heter Iska contract must be binding and transparent and explained that upon request this document will of course be shown to a potential borrower. However when a copy of the agreement was indeed requested of him, he too failed to produce this.

For a further study of this last point, see Shulchan HaRav Laws of Ribis paragraph 46 and Piskei Dinim Tzemach Tzedek 216,3.

[There are too many reasons why their Heter is invalid to elaborate here. Interestingly, the rabbi explained that it’s not an Iska per se but rather a “Kuloi Pikodon”. So the disclaimer on Quicken's website is inaccurate and misleading. Furthermore, on the one hand it notes that the profits will be shared, implying that it’s an Iska, and on the other hand it doesn’t mention a wage, implying that it’s a “Kuloi Pikodon”.]

The rabbi was informed of a simple solution that would make Quicken Loans kosher. [If followed, it would protect the bank’s capital and the expected interest. Its current structure (“Kuloi Pikodon”) however, allows a “borrower” to bring witnesses that all the money has been lost.] Let’s hope he uses this information to help Quicken restructure their loans accordingly. Until then, Orthodox Jews should not rely on the published “Heter” and take out a loan from Quicken Loans because with the current structure one would be violating the Biblical prohibition of Ribis.

The same goes for all discounted purchases which require the buyer to make payment before the goods are ready for distribution. Until the buyer has seen the contract, even if it’s been drafted correctly (which often isn't the case) and the Ribis concerns have been set aside, and unless he has agreed to it before putting through the purchase, the purchase is rabbinically forbidden. Hence, a simple “disclaimer” that a Heter Iska is in place isn’t sufficient. A way around this is to hand the money over as a “loan” and to stipulate with the seller that he (the seller) retains the right to decide whether to repay the interest-free loan when the items are available for distribution or to send the product at the reduced price. Effectively, the sale takes place at the end, when the items become available to the purchaser. The discount is therefore not Ribis (which is halachicly defined as “payment for waiting”). This loophole isn’t for everyone as it allows the seller to renege on the deal just before sending the product. Fortunately, other options are available for consideration. See here for an example of how such a deal was later fixed.

14. Question: 

A wholesaler of poultry delivers to Chabad Houses around the country. Not everyone pays promptly. What can he do to incentivize prompt payment? Could he offer that he will give a discount for prompt payment, but the exact degree of discount will vary subject to several factors?

Answer:

Yes. After the Chabad House has the goods, he can tell them that he is prepared to offer them a 5% discount if they pay right away. Even if his terms of sale are that buyers have 7 days to pay, he can (after delivering the goods) offer the customer a discount for paying beforehand (Shulchan Aruch Y"D 173,3). But he cannot offer in advance a better price for paying earlier (Shulchan HaRav Laws of Ribis paragraph 18).

15. Question: 

Some Frum merchants (eg. JEM, Lehak and Derher) and directors of overnight camps and various educational programs and retreats offer from time-to-time an early-bird discount if one pays for their service or product prior to the release of the item or the commencement of the service. Can one safely rely on whatever heter they might have and benefit from the discount?

Answer:

In many cases the offer can easily be rectified to sit in line with Halacha. Unfortunately the directors aren’t experts in the laws of Ribis and even when they are informed of the infraction, they don't correct it. In some cases they rely on an unseasoned Rov who tells them to write that it's 'Al Pi Heter Iska'. 

Since the prohibition relates to both the buyer and the seller, one would not be allowed to benefit from the discount. Although the true reason for the better price is often that the cost of fulfillment is far lower when they get the preorders and deal with a large amount at once, this rationale (even if published with the offer) does not mitigate the severe prohibition of Ribis.

An example of a permissible way would be to offer an early bird discount to customers who order and provide their credit card details but then to only process the credit cards later on together with the rest of the "on-time" orders. Many Frum Mosdos and merchants do it this way. Another permissible way to encourage people to order or register in advance is to offer the discount to the first few hundred customers. Other options exist as well.

16. Question (follow up): 

Chabad Youth is hosting an event at Luna Park and sold tickets early at a discount. I received a ticket as a gift from someone that bought it at a discount. Since I'm not paying anything towards it, can I attend the event?

Answer:

Until the event takes place, the amount paid has the status of a loan and the transgression only really takes place later when the vendor provides the product or service. Although the vendor's obligation is to the purchaser, you are not allowed to facilitate the Aveiro by accepting the service in his/her stead.

An easy fix would be to email the organiser that you are not holding them liable to provide the service and instead, if they prefer, they can return the money to you any time prior to the event. Regardless of their reply, unless they choose to refund the money, you can use the tickets you received as a gift.

For example, you can email them:

"So that our entry to Luna Park is halachicly permitted (i.e. not considered ribis as per paragraphs 16 and 23-24), I give you the option to cancel my ticket anytime until the event. To be clear, there is no halachic requirement that you respond to this email, and I would prefer that you didn't, as I actually want to attend, albeit in a way that is Kosher according to halacha."

17. Question: 

I borrowed money for one year with a heter iska.

On the document, the amount to be paid back was capital and interest. In reality I only paid the interest on a monthly basis and still owe the original loan amount. One year has passed. Do I need to rewrite the heter iska, or its OK that it becomes a rolling loan and I pay interest till paid in full?

Answer:

You can rely on the first year's agreement (Shulchan HaRav Laws of Ribis paragraph 41).

18. Question:

Can a person buy a voucher for less than its face value?

Answer:

It depends on who he is buying it from: A merchant cannot sell a gift voucher for less than its face value (Cf. Shulchan HaRav Laws of Ribis paragraph 23), but if a customer purchased a voucher from a shop (or received it as a gift), he could sell it (to a friend, or even to the merchant), for less than its face value (Cf. ibid 58). Even so, he cannot accept responsibility for the voucher. Meaning, that if the merchant goes bankrupt and the voucher cannot be redeemed, he wouldn't be able to claim his money back from the one who sold it to him. Cf. ibid 57.

19. Question:

Shimon approaches an agent called Levi, for a loan. Levi usually has Jewish money - not for ribbis for Jews, and has non-Jewish money, for which he may charge Jews interest.

At this moment, Levi does not have Goyishe money. So he's proposing to lend Shimon funds that belong to Reuven - interest free. But when he will have Goyishe money, the Goy will buy the debt from Reuven, and then Shimon will have to pay Ribbis to the Goy, his new creditor.

Is this kosher?

Answer:

Jewish money may not be advanced with such a "stipulation". The Jewish money should first be returned, and a new loan could then be advanced.

Alternatively, a Jewish loan can be advanced for a short period of time, and when it becomes due, the broker can (then) offer him Goyishe Gelt, on interest, to pay off the debt to the Jew. 

As an aside, there might be an issue of Maras Ayin, see Shulchan HaRav Laws of Ribis paragraph 74.

20. Question:

You write (see point 15, above) that early-bird discounts are often problematic. I've come across information suggesting that camps and special programs may offer an early-bird discount, if they only require a small deposit as a commitment from the buyer. This deposit supposedly serves as assurance of the buyer's commitment and is also said to contribute to the expenses incurred in preparing for the event. Can this practice be considered reliable?

Answer:

It's essential to consider that, as per Shulchan HaRav's Laws of Ribis and Iska, paragraph 25, one's intention in such matters does not carry weight. Moreover, the specific amount of the deposit is of little significance. Since the purchaser receives nothing immediately tangible in return, the deposit effectively functions as a "loan" and the discount is considered "interest" for providing the small upfront payment.

The rationale of linking the deposit to work already initiated (in line with Shulchan HaRav's Laws of Ribis, paragraph 15) is dubious, given that buyers typically lack detailed knowledge of the work being undertaken, if any. Therefore, it is challenging to argue convincingly that the deposit is clearly a prepayment for services and does not resemble a loan, as suggested in the same source.

Here are a couple of ways  directors of an event can encourage early registration in accordance with halacha:

• "Receive a 20% discount when you register early by Friday. Rest assured, we will only charge your card on the day of the event."

• "Hurry and register to be among the first 50 customers, and you'll enjoy a 20% discount!"

With the second option, you have the flexibility to extend the promotion indefinitely or cancel it at your discretion, once a maximum of, let's say, 300 tickets are sold.