Well-Defined Interest

We saw last week that the basic formulation of the prohibition establishes that when Jews lend to each other, it is supposed to be a kindness, not a business transaction. When we look at some of the specific halachot, the situation becomes more nuanced and, to some degree, murkier.  Ribit, interest, is a topic with many such nuances and we don’t have time for even a reasonable sample of them, but I wanted to take up at least a few and see where they lead us.

The Fungibility of Money and Commodities

A first point, perhaps intuitive but one that leads to complications down the road, is that the prohibition includes taking anything extra for the loan. So, Baba Metsia 60b and 61b define neshech and tarbit (the two words the Torah uses for interest) as being different versions of the same problem, taking back more than was lent.  The Talmud gives the examples of lending 4 dinar to get back 5, two measures of wheat to get back three, and lending wheat at one valuation and taking back wheat of greater value (even though it’s the same amount of wheat—this is actually a complicated halachic issue that came up for me when I spent a year in Israel, where dollars aren’t the local currency; halahically, that might mean that lending dollars was like lending wheat, and the fluctuations in value could be a problem for returning that money. But we can leave those details for another time.)

In Laws of Lending 6;1, Rambam points out that this also applies to returning the item loaned plus a completely different item—meaning, if the borrower took a bushel of wheat and returned the wheat plus twenty dollars, that would be prohibited.  The lender directing the interest towards someone else is equally prohibited—I can’t lend you money on the condition that you give someone else extra, even if I don’t owe that other person anything.

And, finally, the lender cannot make financially advantageous conditions, even if those are not themselves interest. For example, the lender cannot require the borrower to direct all his business to the lender, even though the borrower will pay separately for that business. There is an obvious monetary value to conducting business, and a loan cannot be the way to secure someone’s patronage.

Using the Borrower’s Property

The interdiction against taking any extra value beyond the payback of the loan becomes particularly interesting when we address the question of a lender living on the borrower’s property. A Mishnah on 64b prohibits doing that for free, and also disallows renting space from him for less than the market value, because both of those qualify as ribit, as interest. In the Gemara, R. Yosef bar Minyumi adds in the name of R. Nachman that if a person lives on someone else’s property, they don’t have to pay for it, but if the freeloader had lent money to the person, he or she would have to pay rent.

The Gemara notes that R. Nachman was discussing a place the owner generally didn’t rent out—it was a space that was often used by others without paying for it, and an owner who did not care to collect rent from those who used his or her space. Even there, a lender would have to pay, to avoid the implication of ribit, of interest.

Rashi contrasts this with a case in the Gemara elsewhere, that  said that Ravina used the vineyard of someone who had borrowed money from him, deducting some rent from the loan but not, apparently, the full market rate. Rashi distinguishes the cases based on risk: in the case of the vineyard, the crop might fail, or be particularly poor, but the reduction in the loan amount is fixed.  The gamble the lender is taking, Rashi implies, is the purchase price of the grapes (which might not come), and means that the price is not actually reduced because of the loan.  Rambam seems to agree, since he characterizes the impermissible vineyard case as one where the produce comes regularly—if it’s a vineyard that just about always produces crops, that would not be allowed, because there’s no real risk, and the risk changes it into an investment (or a gamble).

It’s Not the Risk, It’s the Possession

Rabbenu Tam disagreed, since houses also sometimes fall or burn down, so that lender is also taking a risk (Rashi wasn’t around to answer, but the objection seems weak, especially if we accept Rambam’s definition of the vineyard—even back then, I suspect that houses burned or fell down less frequently than vineyard crops failed or were poorer than expected; in addition, if the house did fall down, I’d expect the lender to stop deducting the rent from the loan, but in the case of the vineyard, the deductions all happen before the lender knows whether or not the crop will be good).

Rabbenu Tam instead says the lender can use property when it was given as collateral for the loan. Since the borrower couldn’t rent it out anyway, the lender is therefore not costing the borrower anything.  As such, if the lender pays even a reduced rent, it is more money than the borrower would have gotten from that property anyway, and is, therefore, a boon for the borrower, not an interest extraction.

Ramban adds that giving the property as collateral is a sort-of sale, in that the borrower isn’t fully in legal possession of the property. That quasi-sale means the rent is not related to the loan, it is payment for the item that has been “bought,” and will be re-sold upon repayment of the loan.

Ritva notes that the Gemara seems to imply that once a person has lent money to someone else, s/he shouldn’t be able to accept anything from that person, for fear that it’s ribit. To show how ridiculous that could become, imagine two friends are out together, and one lends the other five dollars. Later, they head back to the borrower’s house for coffee. Can the lender not accept coffee, for fear of ribit? Ritva says it’s obviously not a problem, but why not? (and the answer can’t be the amounts of money involved, because ribit is prohibited in all amounts).

Ritva answers that even though the Gemara refers to this courtyard as one not designated for renting, it is still true that people don’t usually let other people use their courtyards wholesale and for nothing.  (Meaning: I might not rent out my garage apartment, but that doesn’t mean I generally let people live in it long term for nothing, either).  For Ritva, even once a loan has been made, that doesn’t bar the ordinary social back and forth of gift-giving, treating each other to occasional splurges, etc. It is only when the exchange involved is extraordinary, obviously not part of ordinary social interaction, that it becomes a problem (the line between these two can, obviously, be murky).

In Yoreh Deah 166;2, Rema adds that if the borrower connects the arrangement to the loan—live in my summer house for August, until I pay you back—that would be prohibited as well. In addition, he notes, if the borrower suggested this arrangement only when the lender was already coming to collect the loan, many authorities rule that that qualifies as ribit ketsutsah, fixed interest, prohibited at a Biblical level. For them, the attempt to collect the loan ends the original agreement, and if the lender accepts the new idea, living in the house until he’s paid back, he’s made a new loan with a fixed interest payment.

Buying” and “Selling” as Interest

Vayikra 25;29 speaks of selling a house in a walled city, and grants the original owner a year to buy the house back, for the original purchase price.  Erechin 31a notes that this is like interest, since the buyer ends up living there rent-free, but not fully.  A baraita in the Gemara has it that it is in fact interest, just that the Torah allowed it.  Rabbi Yochanan explains that the two sources reflect a debate about whether tsad echad be-ribit counts as interest.

As Rashi elucidates, tsad echad means that only if one set of circumstances would make it interest, does that count? In the walled city, if the house is never redeemed, there’s no question of interest.

For the walled city, we need not care, since the Torah said it was allowed, but that affects pawn shops, for example, or sales with a condition of the right of repurchase.  After all, if I want to borrow money, and am willing to pay interest, I could simply “sell” some property of mine, the use of which rises to the level of the interest on the loan, and then “buy” it back when I’m ready to repay the loan. (E.g.—I have a car that would rent out for whatever dollars a month, the exact interest on the size of loan I need. I sell the car to someone for the loan amount, with the understanding that I can buy back the car when I want. Everybody’s happy, except that that might be ribit).

Yoreh Deah 174;1 rules that this is Biblically prohibited interest, since a sale with a condition of buyback is actually a loan.  Rema adds that it doesn’t require an explicit condition; as long as the local custom allows the seller a right of repurchase, the buyer cannot use the item, since, as Rema says, all sales incorporate whatever the local customs are (that’s an important rule in many sales, but for another time).

However, Rema adds, if the buyer volunteers his willingness to sell it back when the buyer wants, that’s not a condition of the sale and is therefore allowed. Meaning: if you have a house I like, and you offer to sell it to me, and I know it’s because you’re under financial pressure (such that you can’t keep the house anyway, or you’re too proud to accept a loan, or I don’t have the money to lend you, but do  have the purchase price on a house), I might say, whenever you’re back on your feet, I’ll sell it back to you.  That’s allowed, since it’s not a condition of the sale, it’s a favor offered by the buyer.

Can We Lend Actual Money?

What if a person doesn’t want to borrow money to spend or invest, but wants the actual money itself? Meaning, the borrower intends to keep the coins being lent, use them for some period of time and then return them. Here’s a couple of scenarios where that might be: 1) A storekeeper wants to teach the cashiers how to make change, in an environment where you can’t simply secure coins from the bank (in many eras in human history, actual money has been in short supply); or, in the same vein,  the proprietor of a currency exchange wants the clerks to have experience with various forms of money, and wants to borrow currency from a friend, which will be returned once the clerks have had a chance to practice, or 2) A kohen lends his five selaim to another kohen for a period of time (when kohanim perform the ceremony of redeeming the first-born, they use real silver dollars; not all kohanim have their own set, and they’re not so easy to find. We can easily imagine one kohen lending his set to another).

Here, Shulchan Aruch allows paying a fee for keeping them, since it is more like a rental of the coins than a loan.  Just like you can rent a car from someone (but not wheat, e.g., since you don’t return the same wheat), you can rent money, if you’re going to return the same money.  Rema caveats that the renter cannot accept more responsibility for this money than the usual rental agreements, which don’t cover involuntary loss.  If this “renter” agrees to indemnify the person renting the item to him or her, that would pierce the veil of the rental, and make clear that it’s actually a loan. However if the owner of the item accepts all the risk—meaning, here’s the money and if anything happens to it (probably other than neglect by the person taking the money), you won’t have to pay it back—some allow the renter to not only pay for the right to hold onto the money, but even the right to spend it. Meaning, according to this view, the owner of the money’s taking responsibility for all loss converts this transaction from a loan into a rental, even if it’s not the original item that will be returned.

The laws of interest are many and complex, and I can’t hope to cover even a fraction of them in the space we have. These examples seem to me to enhance our understanding, though, of what it means for one Jew to borrow from another, and the kinds of prohibited add-ons the Torah meant to restrict, in terms of ensuring that we not charge each other for performing what was meant to be a kindness among brethren.

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Mr. Martin Kaufman was educated at Yeshiva Universty and New York University"s Graduate School of Business Administration. Was Chairman and CEO of Philipp Brothers, formerly one of the world's largest commodity trading companies. He is a global consultant to entities in the financial and natural resource sectors all over the world. Mr. Kaufman has lectured extensively in numerous Adult Education programs for many years and presently gives shiurim in the New York City area. He has also served on two boards of Yeshiva University, amongst many other Boards. Mr. Kaufman lives in Manhattan with his wife and three children.

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