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Ribis: A Halachic Anthology
Rabbi Joseph Stern

H. Leasing with Purchase Option

Several questions appearing in contemporary (Responsa) are clearly the results of an increasingly sophisticated business milieu. Rav Weisz was asked by a Rabbi in Gibraltar about a "hire-purchase" scheme (the British equivalent of leasing with an option to purchase). The contract provided for the lease of a car for a specified period of time. The lessee would be required to pay a down payment as well as a monthly fee. If the monthly payment was not received promptly, a penalty would be levied. In addition, the contract obligated the renter to insure the car, pay all taxes, and pay for any depreciation and all damages.

Rav Weisz recommended that the penalty fee be deleted from the contract (following the opinion of Rav Karo and the Ramo in opposition to the stance of the Sma, as previously discussed). In addition, he urges that the contract be amended to provide for at least partial liability on the lessor's part. If not, any rental payments could be construed as Ribis (as in the previous section).

Concerning the core issue, the lessee paying more in monthly installments than he would on a lump sum basis (isn't that a form of Ribis, rewarding the lessor for temporary use of his funds?), Minchas Yitzchok offers an ingenious solution, an approach which not only permits paying more for monthly installments but actually requires it. Title (at least on a halachic basis) to the car remains with the lessor until the lessee has completed all payments. In a similar case, a field sold on installment basis, the Talmud prohibits the eventual purchaser from deriving any benefit until all payments have been completed.

If the buyer were allowed to benefit prior to full payment, he would be receiving special consideration for an advance of money to the seller, hence Ribis. Here too, the lessee has no legal title to the vehicle. The installment extra charges are not Ribis but rather compensation to the lessor for the lessee's use of his property prior to completing payment.

I. Discounting Notes

The Shulchan Aruch explicitly permits discounting notes, provided that the seller (who in effect is borrowing money from the buyer) does not agree to reimburse the purchaser if the original debtor (who drafted the I.O.U.) does not pay. If the seller accepts full responsibility for damages to the purchaser (e.g. non-payment by debtor) the transaction would be structured exactly as a loan and any discount for immediate cash would be Ribis. Rabbi Englander, however, maintains that notes may only be discounted if they are written according to proper halachic format and if they are sold according to Talmudic Law (i.e. a contract must be written for the sale of the note. In addition, the note must be transferred from seller to purchaser). In the introduction to his work , he opposed the discounting of checks inasmuch as they are not valid documents from a legal standpoint.

J. Inflation Effects

The Jewish State has been subjected in recent years to ravaging, often triple-digit, inflation. As a result, Torah authorities have concerned themselves and written extensively about the feasibility of indexing (tying all debts to the inflation rate). Is it permissible to pay three shekels if I initially borrowed only one shekel and the current shekel is only 1/3 of its former value? Most authorities, among them the Minchas Yitzchok, prohibit such an arrangement. The Minchas Yitzchok bases his assertion on a responsum from the Chasam Sofer and on the following assertion of Chavas Daas.

Only if currency has been taken out of circulation must the debtor pay with the new currency. If the currency has been devalued and certainly if no official devaluation has taken place but merely its purchasing power has decreased as a result of inflation, even if a specific indexing clause was inserted into the contract the debtor may pay according to the old exchange rate.

In an article in Rabbi Yitzchok Glickman concludes that without a Heter Iska, indexing a loan (i.e. tying payment to the cost of living index) would be inadvisable.

In times of economic instability black markets thrive, often to the point of rendering obsolete legitimate foreign exchange markets. Rav Breish rules that a debtor who borrowed 3.5 Israeli Lira (equal to one dollar at the official exchange rate) should not give his creditor one American dollar in return if the black market exchange rate is 4 Lira for one dollar. Any payment beyond the official exchange rate would be Ribis. In an appendix to the responsum, he discusses the case of a borrower who pays a debt of 4 Lira with one dollar. In effect, he pays off his debt at the black market rate, whereas according to official exchange rate, one dollar would bring less than 4 Lira. He leans to the conclusion that it would be sufficient to pay the black market rate but does not decide the issue definitely.

K. Insurance Schemes

The Shulchan Aruch rules clearly that a straightforward insurance contract (i.e. with no investment portfolio attached) is not Ribis.

It is permissible to pay an agent 20 Dinars to accept liability for a cargo worth 100 Dinars, despite the appearance of impropriety (i.e. if the cargo is damaged, the insurer pays out 100 Dinars in exchange for the 20 Dinars he received as an advance) Nonetheless this transaction is structured as a sale of liability, not as a loan.

L. Regional Price Differentials

A producer may give his agent merchandise worth 20 dollars and ask him to sell it on his behalf in another town for 24. However, two conditions must be met: (a) the producer must bear responsibility for all damages (unlike the typical loan where the debtor is liable) and (b) the agent must receive compensation for his efforts. (If not, he is transporting the merchandise gratis in exchange for temporary use of funds, a form of Ribis).

M. Non-Monetary Consideration

A creditor may not benefit from his debtor in any manner even non-pecuniary favors. For example, he may not reside in the debtor's house even if he had done so previously. In general anything ostentatious, even if the arrangement had existed prior to the loan, may not be performed by the borrower for the lender. A debtor may not purchase an Aliyah (opportunity to be called to the Torah) for his creditor. The creditor may not borrow the debtor's car. The debtor may not promise that any contracting work he needs will be done under the creditor's aegis. However, favors that would not be widely known may be performed, but only if the debtor had done so previously for the creditor. Thus, a debtor who previously taught Torah to his creditor may continue doing this.

Even "verbal appreciation", expression of gratitude for the loan, is prohibited. The debtor may not even greet the creditor (Shalom Aleichem) unless he was accustomed to doing so before the loan. He may not even thank the creditor for lending him money.

Rav Moshe Feinstein as well as Rav Ovadia Yosef agree that the author of a book may not thank those who loaned him funds for its publication. Rav Yosef permits public gratitude only if the creditor raises part of the debt. Rav Feinstein permits a blessing "May G-d Bless You" but no direct thanks for the loan.

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