Bava Metzia

Bava Metzia 61b: The Return of Interest

Bava Metzia 61b: Rabbi Elazar said: If interest was paid pursuant to an agreement ahead of time, Beis Din can force the lender to return it. But if it was Rabbinically prohibited interest, Beis Din cannot force him.  Rabbi Yochanan said: Even when interest was paid pursuant to an agreement ahead of time, Beis Din cannot force him to return it.  

Bava Metzia 65b: The halacha is like Rabbi Elazar.  

ב”מ סא ע”ב: אמר רבי אלעזר: רבית קצוצה ־ יוצאה בדיינין, אבק רבית ־ אינה יוצאה בדיינין. רבי יוחנן אמר: אפילו רבית קצוצה נמי אינה יוצאה בדיינין.

ושם בדף סה ע”ב: והלכתא כרבי אלעזר.

Alan, president of an established ladies’ wear corporation, needed a loan to operate his business. He approached his brother-in-law Sam for a $750,000 loan, and although Sam was at first reluctant, he eventually transferred the entire sum. The two agreed on a six percent annual interest rate, which was to be paid in installments over a five-year period. Alan lived up to the terms of the agreement and paid back the entire principal, including $120,000 in interest. Taking the loan proved to be a wise decision, as Alan’s business was once again stable, and the future seemed very promising. Not too long after he finished paying off the loan in full, Alan attended a Torah class in which the topic of the prohibition of collecting interest was discussed. The rabbi teaching the class noted that in many instances a borrower retains the right to recover the interest he paid via a Jewish court of law. Alan approached Sam seeking to recover the $120,000 in interest he paid. However, Sam rejected the claim. Sam explained that he had forfeited earnings from his previous investment, totaling at least the annual percentage he charged Alan, and brought to his attention that he had graciously lent him a very large sum with no guarantee.

The two went before the Bet Din of Aram Soba in Jerusalem. The Rosh Bet Din, Rabbi Max Sutton, asked Alan, “Did you accept personal liability for the loan? If your company had been unsuccessful, would you have repaid the loan from your own money?”

“No,” said Alan, “it was understood that the loan was for my business only, and payments were to be made from my business account. If the business failed, I would not be held personally responsible.”

“If so,” said Rabbi Sutton, “Sam has no obligation to return the interest. Rabbi Moshe Feinstein (Igros Moshe, Yoreh Deah 2:63) says that one may charge interest to a corporation (e.g. a Jewish owned bank that pays interest to its depositors). The rationale behind this ruling is that since the owner is not personally liable in the event of bankruptcy, the prohibition of interest is not applicable. A borrower is defined by Torah law as someone who has personal liability to repay a debt.

“Furthermore, even the halachic opinions that disagree with Reb Moshe and prohibit lending with interest to a corporation, agree that the prohibition is reduced to a Rabbinical violation. As a general rule, interest collected in violation of Rabbinical law is not subject to return after it is paid to the lender. Hence even according to the more stringent view, Sam is exempt from returning the interest he collected.”  

[Community Magazine, December 2022, p. 48]

[Those who disagree with Reb Moshe actually fall into two categories: Rabbi Tzvi Pesach Frank held that it is ossur mid’oraysa for a corporation to pay or receive interest (Har Tzvi 126). R’ Tzvi Pesach permits it only in the case of a government-owned bank, because that is similar to a charity fund where the principal stays invested and the poor are supported from the interest. This case is mentioned by the Maharit, brought in the Mishneh Lamelech, end of chapter 4 of Hilchos Malveh V’loveh. Since the poor people do not have rights to the principal itself, it belongs to no one, and therefore it may pay or receive interest. So too in the case of a government-owned bank, no individual person has rights to the money, and therefore it may pay or receive interest. This actually goes a step further than Reb Moshe does in the case of a corporation, where he permits it only to pay interest, not to receive.

The Minchas Yitzchok 4:16 (p. 42) brings the Rogatchover Gaon who says the same as Reb Moshe: that a corporation may pay interest (his actual words are אין זה רבית בבאנק על פי דין תורה, which may mean it is permitted for the bank to pay interest, or receive, or both). The Rogatchover proves this from Bava Kama 93 where it says that a shomer (guardian) who was negligent in guarding tzedakah money does not have to pay, unless the poor have set allowances they receive from the money. This shows that “tzedaka” is not an owner, and by the same token it is allowed for a tzedaka fund to lend or borrow with interest.

According to this opinion, the Minchas Yitzchok argues, a Jew taking out a loan from a Jewish-owned bank to purchase a house can simply create a corporation and buy the house with the loan under the corporation’s name.

However, he says, if the proof rests on the analogy to lending tzedaka money, the Radvaz (1:414) says that if the fund is for the poor of this city only, although they don’t have set allowances, then it is considered that the fund has owners and it is forbidden to lend it on interest. Here, the stockholders have the right to demand their money, so in a way they are even stronger owners than the poor are in the tzedaka fund.  Furthermore, the Shulchan Aruch (YD 160:18) rules that even with money of the poor that has no owner, only Rabbinic interest can be collected, not Torah interest.

The Bet Din in this story may have understood that the reason why it is allowed to lend the tzedaka fund on Rabbinic interest is because even regular interest on this type of loan is only Rabbinic, thus if the interest is Rabbinic it is two D’rabanans. If so, then even if a corporation lent out money with Ribbis D’Oraisa, it would be downgraded to a Rabbinic prohibition and the interest would not be claimable.]

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s