Rabbi Meir Orlean
“I applied for a $50,000 loan to renovate my house,” Pinchas said to his brother, Asher, “but the bank is not willing to lend me at a reasonable rate.”
“Why not?” asked Asher.
“They’re concerned about my credit rating,” sighed Pinchas. “My business has been struggling recently.”
“You’ve mentioned that,” said Asher. “I wish I could help somehow!”
“I can’t expect you to lend me the money,” replied Pinchas, “but maybe you can take out a loan in your name at a lower rate? I’ll reimburse the monthly payment.”
“The truth is, the bank recently offered me a loan at an attractive rate,” said Asher. “I don’t need a loan now, but I could take it for you!”
“That would be very helpful,” said Pinchas. “Could you please check it out and let me know?”
“I’ll speak with the bank tomorrow,” promised Asher.
A week later Asher said, “The bank approved a $50,000 loan to me. I’m happy to take it for you! I just ask that we sign a loan document between us.”
“That’s fine,” replied Pinchas. “I’ll write that you are lending me $50,000 and that I will cover the monthly installments until the loan is repaid. What about a heter iska?”
“Why should we need a heter iska?” asked Asher. “The loan is for you! You’re simply reimbursing the payment to the bank of the loan that I’m taking for you. I’m not gaining any interest!”
“I’d like to double check with Rabbi Dayan,” insisted Pinchas.
“Sure, go ahead,” said Asher.
Pinchas called Rabbi Dayan and asked, “If my brother takes a $50,000 loan from the bank intended for me, and I’ll reimburse him for the monthly installments, do we need a heter iska?”
“Yes, you need a heter iska,” answered Rabbi Dayan. “If you don’t, and the loan is taken from a non-Jewish bank, or a Jewish bank without a heter iska, you can pay only the $50,000 principal. Paying the interest would constitute prohibited ribbis.”
“Could you please explain?” asked Pinchas.
“The Gemara (B.M. 71b) addresses the case of a person who borrowed from a non-Jew, and another Jew wants to borrow that money from him,” replied Rabbi Dayan. “When he gives the money to the second Jew, the first borrower cannot charge him the interest that he pays the non-Jew. Even if the non-Jew said to transfer the money, the second loan is viewed as between the two Jews, since there is no concept of agency regarding a non-Jew” (Y.D 168/9:1, 2, 17; Taz, Y.D. 170:3).
“Similarly, the person who takes the loan from the bank is considered their borrower,” continued Rabbi Dayan. “If he lends the money to another Jew, he is considered the lender to the other Jew. Therefore only your brother is liable to the bank; they have no connection to you. That is why you need a heter iska” (Bris Yehudah 6:20-23).
“What if the bank has a heter iska?” asked Pinchas.
“If the bank has a heter iska, and the loan was initially intended for the second person, the heter iska can extend to the second loan,” replied Rabbi Dayan. “Just as the borrower received the money with an iska arrangement, he handed it to the other person. Ideally, there should still be a separate heter iska between the two people, or at least an explicit statement that their arrangement follows the heter iska of the bank. However, Poskim are lenient even if they did not address the issue explicitly, and even if the second borrower did not know of the heter iska” (Maharsham 1:20, 7:63; Toras Ribbis 17:14).
“What if the first person initially borrowed the money for his own use?” asked Pinchas.
“That certainly needs a separate heter iska,” answered Rabbi Dayan. “In that case, the first person was not an agent of the second person, and it is a new, unrelated loan” (The Laws of Ribbis 13:36-37, 17:17-21).