We’ve learned that a heter iska is the primary method employed to avoid ribbis between the customer and a bank when the bank is owned by Jews. 

Let’s discuss another bank-related issue that often leads to one of the most common ribbis-related mistakes. Aside from involving the actual transgression of ribbis, this mistake can also end up being very costly.

Consider the following true story. Mr. and Mrs. Berman (not their real names) have finally closed on the home of their dreams. The location and quality are exactly what they’ve been looking for.  However, although the Bermans have a good, steady income, the bank refuses to approve the $500,000 mortgage they need to close the deal. 

Feeling desperate, Mr. Berman asks his brother-in-law, Tzvi, to sign on the mortgage and transfer the money to them. Of course, the Bermans will pay  expenses involved and even sign on this with Tzvi. Tzvi graciously agrees, and when he is approved for the loan, he passes the money on to the Bermans. True to their word, the Bermans pay the mortgage monthly and on time. 

At first glance, it seems like Tzvi has done a wonderful chesed. Mi ke’amcha Yisrael. However, neither Tzvi nor the Bermans realize that they have unfortunately transgressed ribbis min haTorah. How so? 

Let’s break this down. Tzvi has borrowed $500,000 from the bank with interest. This loan is okay, either by virtue of the bank being owned by non-Jews, or by the heter iska covering his loan. Now the money belongs exclusively to Tzvi.

He then passes this money on to the Bermans. This is a loan between him and the Bermans. And this loan was given on condition that the borrower repay with interest — classic ribbis! 

The fact that the Bermans are simply covering Tzvi’s expenses does not mitigate the severity of the reality that they are paying back their loan with ribbis. Neither does the fact that they may be making the payments directly to the bank and not to Tzvi’s account. And although Tzvi took this loan only to help the Bermans, since he is the only borrower that the bank recognizes, the money he borrowed became his, and he lent it out with interest.

Next week, be’ezras Hashem, we will discuss this and similar issues and the possible solutions.