Saturday, 5 January 2019

Debt Collection


The issue of unpaid debts and how to enforce payments has been around for as long as money has. Finding a system that is both moral and efficient can be elusive, and deciding what is considered moral can be complex.

Before we discuss what the Torah has to say about this, let's take a look at what happened historically when Torah laws were not implemented. We have a classic example in Tanach:

וְאִשָּׁה אַחַת מִנְּשֵׁי בְנֵי הַנְּבִיאִים צָעֲקָה אֶל אֱלִישָׁע לֵאמֹר עַבְדְּךָ אִישִׁי מֵת וְאַתָּה יָדַעְתָּ כִּי עַבְדְּךָ הָיָה יָרֵא אֶת יְיָ וְהַנֹּשֶׁה בָּא לָקַחַת אֶת שְׁנֵי יְלָדַי לוֹ לַעֲבָדִים.

(מלכים ב, ד, א)

One of the wives of the sons of the prophets cried to Elisha: "Your servant, my husband has died, you knew that your servant feared G-d. Now the creditor is coming to take my two children as slaves!"

)Melachim II, 4:1(

The continuation is the famous miracle that Elisha oversees, with the small amount of oil that the woman has increasing until she is able to use it to pay off the debt and live off the remainder. However, what would have happened without this miracle is appalling.[1]

I do not know how often this kind of thing happened under Jewish rule in the times of the Tanach, but I do know that in the world as a whole similar practice was common until not so long ago. In the UK, until 1869 debtors could be imprisoned indefinitely if they could not pay up (usually impossible after being imprisoned). While most countries abolished this around the same time, in Greece it was still possible to jail debt defaulters until 2008![2]

The other extreme would be to give free reign to borrowers without the means to pay up, allowing them the freedom to raise the funds in their own time. As far as I am aware this has never been tried, for obvious reasons. In such a situation, no-one in their right mind would lend money to anyone. The poor and those in need of cashflow would be major losers and the global economy would also crash (a 'credit crunch').

'Do not act as a creditor'

The Torah has rules to prevent both extremes, as well as less extreme behaviour. The Rambam summarises:

Anyone who pressurises a poor person (to repay a debt) in the knowledge that he doesn't have anything to pay back with violates a negative commandment, as it says, "Do not act as a creditor."[3] …. It is forbidden for a person to display himself to his debtor at a time that he knows that he doesn't have funds, even to pass in front of him without claiming his debt (and certainly not to claim it), so that he should not get scared or humiliated.

Just as it is forbidden for the lender to claim (knowing that the borrower cannot pay), it is also forbidden for the borrower to hold back someone else's money, telling him to come back another time, if he has the money. As it says, "Do not say to your fellow 'Go and return.'"[4] Similarly, it is forbidden to take a loan and spend it unnecessarily, leaving nothing for the creditor to collect from, even if the lender is a very wealthy man. One who does this is a wicked man, as it says, "A wicked man borrows and doesn't pay back."[5] The Chachamim instructed that your fellow's money should be as dear to you as your own.

Hilchos Malveh v'Loveh, 1:2-3

All of this relates to the obligations of an individual, although obviously if it is forbidden for the lender to put any amount of pressure on a borrower who doesn't have the funds, certainly no punishment will be administered to such a borrower by Beis Din. The questions start in cases where the ability of the borrower to pay is disputed, or the debt itself is disputed.

'Not to lock the door'

It is well known that the guiding rule of the Torah in all monetary disputes is that המוציא מחברו עליו הראיה, the onus of proof is on the claimant. In order to make sure that he has such proof, a lender is advised to keep written evidence. This is the only way to ensure that the borrower will not be able to deny the loan itself or claim that he repaid without supporting evidence.

Notwithstanding this option for the lender to keep written evidence, in no fewer than five places we find institutions of Chazal to make it easier for the lender to collect his debt.[6] It can be expensive to keep documentation (years ago because of the cost of writing materials, now because of various legal nuances), and even if the lender has a proof it can be hard to track the borrower down. All these institutions were made explicitly for the benefit of the (general) borrower, so that 'the door will not be locked in front of him' (by lenders afraid of losing their money).

None of these institutions help in a case where the borrower claims that he has no funds at all to pay from. In such a case Beis Din can investigate, and if they suspect that there is some hidden property to collect from there may be ways to uncover it. If they do not manage to prove it, the gemara provides no solution and the lender will have to wait.

However, in the times of the Geonim (between the seventh and tenth centuries) this issue caused frequent problems and a new institution was necessary. Practical limitations meant that the only thing that could be done was to make the borrower take an oath that he has nothing, did not hide anything in someone else's property and did not give a gift with a stipulation that it must be returned. Furthermore, anything that he will acquire will not be used to feed or provide for his family,[7] nor will he give it away to anyone.[8]

Nowadays, enforcing such an oath would rarely be effective. Not many dishonest people would be deterred by the severity of swearing falsely, and the result would mainly be an increase of transgression. Moreover, there is usually no necessity for such a solution. It is impossible for a debt defaulter to hide from everyone how much he has in his bank account, and by necessity there will always be some funds coming in. The bigger problem is organising and enforcing a practical payment schedule.


The Torah never absolves someone from debt due to bankruptcy. As the Rambam writes, "When the lender claims his debt, even if he is wealthy and the borrower is under pressure and preoccupied with sustenance, we do not take mercy in judgement. Rather, we collect the debt up until the last penny."[9]

This does not mean that we leave the borrower penniless. The Torah tells us that if one pledges a certain value to sacred funds but cannot afford it, he must be assessed and pays in accordance with what he has.[10] There is a dispute in the gemara about whether the same rules apply to a loan,[11] and the majority of poskim rule that they do.[12] Practically this means that we leave the borrower with basic needs, as well as the tools that he needs to continue to earn a living.[13] Whenever he obtains more funds, he must use them to continue paying off the debt.

Nowadays it is usually not necessary for Beis Din to make an assessment. When a debtor admits to his obligations but claims that he cannot pay up immediately, he is asked to suggest an amount to pay per month until the debt is paid in full. If the creditor is unhappy with this, usually a compromise can be arbitrated.

The problem comes with stubborn litigants, usually the ones who deny their obligation to pay fully or partially. If Beis Din rule against them they may be unwilling to discuss any payment schedule, feeling wronged. In this case, the only way Beis Din can enforce payment is by using debt enforcement agencies, empowered by the arbitration agreement signed by the litigants.

This brings up a potential halachic problem. The rules debt enforcement agencies follow (i.e. the law of the land) may not be as strict as the Torah's regulations, and they might violate the laws of what the borrower must be left with. Usually even a stubborn borrower will realise that it is not worth it for him to get into such a situation, but as enforcement ultimately relies on this route it is something that needs to be though out well.

One solution to this problem is dependent on the right that we have to 'change' the monetary laws of the Torah (see Nezikin- the part of the Torah that we can change). The Shulchan Aruch rules that a lender can stipulate with a borrower at the time of the loan that the usual rules will not apply,[14] and depending on the section of society this stipulation may be implicit based on the law of the land. However, we still need to question whether acting in such a way is appropriate on a moral level.

[1] This episode happened during the reign of Yehoram ben Achav, one of the immoral kings of Israel. According to Rashi, Yehoram himself was the creditor and the debt was interest that had accrued on a loan taken out by Ovadya in order to sustain the prophets that he hid in the cave from Yehoram's murderous father.
[3] Shemos 22:24
[4] Mishlei 3:28
[5] Tehilim 37:21
[6] See Kesuvos 88a (collection from the property of an absentee borrower), Gittin 49b (collection from average quality land as opposed to poor quality), Bava Basra 175b (collection from property already sold by the borrower), Sanhedrin 3a (relaxation of the need for ordained judges to enforce payment) and 32b (relaxation of the need to cross-examine witnesses to the loan).
[7] Although one is responsible to provide for his family, this responsibility cannot be carried out using funds that he is obligated to pay to others. If it is necessary, his family should be provided for by public tzedaka funds.
[8] See Shulchan Aruch, Choshen Mishpat 99 for details.
[9] Malveh v'Loveh 1:4
[10] Vayikra 27:8.
[11] See Bava Metsia 114a.
[12] See Shulchan Aruch, Choshen Mishpat 97:23.
[13] The details of this were set out by Chazal in Arachin 23b-24a.
[14] Choshen Mishpat 97:28

Friday, 14 December 2018

Prayer- Fundamental Principles


In He has no physical form, I quoted the view of the Rambam that prayer is a higher form of serving Hashem than the offering of sacrifices. Thus, the fact that I explained the idea behind sacrifices there but as yet I have not written anything significant about prayer is somewhat of an anomaly. Here I will try to set this straight.

One can get an idea of just how central prayer is according to the Rambam by looking at his ordering of the mitzvos. Unlike others who explained the mitzvos in the order of their appearance in the Torah, from the Rambam's list it is clear that he preferred to start from the most fundamental and to 'work down.'[1] This is why he starts his list of positive mitzvos with the commands to know the existence of G-d and His Oneness, and to love and fear Him.

After these, the next mitzvah (number five) is to pray. This is despite the fact that in Yad HaChazaka, the first four are all found in Hilchos Yesodei HaTorah (in Sefer HaMada) whereas the mitzvah of prayer is naturally in Hilchos Tefila, in a completely different section (Sefer Ahava). If we were to create a list of positive mitzvos in the order they appear in Yad HaChazaka, prayer would only be number eighteen.[2]

Do all agree with the Rambam about the centrality of prayer? The Ramban famously raises the possibility that prayer in the Torah is merely an attribute of the kindness of Hashem, that He hears and answers us whenever we call out to Him. When the Torah tells us to 'serve Hashem with all our hearts,'[3] the simple meaning is that when doing mitzvos, we must direct our hearts to Hashem fully.[4]

However, even the Ramban is willing to accept the possibility that turning to Hashem through prayer in times of need may be a Biblical command. His objection is only to the Rambam's assertion that there is a Biblical mitzvah to daven every day, citing cases of Sages who went long periods of time without praying.[5]

There is little practical difference between these possibilities. Whether there is a technical Biblical obligation to daven every day, at times of need or not at all, there certainly is a Rabbinical obligation to daven more than once a day.[6] Even if there is no Biblical obligation at all, all agree that Hashem listens to our tefilos. Thus one who doesn't turn to Hashem at times of need is either extremely foolish or lacking in faith.

Philosophical Questions

Now that we have established that prayer is a vital part of Judaism according to all, we can start to explain a bit about how it works. A huge amount of material has been written about this (even in English), but there is a tendency to concentrate on mystical understandings of prayer and to neglect the basic idea. The classical poskim write that even one who understands kabbalah should daven like a baby[7] (who cries in order to get what he wants from his parents), and here I will also assume this intention.[8]

The obvious philosophical question is whether the metaphor of a crying baby really is relevant when praying to Hashem. The baby communicates to his parents something that they don't necessarily know- he needs something from them. Most good parents will provide these needs automatically, as soon as they realise what the problem is. Hashem already knows what we need, so why should we need to pray in order to get it?

Chazal already provide the answer to this question. They explain that Hashem desires the prayers of the righteous, waiting for them before providing their needs. This is why rain only fell once man was created to daven for it, and our foremothers were barren from children for a long time.[9] Obviously, we still need to explain why Hashem 'desires' our davening.

The Akeidas Yitzchak (R' Yitzchak Arama, Spain 1420-1494) explains that the purpose of this is so that we should realise that Hashem gives us what we need out of kindness. The things that we get are not because of fate, our efforts or because we deserve them.[10]

Further explanation is necessary here. It would be difficult to say that prayer is only necessary because of subsequent events, so that when the good comes people know that it was preceded by prayer. Firstly, the language that Hashem desires prayer implies that its value is more inherent. Secondly, practically speaking it is impossible to know whether the good that we receive from Hashem only came because of our tefilos, or whether it would have come anyway. At least in our generation, we don't see immediate results on a regular basis.

It is more likely that the Akeidas Yitzchak means that at the time of prayer, we emphasise to ourselves that Hashem is the source of all that we have. If we live our lives by turning to Hashem constantly (while not neglecting to make our own efforts), we won't be able to forget that He is the only One who runs the world.

This is also the explanation of R' Chisdai Kreskas (1340-1410, Spain) in the sefer Ohr Hashem. He writes that the essence of tefilla is clinging to Hashem, the most complete goodness possible for man. Hashem 'rejoices' to bequeath this goodness, and this is what Chazal mean when they say that He 'desires' our prayers.[11]

To Him Alone

All of this fits well with what I wrote in He has no physical form, concerning korbanos. At one point in time, the entire world served gods by sacrificing animals to them. The Torah commanded us to take this form of service and concentrate it to Hashem alone, facilitated by having only one place in the world where sacrifices are permitted. Tefilla achieves the same aim (according to the Rambam on a higher level), directing the requests for all our needs and wants to G-d. For this reason, although we can daven anywhere in the world, we always face Yerushalayim and the Beis Hamikdash.

Similarly, many poskim were strongly against any tefilos addressed to angels, or any other intermediaries between us and Hashem.[12] According to the Rambam, such prayers are potentially no less than a violation of the Fifth Principle of Faith.[13]

Perhaps for the same reason, Chazal tell us that communal prayers are always accepted.[14] If we daven by rote, without any of the intentions described above, logically none of the effects should be seen. However, if we all come together in prayer, our intention to direct everything to Hashem is clear even if our minds wander a little.[15]

[1] Some were strongly against the compilation of any form of hierarchy of mitzvos, arguing that as all the mitzvos come from Hashem there is no sense to placing any of them above the rest (see Abarbanel, Rosh Amana ch. 23). The Rambam (and most others) believed that although no mitzvah can be foregone, some mitzvos come before others in a philosophical sense. If this seems problematic, consider the fact that sometimes it is obvious. For example, the prohibition of entering the Beis HaMikdash in a state of ritual impurity clearly precedes the obligation to guard the Beis HaMikdash in order to prevent the entrance of impure people.
[2] The structure of Yad HaChazaka is also partly based on the same hierarchy, but here mitzvos are also grouped associatively. For example, the mitzvah of destroying idols is found in Hilchos Avoda Zara, despite not being as fundamental as the prohibition of worshipping Avoda Zara. In the list of positive mitzvos, this mitzvah is only number 185.
[3] Devarim 11:13
[4] This position is possible due to the Ramban's view that korbanos are a supreme form of serving Hashem, not merely a necessity to prevent idol worship. According to the Rambam, as bringing sacrifices is certainly a mitzvah, prayer can be no less.
[5] The Mishna in Shabbos 9b together with the gemara on 11a there tell us that those whose 'Torah is their trade' need not stop their learning in order to daven Shmoneh Esrei. The Rambam must understand that this exemption applies despite the fact that tefilah every day is a Biblical command.
[6] To what extent ma'ariv is technically voluntary or obligatory is debated by the tana'im and rishonim (although practically all agree that nowadays men must daven ma'ariv under normal circumstances).
[7] See Mishna Berura 98:1, quoting Maharshal in the name of Rash MiKinon.
[8] I believe this is also the clear intentions of the prayers of Yitzchak Avinu (Bereishis 25:21), Ya'akov Avinu (ibid. 32:10-2), B'nei Yisrael in Egypt (Shemos 2:24) and at Yam Suf (ibid. 14:10), to name but a few of the many examples in Tanach.
[9] Chulin 60b, Yevamos 64a.
[10] Bereishis, Sha'ar 17
[11] Ma'amar 1, Klal 3, chapter 5. However, it should be noted that R' Chisdai Kreskas does not entirely reject the idea of fate in the way that the Akeidas Yitzchak (and virtually all other Orthodox Jewish philosophers) do. In Ma'amar 2, Klal 5 he writes at length that although inherently man has the choice to do as he wishes, after all the various influencing factors are considered no decision is really optional and everything is predetermined.
[12] The Yerushalmi (Berachos 9:1) observes that Hashem is unlike human kings in this aspect. One who has a request from the king does not approach him directly, he first asks a servant to receive permission to let him in. With Hashem, a person does not cry out to (the angel) Michael or Gavriel. He cries straight to Hashem and is answered immediately. Those who nevertheless allow prayers to angels are forced to explain that the Yerushalmi only means that intermediaries are not necessary, not that they are forbidden. See for example Igros Moshe, Orach Chaim 5:43.
[13] He writes there that it is only fitting to serve, exalt and publicise the greatness of Hashem. We must not do this for anything below Him: angels, stars, spheres, the elements or anything made from them. None of these entities have any power or choice separate to the will of G-d.
[14] Rosh Hashana 18a. Acceptance here means that there will be a positive effect, even if it is not exactly the thing we had in mind.
[15] See Torah Temima, Eicha 3:8, footnote 16 who explains that the gemara in Rosh Hashana is referring to insincere prayer. If my explanation is correct, the assurance Chazal give us about communal prayer only applies if this prayer is our motivation for coming (not the social aspect).

Saturday, 24 November 2018

Tzedaka- Who gets what?

When it comes to the mitzvah of tzedaka, the usual topic of discussion is the amount that a person is obligated to give. The question is important, but sometimes redundant thanks to ingrained Jewish generosity. Often, the more relevant question is who to give to, and how to divide available funds.

Replenishment of the deficit

The truth is that the two questions are interrelated. When discussing the amount one is supposed to give, it is common to skip out a crucial stage. The primary factor for determining the amount one is supposed to give is the needs of the poor person (or persons) involved. We are commanded to replenish what he is missing.

This point is clear from the way that the Torah commands us to give tzedaka. We are told:

כִּֽי־יִהְיֶה בְךָ אֶבְיוֹן מֵאַחַד אַחֶיךָ בְּאַחַד שְׁעָרֶיךָ בְּא֨רְצְךָ אֲשֶׁר־יְיָ אֱלֹהֶיךָ נֹתֵן לָךְ לֹא תְאַמֵּץ אֶת־לְבָבְךָ וְלֹא תִקְפֹּץ אֶת־יָדְךָ מֵאָחִיךָ הָאֶבְיוֹן. כִּי־פָתֹחַ תִּפְתַּח אֶת־יָדְךָ לוֹ וְהַעֲבֵט תַּעֲבִיטֶנּוּ דֵּי מַחְסֹרוֹ אֲשֶׁר יֶחְסַר לוֹ.

דברים טו, ז-ח

"When you have a destitute person among you, one of your brothers in one of your territories in your land that Hashem your G-d gives you, do not harden your heart and do not close your fist from your destitute brother. Rather, open your hand to him, or lend him, enough to replace what he is lacking."

Devarim 15:7-8

Accordingly, the Rambam opens his codification of the laws of tzedaka by stating that there is a positive mitzvah to give according to what is fitting for the poor person. One sees such a person requesting funds and averts his eyes from him or otherwise avoids giving him, transgresses the negative command above.

The Rambam adds a caveat that the above is true if the prospective giver can afford to give such an amount, and proceeds to delineate how much one is supposed to give if he cannot afford it.[1] This secondary discussion is the one that usually gets most concentration, probably based on the assumption that we will never be able to replenish the needs of all the poor. However, as we shall see, there are many practical ramifications of the primary discussion- what is 'enough to replace what he is lacking'?

The gemara (quoting a B'raisa) tells us that we are only obligated to sustain a poor person, not to make him rich. On the other hand, the personal language used by the Torah indicates that what he is lacking is subjective. If a person had become accustomed to the use of a horse to ride on and a servant to run in front of him (in our terms, a car and a housekeeper) and subsequently fell destitute, we must provide these things for him (if funds allow).[2]

One who refuses to sustain himself

The tana'im dispute what we are supposed to do when someone has money, but goes on hunger strike insisting that others provide for his needs. One view is that despite this unacceptable behaviour, we don't let him die. We give him food, and after his death we reclaim the expenditure from his property (if we collected from his property beforehand, he would no longer agree to accept the charity). However, the halacha follows the opposing view, that it is not our responsibility to care for such a person.[3]

Such extreme cases are rare. A more pertinent question is what to do when someone genuinely doesn't have enough money to support himself, but has the capability to work and earn enough money. It seems that we have no right to ignore the needs of such a person, otherwise the gemara would have extended the exemption of the previous case. However, it does not seem reasonable that we should implicitly condone such behaviour.

I believe that the resolution of this lies in the fact that there are many different ways to give tzedaka. The Rambam famously lists eight levels of giving tzedaka, the highest being enabling the poor person to be self-sufficient. He offers several ways of doing this, depending on the needs of the person involved. He might need a donation or loan (in order to start a business), or he might just need a business partner or job.[4]

When someone collects tzedaka, the easy option is to say "He should be working and not be dependent on others." Often it may even be true that the person should be doing more to help himself. However, this does not exempt us from our obligations towards him. If we think he should be working, the best thing to do is to help him find a job or start a business (which ever he prefers). If we make a genuine offer to provide such help but he is not interested, we are not obligated to help perpetuate his dependence on others.[5]

Communal funds and taxes

The Torah (shebichsav) only addresses the mitzvah of tzedaka to the individual, presumably in order to stress the personal responsibility that we all have. However, for practical reasons, communal bodies have been entrusted with the collection and distribution of tzedaka at least since the times of the Mishna.[6] Most individuals are not capable of determining whether each collector is genuine or not, and what exactly his needs are. Furthermore, in times where Jewish communities had autonomy, the official collectors had the power to decide what each person should give, and to enforce this.[7]

Nowadays, the government (and local authorities) fulfils this role to an extent. Welfare payments and discounts on services are given to the needy from our taxes.[8] However, at least in Israel, this is not enough to replenish all the needs of the poor. Thus every community should set up a tzedaka fund, collecting (albeit on a voluntary basis) for the local poor. Those entrusted with this task need to decide how to divide the funds available, assuming that there is not enough to 'replenish the defecit' of each person.

Chazal give us various guidelines here, all based on this pasuk quoted earlier. From the word אביון (destitute) we learn that whoever has a greater need has priority, as we might expect.[9] From the phrase מאחד אחיך (from one of your brothers) we learn that family come first. From באחד שעריך (in one of your territories) we learn that the local community takes precedence.[10] From בארצך (in your land) we learn that the poor of Eretz Yisrael come before the poor of the Diaspora.[11]

Clearly, these guidelines are not enough to dictate exactly what to give to each person. A lot is left up to the judgement of those entrusted with distribution of tzedaka, and care must be taken to ensure that these people are both competent and scrupulous.

Individual Collectors

For the reasons set out above, a person should give the bulk of his tzedaka to the local fund (assuming that there is one and it is run competently). Inevitably though, all of us are approached by individuals collecting tzedaka for themselves. This is the situation described explicitly in the Torah, and refusing to give potentially involves transgressing of a negative commandment as well as neglecting to fulfil a positive one. How much are we obligated to give?

Often we may have doubts over the honesty of collectors we don't know. The gemara actually tells us that we should be grateful to the dishonest collectors, as if all collectors were honest and we didn't give them, we would be in transgression every day![12] The clear implication is that when we don't know if the person is genuine, we have no obligation to give him. However, in many cases we can be confident that the person involved really does need tzedaka.[13]

Even in such cases, the gemara says that we need not give a large amount.[14] There is some debate among the rishonim about exactly what case the gemara is talking about, but in practice there is little difference between the opinions. It is sufficient to give enough to buy something small to eat.[15]

May we merit seeing the fulfilment of the promise:

אֶפֶס כִּי לֹא יִהְיֶה בְּךָ אֶבְיוֹן כִּי בָרֵךְ יְבָרֶכְךָ יְקֹוָק בָּאָרֶץ אֲשֶׁר יְקֹוָק אֱלֹהֶיךָ נֹתֵן לְךָ נַחֲלָה לְרִשְׁתָּהּ. רַק אִם שָׁמוֹעַ תִּשְׁמַע בְּקוֹל יְיָ אֱלֹהֶיךָ לִשְׁמֹר לַעֲשׂוֹת אֶת כָּל הַמִּצְוָה הַזֹּאת אֲשֶׁר אָנֹכִי מְצַוְּךָ הַיּוֹם. כִּי יְיָ אֱלֹהֶיךָ בֵּרַכְךָ כַּאֲשֶׁר דִּבֶּר לָךְ וְהַעֲבַטְתָּ גּוֹיִם רַבִּים וְאַתָּה לֹא תַעֲבֹט וּמָשַׁלְתָּ בְּגוֹיִם רַבִּים וּבְךָ לֹא יִמְשֹׁלוּ.

דברים טו, ד-ו

"However, there will be no destitute among you, as Hashem will bless you in the land that Hashem your G-d is given you as an inheritance. If you will only heed the voice of Hashem your G-d, performing this commandment that I am commanding you today in entirety. Hashem your G-d has blessed you as He spoke to you, you will lend to many nations and not borrow; you will rule over many nations and they will not rule over you."

Devarim 15:4-6

[1] Hilchos Matnos Aniyim 7:1-4
[2] Kesuvos 67b
[3] Kesuvos 67b, Shulchan Aruch Yoreh Deah 253:10
[4] Hilchos Matnos Aniyim 10:7
[5] This is similar to one who refuses to accept tzedaka despite needing it, except that the usual solution (offering him a loan)  is not viable.
[6] See for example Peah 8:7
[7] For details see Rambam, Matnos Aniyim perek 9.
[8] It may be possible for some people to take into account some of the taxes they pay when evaluating how much tzedaka they should be giving, as they are already giving some without noticing. However, calculating how much we are giving is tricky, and many are receiving (in benefits and subsidised services) more than they are putting in.
[9] For example, if one family need an extra 2,000 shekel per month in order to pay rent, basic bills and buy food, and another family have all of this but need just 100 shekel per month to pay for (basic) activities for the children, the full 2,000 for the first family comes before the 100 for the second. Thus it will seldom be practical to fulfil the technical obligation to replenish a horse and servant for a rich person who became impoverished.
[10] Small, local tzedaka funds should generally be preferred over large, nationwide organisations. One reason for this is that smaller organisations tend to be able to have smaller running costs. For the same reason, it would probably be better if the national government limited their welfare activity, freeing up funds to be used more efficiently by local authorities and small private organisations.
[11] All in the Sifrei, parshas Re'eh section 116.
[12] Kesuvos 68a
[13] As I already wrote, even if he could be doing more to support himself this does not exempt us entirely from the mitzvah.
[14] Bava Basra 9a
[15] The Rambam (Matnos Aniyim 7:7) gives the example of one fig. See Beis Yosef, Yoreh Deah 250 and Shach ibid. 4.

Thursday, 1 November 2018

Loan Interest in the Modern World (part 2)

In part 1 I discussed heter iska, and whether it is a genuine solution to the problem of taking interest. Here I will try to clarify whether the provision of loans with interest may be permissible under certain circumstances, without the need for heter iska.

Limited Companies

Different alternatives to heter iska exist, although they are mostly applicable only in localised cases.[1] I am aware of only one that could cover a large percentage of the problems- the use of companies limited by shares. As almost all banks fall into this category, there is the potential here to find far-reaching leniencies.

In a limited company, the liability of members or subscribers of the company is limited to what they have invested in it. In other words, the company is an abstract legal entity of its own which can have assets, and owe or be owed money. The members are not independently obligated by the debts of the company (nor do they have an independent claim to the debts owed to the company). The big question is whether halacha recognises such an entity, or if not, how does halacha relate to a situation where such an entity has been created by secular law.

R' Moshe Feinstein understands that halacha also recognises the concept of a limited company. Therefore he writes that there is no problem to receive interest from a limited company, as no individual has any personal obligation to pay this debt. However, the prohibition of interest does apply when the borrower is an individual, even if the lender is a limited company.[2]

R' Shlomo Zalman Auerbach disagrees. His assumption is that even when the borrower is a limited company, the obligation to pay is equivalent to the owners (shareholders) having an obligation to pay from specific assets. He proves from various cases in the gemara that even when the obligation of the borrower to pay is limited to specific property, taking interest is forbidden.[3]

I believe that the basis of this dispute is the question of how far we take the principle that 'any condition to a monetary agreement is valid.'[4] R' Shlomo Zalman understands that although two parties can stipulate any condition, no-one can create a new type of independent halachic entity (in this case an inanimate, abstract body that has independent financial obligations). R' Moshe Feinstein assumes that this possibility does exist, and in the case of a limited company there is no human who has any obligation to pay the debt from any property whatsoever.[5]

Futures Trading

To decide how to rule in this dispute, it helps to find precedents based on similar principles. One such example is the issue of the purchase of something that does not yet exist (e.g. produce that has not yet grown). In the gemara there are two opinions about whether such a purchase is valid, but the halacha clearly follows the view that it is not valid.[6]

The question is whether this rule is set in stone and unchangeable. We know that although the gemara has rules for how transactions can be carried out, when the custom is to use alternative acts of acquisition, this is recognised by halacha.[7] What happens when the custom is to acquire things that do not yet exist?

This question was already raised by early authorities. The Mordechai quotes Rabbeinu Yechiel (13th century, Paris/Eretz Yisrael) who says that there is no way that something that does not yet exist can be acquired.[8] However, the Rosh (1250-1327, Germany/Spain) writes straightforwardly that when the clear custom is to buy things that do not yet exist, it works.[9]

The Chasam Sofer (1762-1839, Germany/Hungary) writes that really all agree that the custom is binding here. The transaction that Rabbeinu Yechiel ruled was invalid was not done in accordance with the custom at the time. He explains that the only reason that the gemara said that one cannot acquire something that does not exist is because of a lack of full understanding on behalf of the parties involved. When the custom is to carry out such transactions, the required understanding does exist and thus the acquisition is valid.[10]

Although not all agree with the Chasam Sofer,[11] the existence of advance purchase of things that do not yet exist has long since been recognised as valid by all batei din. In a world where such transactions happen every minute of the day, it simply would not make sense to fight this reality. The entire concept of ownership and transactions preceded the Torah and was based on custom, and it would not be logical to think that the Torah wanted to stop this.

I believe that the same is true when it comes to limited companies. When the whole concept of a limited company was new and had little effect on everyday life, it may have been relevant to debate whether halacha recognises such an entity. Nowadays, when every individual has dealings with such companies, it is not relevant. The clear understanding when opening accounts with banks, the electricity company etc. is that they will be dealt with in the way that civil law defines them, and there is no reason for halacha to treat them differently.

Can a limited company be Jewish?

R' Moshe Feinstein's leniency only helps us with a small part of the problem. While savers can relax if they know it is ok to take interest from banks, borrowing from banks is a problem on a much larger scale. However, if we are consistent with our acceptance of the legal definition of a limited company, we can question why it should be a problem to pay interest to a limited company.

The prohibition of borrowing with interest only applies if the lender is Jewish.[12] According to what we have seen so far, a limited company is not even human. How then can paying interest to it be prohibited?[13]

To answer this, it helps to consider the relative ease in starting a limited company. Two Jewish partners could make their company limited, becoming the only shareholders and appointing a director. If this company lends money, it would be hard to argue that the interest is merely being paid to an independent, inhuman entity. The two partners have full control, and the director runs the company is merely their agent. If he acts against their wishes, he could be fired at any time.[14] Clearly then, taking interest under such circumstances is forbidden.

The same should be true with a thousand or a million equal shareholders, as being in a partnership does not exempt us from the prohibitions of the Torah. Theoretically, it could be forbidden for a Jew to own shares in a company that lends to Jews with interest (or a company that owns chametz on Pesach, as well as other examples).

Elsewhere, R' Moshe Feinstein explains why in reality this is not the case. As the main owners of the company usually keep enough shares for themselves to ensure that they maintain control, the vote that a regular shareholder gets is merely a fictitious pretence. Thus the regular shareholders do not really own part of the company, and all they have bought is the right to a share in the profits. Buying enough shares to get a significant say is indeed forbidden.[15]

It is clear to me that this is also the reason that R' Moshe does not allow borrowing from a 'Jewish' limited company with interest. If the majority shareholder or some of the significant shareholders are Jewish, he or they own part of the loan. Only the portion of the company 'owned' by the insignificant shareholders can be described as a loan from an inhuman entity.

Thus a person looking for a mortgage who does not want to rely on heter iska needs to find a bank whose significant shareholders are not Jewish. This is no easy task in Israel,[16] so we need to be a bit more creative. A bank with no major shareholders would not help, as then even the shares of the regular shareholders would be meaningful.[17]

Communal bodies

The only real solution I can think of is the use of a limited company whose major shareholders themselves are abstract, inhuman entities. The classic example is the government, whose funds should not be extractable by any individuals under any circumstances. One who borrows from the government is genuinely not borrowing from a Jew, irrespective of how religious the ministers may or may not be.

To the best of my knowledge, nowadays none of the Israeli banks are government owned. This is unlikely to change in the near future (nor would I want it to), but we don't need the government to help us here. All we need is to create a similar model, a body that has no real owners who can dissolve the company and take the funds for themselves. Any institution like a shul or community centre, or a network of such institutions, could be used.

It may sound unrealistic, but I believe that if there was enough will for it from serious religious Jews, it could be done. If such a plan was implemented and banks relying on heter iska lost some of their income, it may also encourage a more serious application of the 'iska' rules (see part 1).

[1] For example, if the main intention is for a payment to be made on time with no interest, penalties for late payment may be justifiable halachically.
[2] Igros Moshe, Yoreh Deah 2, siman 62
[3] Minchas Shlomo, part 1, siman 28. The proofs seem watertight, but are only relevant according to his understanding of how to view limited companies.
[4] See Kiddushin 19b
[5] Although the person employed by the company responsible for this area must carry out his responsibility, this is not a personal debt. If he resigns from his job before the payment date, this responsibility will pass to someone else. There is not even any person who is ultimately responsible, as the shareholders can also sell their shares to others.
[6] See for example Yevamos 93a, and Shulchan Aruch Choshen Mishpat 209:4.
[7] This principle is known as situmta, based on the custom mentioned in the gemara in Bava Metsia 74a.
[8] Hagahos Mordechai, Shabbos section 473.
[9] Responsa of the Rosh 13:20.
[10] Responsa of the Chasam Sofer 5:65.
[11] See Pischei Teshuva, Choshen Mishpat 201:2.
[12] Mishna Bava Metsia 70b. Lending to a non-Jew with interest is forbidden rabbinically, although here many leniencies exist which are beyond the scope of this post.
[13] In fact some write that it is permitted. See R' Osher Weiss's article in T'chumin, volume 33.
[14] They also can dissolve the company at any time, taking the interest for themselves. In contrast, if the company borrows money, the lender cannot demand payment from the partners. The responsibility to pay (from the funds of the company) is the director's, and even if the director resigns all the shareholders have to do is to appoint a new director.
[15] Igros Moshe, Even Haezer 1:7
[16] Information about ownership of banks in Israel is available here (in Hebrew).
[17] If such a bank existed even outside Israel it would be problematic to borrow from it, as even one Jewish shareholder would be considered a genuine part-owner.