(Click here for groundbreaking event on TLS). The procedure avoids outright interest collection by redefining the lender-borrower relationship as a partnership. One partner invests the money and the other manages the venture, according to financial and Jewish law experts. The borrowing partner then guarantees a percentage return on the investment. The rare problem, one bank founder said, was collateral: defaulting on the investment does not automatically entitle the investor to collect collateral since, as a partnership, both
parties share the risk evenly. But one rabbi called that more of a technical than substantive problem. Orthodox Jews are considered the driving force behind making Lakewood the fastest-developing town in the state.
Imagine what they could do with a little more borrowing power.
That was First Commerce Bank’s thinking when it applied to include in its lending structure a Heter Iska, which allows Jews to lend to other Jews without violating religious law against collecting interest.
It likely will be the first bank in town, if not the country, to formally incorporate the concept. It also reflects the growing prominence of Lakewood’s unique demography.
“We’re coming in at the right time to satisfy a niche,” said Abraham Penzer, a board member at First Commerce, which broke ground Nov. 10 at Madison Avenue and John Street. The bank is scheduled to open early next summer.
Virtually unheard of in the secular banking world and rarely used outside Israel, Heter Iska is only needed when a Jew borrows directly from another Jew or Jewish-run business.
“It’s not a common occurrence because it (a large bank like JPMorgan Chase) is a corporation and not necessarily one Jew lending to another,” said Ivan Brick, chairman of the Finance and Economics Department at Rutgers Business School.
The biblical law does, however, occasionally present a conflict, added Brick, who recalled when his own synagogue in Brooklyn withdrew its deposits from a bank that was mostly Jewish-owned.
With Lakewood’s growth — the township expects upwards of 230,000 people by 2030 — more Orthodox residents here are struggling to open fiscal doors while obeying Torah law, bank officials said.
“It creates a difficulty for them,” said C. Herbert Schneider, First Commerce’s president.
On the banking side, even several years ago, Lakewood branches such as First Washington were hurting for not having the loan alternative, said Schneider, who sold First Washington in 2004.
And it does have the potential to become a more popular practice, “if we’re talking about a community bank signing up in a mainly Jewish population,” Brick said.
First Commerce founders want to plant that stake. Despite being only about a third Orthodox, its board of directors flew to Israel to seek approval for a Heter Iska as a first step. Since then, the bank has raised $7.6 million in capital, with hopes to get $33 million from stock subscribers by the year’s end.
Rabbi Moshe Zev Weisberg, a community leader in Lakewood, described Heter Iska as a “great service” that has evolved from a perceived charity 200 years ago to an effective modern-day investment tool.
“The fact that they (First Commerce) are doing it in Lakewood suggests the banks are paying more attention to the Orthodox customers and want to satisfy what needs they have,” Weisberg said.
Yet Jews are just one customer base First Commerce hopes to draw from Lakewood’s melting pot. As Penzer half-joked, “Our bank is geared to want all your money.” Zach Patberg/APP
its not owned by a jew so whats wrong with ribis?
according to Reb Moshe zl as per His son n if the board and decision makers are Jewish or part Jewish and those decision makers and board members own styock then it is Ribis gomur even if theis ownershup is less than the majority
if somebody defaults on aloan and is willing to swear as pert the terms of the heter iska will they contest it in court and will the banking dept and fdic allow them to actually make investments instead of loans ? what if the lending officers actually believe that the heter iska is just a religios mumbo jumbo but not alegal investment what are the ramifications ?
will they admit in court that all the loan documents referring to interest ater actuallly null and void and that they have been superseded and replaced by an invesytment scheme called iska ? and if not does that show that they never really believed that the hetr iska was a serious document or doesa that just make them ganovim similar to Rabbi Teitzs ruling with supermarkets who deal in chometz after selling it on oesach ?
first washington bank refused to make a hetr iska because their attorney said that a genuine heter iska was not in conformance to banking regulations . he was pronbably right . has this changed ? will the statyer and federal banking depts now approve of a bank giving out most if its capital in loan schemes that are really investments ? have they been consulyted ?
Lots of questions and no answers ?
I would hope that Heter Iska documents are made part of the Loan documents and would be presented to the courts as amending and superseding the Note if there was a dispute . If not ,I dont understand how this would eliminate the Ribis Ketzuza spelled out in the Note .
Im not sure how much validity a Heter Iska has if its just hung up on the wall as a painting ,without either party understanding or caring about its true meaning ,and understanding that the loan documents are really worthless and its the Shtar Iska that is really governing .
A most blunt and revealing secular court attitude towards the Heter ‘Iska is set forth in a decision handed down by the New York Supreme Court of Kings County (Brooklyn) in the case of Berger v. Moskowi tz:50
Defendants, if they chose, may call this instrument a business transaction and the ten percent owing on the principal, profit, not interest, but the intent as well as the end result is still the same: the subject agreement is an instrument for the payment of money only and the ten percent represents interest. Despite all of defendants’ objections, the note itself requires the defendants to make certain payments and nothing else.
What seems quite clear is that if the Iska documents are not made part of the file and dont clearly supersede the loan docs ,then the Courts assume that they have no legal validity ,other than ad some kind of religious document .
The question is ,whether the bank will agree to attach the Iska to the loan papers ,and spell out that the Iska governs and overwrites and amends the loan docs , and if they do that ,what would be the podsition of the Courts then ?
Just signing the Iska wont really help you because you also signed a Note that states that you are paying interest . It can only help if both parties ,including the Bank ,clearly state that they agree that the Iska has superseded and the Note is null and Void .
I know the heimisher people involved with this Bank . I am sure they will clearly spell out in some document that the Heter Iska is the real Note and that the secular note is botel umevutol so as not to be oiver Ch’v issur Ribis rch”l .
Could somebody post the Shtar Iska of this Bank here and point out where it states that the Iska makes the note botel .
Thank you
HETER ISKA
We have previously mentioned the concept of Heter Iska. While it be would be almost impossible to explain the logic behind this very complicated transaction, suffice it to say that Heter Iska is a tool–debated, revised, and perfected over many centuries– with which a lender may lend money to a borrower and be halachically permitted to collect interest on the loan. It is a legal document which transforms the loan [or part of it] into an investment, with a remote chance of loss of principal to the lender. Since ribbis is only forbidden when a fully guaranteed loan takes place, this tool allows the lender to earn “profits” from his “investment” as opposed to “interest” from a “loan”, and it is therefore permitted. Heter Iska transactions are very common today and, when done under the auspices of an expert in these matters, are used in many business dealings in a permissible manner.
We must, however, point out an important reminder. According to the opinion of most poskim, including the foremost poskim of our generation, a Heter Iska is valid only if the money is being borrowed to invest in a business or in a property, or if the money being borrowed will free other money to be used for a business transaction. A person who borrows money to pay for his daughter’s wedding, for instance, or for any other ongoing expenses, and does not have any profit-generating holdings or assets, may not use a Heter Iska to borrow money.
Many people are not aware of this limitation and are constantly borrowing money, or over-drafting their bank accounts from Jewish-owned banks, relying on a Heter Iska which is unacceptable according to most views. Certainly, one who is scrupulous and is generally not lax when it comes to other mitzvos of the Torah, should be aware that this transaction is not valid according to the majority opinion, and that it may be Biblically prohibited. When this situation arises, an expert Rav should be consulted, since there are methods that can be utilized in order to make this transaction valid according to most poskim
[Note that a Heter Iska does not allow a Jewish-owned bank to offer free gifts to depositors if the gift is chosen and delivered at the time of deposit, since such gifts are a form of ribbis
Actullay, the “note” *is* written as a heter iska. That was the reason they had to go to Israel to get approval for their shtar – they created a single document which satisfies banking regulations, but which is halachically a shtar iska. The “ribbis ketsutsa” in the loan document is spelled out as promised profits from the partnership per hilchos iska.
What if the recipient does not have any investments? Rabbi Yosef Shaul Nathanson (Sho’el U’Meishiv) dealt with this question 150 years ago. A teacher, who had no business to speak of, asked whether he could borrow on the basis of Heter Iska to marry off his daughter? R. Nathanson allowed it, reasoning that without the loan the teacher would have to abandon his job to procure money for the wedding. Thus, although the loan did not lead directly to any profit, its indirect effect on his ability to continue earning is considered a business in which the lender can become a partner. Maharsham concurred with this ruling, while many others argued that Heter Iska is not applicable in such circumstances.
When people go to the bank they often regard the heter iska hanging on the wall as a sort of kashrus certificate that does not affect them directly. Even those who have some knowledge of what a heter iska represents, may not realize that if they do not understand what a particular heter iska seeks to communicate, that “heter” may be invalid for them; in fact they may even come to transgress prohibitions against ribis in their banking transactions.
Heter Iska is Not an Amulet
There is a well known jest about someone who wanted use the Chazon Ish’s famous nusach for separating terumos umaaseros. Lacking a printed copy of the nusach he wanted to exempt himself by using a very original nusach: “May it be like the Chazon Ish wants.”
This quip comes close to the truth in the case of the heter iska because to many customers the bank’s communication does not appear to obligate them in any way, but is essentially an agreement that says, “May it be like the poskim want.”
I find it hard to believe that the Banking dept would approve of a “note ” that stipulates that there is no interest ,but only a sharing of profits which is legally determined not by secular law ,but by Rabbinic law . Banks are regulated because they are insured and I highly doubt that such an investment which is not a loan ,would pass muster with them .
FIRST SHINGTON DO\ID NOT DO A HETER iSKA BECAUSE THEY SAID IT WAS AGAINST BANKING DEPT REGS . wHAT CHANGED ?
Does the “note ” refer to interest ? or to profit sharing ? If the word interest does not appear in the Note ,then this might be a breakthrough . But then there might be issues as to the the deductibility of interest for tax purposes .
There is lot more to look for when deciding to deposit your hard earned dollars in a banking institution. There have been too many bank failures. The Heter-iska is great for borrowing from or taking out a mortgage from them
You can always make more money ,but you dont want to lose your olom haboh ch:v rch:’l with doing things that might not be oisgehalten .
So lets focus on the Ribis shailos and leave the money to the FDIC
YUDEL: Have you ever heard of the FDIC?! Not a single penny of insured money has been lost in back “failures” in over 70 years. Stop spreading fear and mistruths. Surely you are awre what the gemara says about a parnes who places an aima yesaira on the tzibbur?