I own a company that finds non-Jewish borrowers for Jewish investors. The investor receives a certificate stating the name of the borrower, the amount of interest that the investor will receive from the borrower and the interest rate in case the borrower pays late. All loans are secured by registering a mortgage on the borrower’s property. If for some reason the lender cannot collect his principal or interest, the loss is born exclusively by the lender. When a loan is extended, the lender pays the company by depositing the money in the company’s non-interest-bearing escrow account, from which the company transfers the money into the borrower’s account. Similarly, when interest payments are made or when principal is returned, the borrower pays the money into the company’s escrow account and the company then transfers the money to the lender.
The company earns money in three ways. The first is that the interest rate that the borrower pays is at least a percent higher than what the investor receives. (The investor is not informed how much higher since it doesn’t pertain to him.) Second, if the borrower is late he pays an additional fee from which the company receives a share. Third, many borrowers pay a fee to the company for finding them a lender.
Since we are Jewish and our investors are Jewish we want to know if there is any ribbis issue that would necessitate us to make a heter iska with our investors.
Ribbis issues, including this one, are often very delicate since if one detail is changed the status can change from being permitted to an issur de’oraiso. Therefore, we will carefully explain the factors that are involved in determining our answer.
The key factor in determining if this type of arrangement is permitted or not is the nature of the relationship your company has with your investors. If your company is a borrower from the investors you have a serious ribbis issue since the investors receive more money than they invested and that additional money is interest. However, if your company is merely acting as a shliach (an agent) to perform various actions on behalf of the investors then there is no issue of ribbis since your company is performing work for your investors and you are charging for your work which does not involve a ribbis issue. In this case your relationship would be governed by the laws of sechirus poalim-employer-employee relations. We will, therefore, study what conditions are necessary in order to avoid having the status of a borrower.
One very critical determinant whether a middleman is a borrower or a shliach is whether the middleman has the right to use the money for himself. The reason is that if a middleman may use the money that effectively makes him a borrower of the money. The Beis Yosef (169) writes that even if nothing was stated explicitly but it is evident that the middleman has permission to use the money he is immediately classified as a borrower. He explains with that the condition of the Rama that the middleman may not accept upon himself more liability than the liability the Torah placed upon him, which we will discuss later. Certainly, if the middleman actually uses the money he has the status of a borrower.
This issue comes up quite frequently. For example, parents often have custody over money that halachically belongs to their children and, rather than open a custodial account for their children, they deposit the money in their own bank or investment account. Since the money is the children’s, the parents will give the earnings that they received on their children’s money to the children since that is the fair thing to do. However, if the parents ever use their children’s money for even a small amount of time they and their children will thereby violate the laws of ribbis because when they use the money they have the status of borrowers, a status which remains with them until the principal is ultimately returned to their children. Since they generally don’t return the money to their children until the latter become independent, the parents are borrowers for many years and any additional money besides the principal that they give their children is interest.
The Chelkas Binyomin (169, 116) points out that sometimes parents are unaware that they are using their children’s money. For example, if the parents have five thousand dollars of their children’s money in their checking account and their balance drops below five thousand dollars, then they borrowed money from their children since they wrote checks against their children’s money, which is tantamount to having taken a loan from their children which they used to pay out their check.
A similar situation occurs when a landlord takes a security deposit from his tenant and deposits the security deposit in his personal account.
You are carefully avoiding this pitfall since you are careful not to earn money from the time that the lender’s or borrower’s money sits in your account i.e. the interval between when the lender gives you money and the time you turn it over to the borrower and the interval between when the borrower pays and the time when the lender receives his money.
The second factor that can transform a middleman into a borrower is liability. When one borrows money he has total liability for the money he received from his lender since the actual money that he borrows becomes his and he must return funds that equal the value of the funds that he received from his lender, regardless of what happened to the specific funds that he borrowed. However, one who acts as an agent has more limited liability since his status is that of a watchman and the Torah stipulated the limits of a watchman’s liability. Therefore, if the middleman has liability like a borrower, he is classified as a borrower even if he never uses the money.
The Shulchan Aruch (169, 13, 16) rules that a middleman may not accept any more liability than the liability that is prescribed by the Torah, which means that if he works for free he is only liable for negligence, and if he is paid, like your company is, he may accept liability for theft when the money is in his control. In your situation the money is under your control in the interim periods, which means, practically, that you may accept liability for theft of the funds but not for unforeseen events that are beyond your control.
The commentaries on the Shulchan Aruch find the condition that the middleman may not accept any additional liability difficult since the Gemoro (BM 94A) rules that any watchman may accept additional liability. Therefore, why does the Shulchan Aruch, based on Rishonim like the Rosh and Ramah, rule that any additional liability transforms the status of the middleman into a borrower, since even if he would have the status of an agent he could have this liability?
The Beis Yosef answers that when the middleman accepts additional liability it is understood that in exchange for this he is granted permission to use the funds. He maintains that mere permission to use the funds transforms the middleman into a borrower even if he does not use the funds. The only time he permits the middleman to accept additional liability is if he states explicitly and unequivocally that under no circumstances will he use the funds. That is the way many, including the Chavos Da’as, understand the Beis Yosef.
The Chavos Da’as (169, 31) offers an explanation that the SA is speaking specifically in a situation where the lender is unaware of the identity of the non-Jewish borrower. Since only the agent is aware of his identity and the lender is unaware, the middleman will be forced to serve as the address for all issues that the lender has with the borrower. Therefore, he effectively will have the status of a borrower. However, we should add that even though the Chavos Da’as felt that it is difficult to understand the SA’s ruling if the lender is aware of the identity of the borrower, nevertheless, he states that one should be stringent like the Beis Yosef, as well.
Since if the lender is unaware of the borrower’s identity the middleman will be the address for the lender’s issues, the Sefer Hatrumos (cited by Beis Yosef and Shach note 34) rules that only if the lender explicitly releases him from all responsibility, may a person act as the middleman, in this situation.
We should note that it is critical not to err, since if one does, the middleman will have the legal status of a borrower and even after he passes the funds to the non-Jew he will retain the status of a borrower until the loan is repaid. Therefore, if he collects interest from the non-Jew and the gives the interest to the lender he will be a borrower who paid proscribed interest to his Jewish lender which constitutes ribbis ketsutso-a Torah violation.
Turning to your arrangements, you have done an excellent job of avoiding any ribbis issue since: 1] The lender is aware of the identity of his borrower; 2] You have no right to use the money; 3] You have no liability over the funds; 4] You don’t earn money when the funds are registered in your name. Therefore, your status is that you are an employee of the lender and the borrower and you may charge whatever the parties agree to pay you.