Q&A: Heter Iska
Heter Iska
Question
With God’s help,
Hello Rabbi,
Not long ago I learned a bit about a heter iska, and I wanted to ask what the Rabbi’s view is on the matter. Is it permitted according to Jewish law?
As is known, little by little there has been a very significant development whereby a person is no longer believed when claiming losses on the deposit (and nowadays even when claiming regarding the profits). Is the fact that there exists some very remote possible scenario in which the person could exempt himself enough?
For example, there are heter iska arrangements in which every month the person has to prove that he did not incur losses, etc., etc., and if even one month passed, then it no longer helps him.
So whereas with the simple permits of the past there was a serious possibility that the owner of the deposit could lose up to half of the entire deposit (if he would swear to him), today this is almost impossible.
2. Likewise, from the practical implementation side: since nowadays they do not administer oaths, all the more so in courts, the contract has no practical force if the proof there is based on an oath.
3. In terms of the spirit of the matter: as can be seen from the plain sense of the Talmud, the Sages introduced many safeguards regarding interest, and in my humble opinion more than with other commandments in monetary law. And so too we see throughout the Amoraim that it is mentioned that people often did not act properly and refrained from repeating their mistake. So it seems to me that the spirit of the matter certainly is not to create a heter iska.
Answer
You are right that there is a problematic legal fiction here. Rabbi Yaakov Ariel once wrote that a heter iska is relevant only for someone who borrowed in order to conduct a business and not in order to consume. In a situation where it is for conducting a business, this is not a legal fiction; rather, that is the very law of heter iska itself. But for consumer needs, it really is not proper to rely on this permit.
I think underlying all this is the sense that nowadays this prohibition is problematic in most cases. Banks and corporations are not like private individuals in this respect, and it is not clear why they should not profit from their money by renting it out. Therefore halakhic decisors allow themselves to use legal fictions to get around the prohibition. And of course there are halakhic decisors who say that with respect to banks there is no prohibition of interest at all.
Discussion on Answer
A. But then it really is a legal fiction, since that is not their intention. And your point B proves it.
B. Indeed, this is a legal fiction.
According to that approach, there really is no need to do it.
As I understand it, a legal fiction means that it is not fitting to do it—it is not the Torah’s intent—but that does not mean they are violating concrete prohibitions of interest once they have done it.
Regarding B, I meant more than that: if he has no possible scenario at all in which he could swear, then seemingly this is actual Torah-level interest.
There are several kinds of legal fictions. Some of them do indeed involve a prohibition, exactly as here (as with using a legal fiction regarding the firstborn). It is a very complex question why they are treated as legal fictions and not as a prohibition. Simply put, it is because they essentially permitted the prohibition itself in the circumstances under discussion, but required that it be done through a legal fiction so that people would not learn to be lenient in general.
Regarding someone who borrowed only in order to do business, still, in the end one can view the loan as though the lender waives half the loan to the borrower in exchange for the borrower acquiring for him half of the best part of his business dealings (which would then have the status of a deposit).
B. By the way, I had another difficulty with the clause that grants him the best part of his business dealings: he can never know what the best part of his business dealings is, and it will always become clear only retroactively, so how exactly can he bring proof regarding something that is undefined? Only if he loses everything due to circumstances beyond his control, perhaps one could say that.
If indeed limited liability companies are not subject to the prohibitions of interest, then why perform a heter iska at all?