Took a bank loan for his friend: who must make the heter iska

Shalom,

A person took a bank loan (with interest, under a heter iska arrangement with the bank) for the sake of his friend. After the friend used the money, he wanted to repay the loan, but the father of the one in whose name the loan was taken needed the money and received the full amount from the friend on condition that he would make the payments to the bank that his son had undertaken (or would even pay the bank directly instead of his son). With whom does he need to make a heter iska?

Shalom u’vracha,

The father must make a heter iska with his son, if the liability and responsibility for the loan are only toward his son.

This question contains several issues: (a) the interest payments that the lender (the one giving the money to his friend) pays because of the bank loan; (b) taking a loan from the bank for the needs of another person — who is considered the borrower and who is considered the lender; (c) when he received the money from someone else, who is considered the lender?

Regarding issue (a), it is explicitly stated in the Gemara, Bava Metzia 71a: “A Jew borrowed money with interest from a non-Jew, and when he wanted to return it, he found another Jew who said to him: ‘Give it to me, and I will pay you interest as you pay him’ — this is forbidden.” That is, one who borrows with interest from a non-Jew and then lends that money to another Jew may not receive the interest that the latter pays to the non-Jew for that loan. This is ruled in Shulchan Aruch, Yoreh De’ah, simanim 168–169, se’if 1. This is not comparable to expenses that the lender paid in order to facilitate the loan (such as an ATM fee, check cashing fee, taxi to get to a gemach, and the like), which it is customary to permit, since such expenses are regarded as part of the principal that he laid out to make the loan possible. Interest, however, is indirect damage caused to the lender.

Regarding issue (b), although in many areas we do not give halachic weight to fictitious records, here the law is different, because in reality the bank does not know the “real” borrower, it recognizes only the person in whose name the loan is formally registered, and he is the one who bears responsibility toward the bank, both legally and halachically. Therefore, the one who is liable for the loan is considered the borrower (as explained in simanim 168–169, se’ifim 21–22). Thus, there are actually two loans here: one between the person and the bank, and a second between the one who took from the bank and the ultimate borrower.

Regarding issue (c), when in practice he received the loan money from the friend and not from the son — is the son considered the lender because the father is obligated to the son, or is the friend considered the lender because he is the one who gave the money? And is this comparable to a case where one lends to his fellow and stipulates that the borrower will repay the principal and interest to a third party, which is forbidden under the law of an “eved kena’ani” (see siman 160, se’if 14)? On this the Shulchan Aruch, simanim 168–169, se’if 1, explains: if a Jew borrowed from a non-Jew, and before repaying his debt the non-Jew told the borrower to give the money to another Jew and stipulate with him that he will return principal and interest, this is forbidden, because since a non-Jew has no halachic agency (shlichut), it is considered as if the first Jew lent to the second Jew on condition that he pay the principal and interest to the non-Jew, which is forbidden by Torah law. The Rema there in se’if 3 cites two ways to be lenient: (1) if he received the money from the Jew as a deposit (pikadon), and only afterward agreed with the non-Jew that it would be a loan; (2) if the initial arrangement was with the non-Jew and not with the Jew, then the second Jew is considered the agent of the non-Jew (and even though, technically, there is no halachic agency for a non-Jew, since there is no loan relationship at all between him and the Jew). The Bach disputes the Rema on this; see there. All of this applies only to a non-Jew, who has no shlichut, but in the case of three Jews, in any scenario, the money that the friend gave the father is not considered a loan between them; rather, it is viewed as the act of the son’s agent, lending to the father on the son’s behalf. Therefore, the son must make a heter iska with his father.