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Biblical Law


"If thou lend money to any of My people, even to the poor with thee, thou shalt not be to him as a creditor (nosheh), neither shall ye lay upon him interest" (Ex. 22:24). "And if thy brother be waxen poor and his means fail with thee… Take no interest of him or increase; but fear thy God; that thy brother may live with thee. Thou shalt not give him thy money upon interest, nor give him thy victuals for increase" (Lev. 25:35–37). "Thou shalt not lend upon interest to thy brother: interest of money, interest of victuals, interest of anything that is lent upon interest. Unto a foreigner thou mayest lend upon interest; but unto thy brother thou shalt not lend upon interest; that the Lord thy God may bless thee in all that thou puttest thy hand unto…" (Deut. 23:20–21). The prohibition on taking interest in Exodus and Leviticus seems to be confined to the poor in straits and not to extend to moneylending in the normal course of business, but the deuteronomic prohibition clearly applies to all moneylending, excluding only business dealings with foreigners.


The biblical term for interest is neshekh (Ex. 22:24; Deut. 23:20), but in the levitical text it occurs alongside tarbit or marbit (25:36–37). In the Jewish Publication Society translation (1962) neshekh is rendered as "advance interest" and tarbit or marbit as "accrued interest" – the one being deducted in advance, the other being added at the time of repayment. This is only one of many interpretations that were made of the terms neshekh and tarbit from the time of the Mishnah (bm 5:1) onward and by no means the best one. One commentator regards neshekh as accumulating interest and tarbit as a fixed sum of interest that never increases (Ramban to Lev. 25:36). The most authoritative view is that of Rava, that there is no difference in meaning between neshekh and tarbit (bm 60b); but while Rava maintains that the Torah used two synonyms in order to make the prohibition of interest a twofold one (ibid.), the better explanation etymologically would be that neshekh, meaning bite, was the term used for the exaction of interest from the point of view of the debtor, and tarbit or marbit, meaning increase, was the term used for the recovery of interest by the creditor (Solomon Luntschitz, Keli Yakar, Be-Ḥukkotai, Lev. 25:36).

The prohibition on interest is not a prohibition on usury in the modern sense of the term, that is, excessive interest, but of all, even minimal, interest. There is no difference in law between various rates of interest, as all interest is prohibited.

legal character of prohibition

It has been said that the prohibition on interest rests on two grounds: firstly, that the prosperous ought to help the indigent, if not by gifts, then at least by free loans; and secondly, that interest (or excessive interest) was seen to lie at the root of social ruin and was therefore to be outlawed in toto. Both these considerations would apply only internally: there could be no obligation to help foreigners, nor was public policy concerned with their well-being. Moreover, moneylending transactions with foreigners were motivated solely by the legitimate desire to make profits, while the internal economy was eminently agrarian and had no money markets of any importance. It follows from the charitable nature of the prohibition on interest that its violation was not regarded as a criminal offense to which any penal sanctions attached, but rather as a moral transgression; in other words, while taking interest would not entail any punishment, granting free loans and refraining from taking interest would lead to God's rewards and blessings (Deut. 23:21 and Ramban thereto). It was only in the prophecies of Ezekiel that usury came to be identified with the gravest of crimes: it is mentioned in the context of larceny, adultery, homicide, and other such "abominations" that are worthy of death (18:11–13). The threat of death for usury was later interpreted as the divine sanction against irrecoverable and illegitimate self-enrichment (bm 61b). "He that augmenteth his substance by interest and increase" is listed among the "evil men" (Prov. 28:8); while "He that putteth not out his money on interest" is among the upright and righteous (Ps. 15:5).


The prohibition on taking interest does not appear to have been generally observed in biblical times. The creditor (nosheh), far from giving free loans, is often described as exacting and implacable (cf. i Sam. 22:2; ii Kings 4:1; Isa. 50:1; et al.); and the prophet decries those who have "taken interest and increase" and forgotten God (Ezek. 22:12). Nehemiah had to rebuke the noble and the rich for exacting interest, "every one to his brother" (Neh. 5:7); and he had formally and solemnly to adjure them to abstain from levying execution (12–13). From the *Elephantine papyri it appears that among the Jews in Egypt in the fifth century b.c.e. it was a matter of course that interest would be charged on loans: not only did they disregard the biblical injunctions as far as the taking of interest was concerned, but they made no recourse to any legal fictions in order to evade the prohibition (R. Yaron, Mishpat shel Mismekhei Yev (1961), 136).

Talmudic Law

extension of prohibition

It is not only the creditor who takes interest who is violating the biblical prohibition, but also the debtor who agrees to pay interest, the guarantor who guarantees the debt that bears interest, the witnesses who attest the creation of an interest-bearing debt, and even the scribe who writes out the deed (bm 5:11; bm 75b; Yad, Malveh 4:2). This is one of the very rare cases in which accessories to the offense are held responsible (see *Penal Law). "Although the creditor and debtor transgress these biblical prohibitions, there is no flogging for it, as the interest must be repaid" (Yad, Malveh 4:3). The Ḥinnukh (no. 74) says further that none of the accessories is flogged "for since even the creditor is not flogged… it would not be right that those who are mere accessories should be liable for flogging."

The most far-reaching extensions of the prohibition relate, however, to the nature of the "interest" prohibited. Interest is no longer only the lending of four dinars for five, or of one bushel of wheat for two (bm 5:1), but is extended to all benefits that smack of interest or might look like it. Thus, the borrower may not let the lender live on his premises without payment of rent or at a reduced rent (bm 5:2), and if he had resided there without paying rent before borrowing the money, he must now be charged rent (bm 64b). The prohibition of lending one bushel of wheat for two was also extended to the lending of one bushel of wheat for one, since it was possible that the value of the wheat might increase between the date of the loan and the date of the return, and such increase in value would amount to prohibited interest (bm 5:9; tj, bm 5:7); but the rule does not apply where seeds are lent for sowing and not for consumption (bm 5:8), and where the borrower possesses even the smallest quantity of the same species, he may borrow any quantity (bm 75a; Yad, Malveh 10:1–5). Where two men agree to do work for each other in turn, they may agree only on the same kind of work for each, as otherwise the work of one might be more valuable than that of the other and thus amount to prohibited interest (bm 5:10; Yad, Malveh 7:11). Gifts that one man may send to another in view of a forthcoming request for a loan, or in gratitude for a loan granted and returned, fall within the prohibition on interest – as are also "words," conveying to the lender, for instance, any valuable information (bm 5:10), or even greetings, where they would not otherwise have been exchanged (bm 75b; Tosef., bm 6:17). A mortgagee, even if he is in possession of the mortgaged property, is not allowed to take its produce; if he has taken it, he must either return it or set it off against the capital debt (bm 67a–b; Yad, Malveh 6:1–8; see also *Lien; *Pledge).

Interest in the guise of *sale was also prohibited. Fruit and other agricultural produce may not be sold unless and until its market price is established (bm 5:7), for otherwise the purchaser might, by paying in advance a price below the eventual market value, receive interest on his money; such advance purchases amounted in effect to financing the farmers, and were thus in the nature of loans rather than sales. But there is nothing to prevent the farmer from selling below the market value, once that value has been established: this would no longer be a disguised loan but a genuine if ill-advised sale (bm 63b; Yad, Malveh 9:1), subject always to the seller's remedies for *ona'ah (bm 4:4). Sales of products without current market values would be recognized as such, and not be invalidated as disguised loans, only where the goods sold were actually in the hands of the seller at the time of the sale (Tosef., bm 6:2–5), or, where they had to be processed or manufactured, were almost completed at the time of the sale (bm 74a; Yad, Malveh 9:2).

Any payment is prohibited interest that compensates a party to any transaction for money being left, for any length of time, in the hands of the other party, although it should, according to law or custom, have already been paid over (bm 63b). Thus, as rent is legally due only at the end of the period of lease, a discount may be given for rent paid in advance (see *Lease and Hire); but as the purchase price for goods or land sold is payable at the time of the sale, any price increase for later payment would amount to prohibited interest (bm 5:2; bm 65a; Yad, Malveh 8:1).

A further notable extension of the prohibition on interest relates to contracts of *partnership. An arrangement by which one partner finances a business and the other manages it, and losses are borne by the managing partner only while the profits are shared between them is illegal, for it comes within the prohibition on interest (bm 70a; bm 5:6; Yad, Malveh 8:12). Where the financing partner bears or shares the losses, such an arrangement is valid only if the managing partner is being paid a salary for his work instead of, or in addition to, a share in the profits (bm 5:4; Yad, Malveh 5:9).

All these talmudic extensions of the prohibitions on interest are known as avak ribbit, i.e., the dust of interest, as distinguished from ribbit keẓuẓah, i.e., interest proper in an amount or at a rate agreed upon between lender and borrower (bm 61b, 67a, et al.). The difference in law between avak ribbit and ribbit keẓuẓah is that the latter, if it has been paid by the borrower to the lender, is recoverable from the lender, while the former, once paid, is not recoverable, though a contract tainted with the dust of interest will not be enforced (bm 61b; Yad, Malveh 4:6; Sh. Ar., yd 161:1–2; see also *Contract).

evasion of prohibition

It has been said that the evasion of the prohibitions on interest reflects the conflict between law and life (Globus, see bibl., p. 39). It is remarkable how the talmudic jurists extended the prohibition on interest so as to cover, and invalidate, transactions far removed from the loans to which the biblical prohibition had attached, and at the same time sought ways and means to validate transactions clearly or conceivably falling within that prohibition. This phenomenon can only be explained by the change of economic conditions: it was in the amoraic period in Babylonia that the prohibitory laws against interest proved to be no longer compatible with the economic needs of the community; and ever since the necessity of finding legal subterfuges to evade those laws has persisted. The prohibition of price increase for payment that is made after a time lapse was practically abolished by the provision that any price may be agreed upon and recovered so long as the increase involved is not expressly but only tacitly stipulated (bm 65a; yd 173:1). The mishnaic rule that a managing partner must be paid a salary in order to validate the partnership agreement was set at nought in practice by the provision that such a salary need be nominal only (bm 68b). Profit-sharing partnerships were validated by regarding the investment of the financing partner as half loan and half deposit. While the borrower is responsible for the loan, the bailee is not responsible for the loss of the deposit; thus, the financing partner (as bailor) will also bear his share in the losses, and the partnership is legal (bm 104b). Even where the financing partner's share in the profits is redeemed in advance by a down payment, the agreement is upheld, provided that the business could reasonably be expected to be profitable (tj, bm 5:8); and, later, deeds were formulated in which a pre-estimate of the expected profits was stipulated in advance as a fixed sum (bm 68a).

A farmer who had received a loan was allowed to make a formal conveyance of his lands (or part of them) to his creditor and still remain on his lands as his creditor's tenant; the creditor would be entitled to the produce of the land, not as interest on the loan but as income from his property (bm 68a). One jurist even held that it was permissible to let money on hire, like chattels, against payment of rent, as distinguished from giving a loan against payment of interest (bm 69b). A vendor may sell goods on credit at a price of 100 units payable at a future date, and immediately repurchase the goods at the price of 90 units payable cash down: each of the two contracts of sale would be valid (bm 62b).

Another form of evasion was to lend money on interest to a non-Jew, in order that the non-Jew might relend the money to the intended Jewish debtor; both lending transactions are valid (bm 61b).

Some of these forms of evasion, though practiced in talmudic times, have not become the *halakhah (bm 68a per Rava; Yad, Malveh 5:8; 5:16; 6:4–5); others, though recognized as legally valid and feasible, were deprecated as reprehensible and forbidden (bm 61b–62b; Yad, Malveh 5:15) because of the stratagem involved in the device (ha'aramah).


Originally, courts appear to have been empowered to fine the creditor for taking interest by refraining from enforcing even his claim for the repayment of the capital (Tosef., bm 5:22), but the rule evolved that taking interest did not affect the creditor's enforceable right to have his capital debt repaid (bm 72a; Yad, Malveh 4:6). Where a bill, however, includes both capital and interest without differentiating between them, the bill is not enforceable (yd 161:11; Sh. Ar., Ḥm 52:1), and "whoever finds a bill which includes interest, shall tear it up" (Tosef., bm 5:23; see also *Contract). Moneylenders who take interest are disqualified as *witnesses and are not administered oaths (Sanh. 3:3), and even the borrower who pays interest is disqualified (Sanh. 25a). In their moral turpitude, moneylenders who take interest are likened to apostates who deny God (Tosef., bm 6:17) and to shedders of blood (bm 61b); and they have no share in the world to come (Mekh. Sb-Y 22:24). They are doomed to lose all their property and go bankrupt (bm 71a; Sh. Ar., yd 160:2).

legality of interest

While biblical law allowed the taking of interest from foreigners, excluding alien residents (Lev. 25:35), talmudic law extended the exemption: "One may borrow from them [foreigners] and lend them on interest; similarly in the case of an alien resident" (bm 5:6, 70b–71a). However lawful interest transactions with foreigners were, they were looked upon with disapproval: some jurists held that they were permissible only when no other means of subsistence was available (bm 70b); others would allow them only to persons learned in the law, as the uneducated might fall into the error of believing that interest is permissible in general (bm 71a). The psalmist's praise of the man who would not lend his money on interest (Ps. 15:5) was interpreted to apply to the man who would not take interest from a foreigner (Mak. 24a).

Post-Talmudic Law

transactions among jews

The talmudic evasions of the prohibition against interest served as precedents for the legalization of transactions involving interest. Thus it was deduced from the evasions reported in the Talmud that it would be permissible for a lender to lend 100 units to a businessman for him to use in his business; when it had increased to 200, the lender would be entitled to the 200, provided that he had paid the borrower some salary in consideration of his work (Piskei ha-Roshbm 5:23; Mordekhaibm 319). Rashi is reported to have ruled that you may send your friend to take a loan on interest from another for you, or you may send your friend to give your money on interest to another; for interest is prohibited only as between lender and borrower, but not as between their respective agents. The general rule that a man's agent is like himself (see *Agency) would not apply here, as the taking of interest is a criminal offense, and in criminal matters no man can be made responsible for the deed of another (see *Penal Law; Mordekhaibm 338).

In time, a standard form of legalization of interest was established, known as hetter iskah, meaning the permission to form a partnership. A deed, known as shetar iskah, was drawn up and attested by two witnesses, stipulating that the lender would supply a certain sum of money to the borrower for a joint venture; the borrower alone would manage the business and he would guarantee the lender's investment against all loss; he would also guarantee to the lender a fixed amount of minimum profit. The deed would also contain a stipulation that the borrower would be paid a nominal sum as a salary, as well as an agreement on the part of the lender to share the losses. In order to render this loss-sharing agreement nugatory, provision would normally be made for such loss to be proved by particular, mostly unobtainable, evidence (Naḥalat Shivah, no. 40; cf. Terumat ha-Deshen, Resp. no. 302). The amount of the capital loan plus the guaranteed minimum profit would be recoverable on the deed at the stipulated time it matured.

In the course of the centuries this form of legalizing interest has become so well established that today all interest transactions are freely carried out, even in compliance with Jewish law, by simply adding to the note or contract concerned the words al-pi hetter iskah. The prohibition on interest has lost all practical significance in business transactions, and is now relegated to the realm of friendly and charitable loans where, indeed, it had originated.

transactions with non-jews

In 1179 the Church decreed that the taking of interest was forbidden by Scripture as well as by the laws of nature, and that all Christian usurers would be liable to excommunication. As canon law did not apply to Jews, this decree did not prevent them from lending money on interest, and moneylending soon became a typically Jewish business. The Jews were practically forced into it by the severe restrictions placed upon them in the pursuit of any other trade or profession in most countries of Europe. From the point of view of Jewish law, the taking of interest from non-Jews was permitted; and the talmudic restriction that it should not be done unless there were no other means of subsistence was duly held to be complied with: "If we nowadays allow interest to be taken from non-Jews, it is because there is no end to the yoke and the burden king and ministers impose on us, and everything we take is the minimum for our subsistence, and anyhow we are condemned to live in the midst of the nations and cannot earn our living in any other manner except by money dealings with them; therefore the taking of interest is not to be prohibited" (Tos. to bm 70b s.v.tashikh). With the renewed change in circumstances, the prohibition on taking interest would apply to Jews and non-Jews alike (yd 159:1).

For nonlegal aspects see also *Moneylending.

[Haim Hermann Cohn]

The Rabbinical Period

The history of the prohibition of usury, in the sense of taking interest on loans, during the rabbinical period is the history of an ideal succumbing to the dictates of reality. The talmudic prohibition on taking interest, to which there was a plethora of lenient exceptions, fell into almost total desuetude as a result of socioeconomic circumstances. The trend toward erosion of this prohibition was identical in all of the Jewish Diasporas, although the means used to limit or evade it varied.

Many halakhic decisors permitted the charging of interest pursuant to judicial decision, insofar as it did not involve a credit transaction (Resp. Sho'el u-Meishiv Tanina, vol. 4 no. 123). The charging of interest as an arrears fine was also permitted by many authorities, even though they were aware that this was a means of circumventing the prohibition (Resp. Ribash 335; Haggahot Mordechaibm, no. 454). The authorities were also lenient regarding the prohibition of interest with regard to charitable and educational institutions, both as borrowers and as lenders (Resp. Ha-Maharit, yd, 45).

The halakhic sages also needed to deal with new kinds of financing arrangements resulting from economic developments. Thus, for example, the first maritime insurance contracts, which were a mixture of financing the shipment and insuring it, in consideration for a certain percentage of the value of the merchandise, was legitimized (Resp. Radbaz, Pt. 6, 2290). The granting of credit through the sale of promissory notes at a discount even before the time of repayment was permitted, notwithstanding the clear element of interest in such transactions (Sh. Ar., yd, 173:4).

The transition from consumer-oriented credit to business credit, that produced income for the borrower, and the finding of ways to permit interest-bearing loans led to the creation of general financial doctrines intended to protect the lender from a borrower who attempted to evade repayment of the loan under the pretext that he does not wish to transgress the proscription against interest. Rabbinical law provided that, in any transaction that may be interpreted as legal, even if the claim is far-fetched, there is an irrefutable presumption that the transaction was indeed carried out legally. This is consistent with the talmudic expression that "a person does not eat forbidden food and leave permitted food untouched" (Responsa Maharam 2: 80; Tosafot at Gittin 37b, shavik heteira).

Moreover, it frequently occurs that merchants and businessmen may take interest-bearing loan from others on the basis of a factual presentation that enabled such a loan. After trading with the money, when the time comes for repayment of the loan, the borrower may become overly righteous and deny the original presentation of facts by claiming that he does not want to transgress the prohibition of interest.

The halakhic sages were morally outraged by such an argument and recognized that accepting such an argument would close the door upon potential borrowers in the future. The solution they found was that, at the time of the litigation between borrower and the lender, the borrower was not allowed to claim that at the time of the transaction he was a "transgressor." The borrower would be barred from raising a factual claim, even if it might be correct, if it conflicted with the facts presented at the time the transaction was entered into and of its result would be the invalidation of the transaction and his exemption from paying interest. This doctrine is similar in its mechanisms and results to the English equitable doctrine of estoppel that developed several hundred years later.

This doctrine was given a halakhic basis through the "civil" application of the well-known talmudic rule that "no man may call himself a wrongdoer." This rule was originally used in criminal law and precluded conviction of a person on the basis of self-incrimination. The transference of this rule to the area of civil law leads to obligating the defendant to repay on the basis of the irrefutable presumption that the borrower, who was a party to the transaction, did so with permission and not as a transgressor (Resp. Rosh, Rule 108,12:32; Sh. Ar., yd 177, and Taz and Shakh ad loc.; Resp. Iggerot Moshe, yd 66; ibid., Ḥm 22).

Linked Loans

The steep inflation that has become a relatively common economic phenomenon has given rise to a new financial instrument: loans whose values are linked to the inflation index. This financial instrument is intended to protect the lender from a decrease in the value of his loan in terms of its buying power. In a linked loan, the borrower undertakes to repay the amount of the loan linked to the value of a foreign currency, to the cost of living index, or to the building price index, as agreed between the parties. The issue of linked loans is problematic vis-à-vis the prohibition on interest and remains complicated and convoluted.

The central problem regarding this context is the tension existing in defining the meaning of money: should it be defined in nominal terms, or should it be defined in real terms (i.e., its real value)? During a period of inflation, the borrower will insist on repaying the loan according to the specified, nominal amount of the loan, while the lender will argue that what is of importance is not the nominal value of the loan, but rather its actual value, that is, the purchasing power of the money in the marketplace of goods and services. It is clear that, if the nominal value is the criterion, any nominal addition will be considered as prohibited interest.

The governing principle in the talmudic halakhah was that of nominalism. An extreme expression of this principle is the prohibition of loaning (seah be-seah) "a bushel for a bushel [of grain]" (Mishnah, bm 5:9). The Mishnah prohibits loaning a bushel of grain in return for the future payment of the same amount, even if the lender received no additional payment. The rationale of this rule is that the criterion for defining "addition" is exclusively monetary. In as much as the value of the se'ah to be returned on the date of payment may exceed its value at the date of the loan, the result is that the lender receives a prohibited addition, which is defined as interest, even though in real terms, the lender did not receive more than the same se'ah. The basis of this prohibition is the sharp distinction drawn between "tebea" (currency) and "pera" (products and services) in which the latter is defined as the entirety of goods, merchandise, and services that are assessed in monetary terms. Currency, on the other hand, is regarded as an absolute and stable entity of unchanged value, while only the "fruits" become more or less costly. In practice, the prohibition became eroded and emptied of all content. The amora R. Isaac ruled that if a borrower had a se'ah "he may borrow against an unlimited amount of bushels" (bm 75a), while at a later time a legal fiction was created stating that there is no person who does not own at least one bushel (Tur, Beit Yosef, yd 162). Paradoxically, Jewish law in the Middle Ages relied on the fiction of "bushel for bushel (se'ah be-se'ah)" as a central instrument for permitting linked loans. It was done in a manner that circumvented the prohibition of se'ah be-se'ah: The nominal subject of the loan was bushels or gold, and this form of loan was permitted on the basis of a legal fiction that any borrower owned at least a minimal amount of grain or gold, and on this basis he could borrow a large amount of the same product, when, and despite that fact that the loan was actually a monetarily linked loan (Bet Yosef, Tur, yd 172; Resp. Ribash no. 19). At the same time, loans that were formally referred to as linked loans continued to be prohibited.

Talmudic halakhah based on the formal, nominalistic doctrine based on the "bushel for bushel" prohibition was confronted by the realistic approach to monetary changes initiated by the government, as opposed to market based currency fluctuations. Jewish law distinguished between price rises as a result of market forces and price rises as a result of government-initiated reduction of the value of currency. Regarding the devaluation or revaluation of the currency itself, which had an immediate effect on the price of goods and services, Rav Ashi ruled that the question of whether or not the lender received an additional sum would be answered not on the basis of the nominal test, but rather through a comparative examination of the purchasing power at the time of the loan and at the time of repayment (bm 94b; Sefer ha-Terumot, [1586], Pt. 8:3). This conservative trend, of distinguishing between currency fluctuations resulting from governmental initiatives as distinct from changes in the actual buying power of money due to existing market forces, persists even today. While the posekim require valuation of the debt in the event of changes in the value of the currency initiated by the government, they forbid such valuation as usurious if the change is the product of market factors. One of the leading posekim of the 20th century, Rabbi Karelitz, was well aware that the value of money – like that of any other merchandise – rises and falls in relation to the quantity available, but nevertheless adhered to the original talmudic law according to which money is an absolute value to which the concepts of expensive and cheap do not apply (Hazon Ish, yd 104b). Rabbi Moshe Feinstein, who uses a realistic criterion when it comes to the obligation to tithe money from inflationary profits, also prohibits linked loans (Resp. Iggerot Moshe, yd, Pt. 2:104). This doctrine reflects the accepted approach taken by contemporary rabbinical authorities and of rabbinical court rulings in Israel (Responsa Yaskil Avdi, Pt. 5, yd, sec. 18; Berit Yehudah 20:20). Nevertheless, the high rate of steep inflation in Israel in the 1970s led to movement in a more realistic direction (thus Rabbi Goren in pdr 11:235).

Hetter Iskah

Global economic development has changed the general function of credit, from being a means of assisting the poor to serving primarily as a business tool. This change in the nature of credit has led halakhic scholars to seek moral justifications for circumventing the prohibition of interest. From the beginning of the period of the aḥaronim (ca. 15th century) until today, the accepted means for legitimizing the free flow of interest bearing credit has been the hetter iskah. The basic idea underlying this financial tool is the distinction drawn by the halakhah between a loan and a deposit.

A loan is defined in halakhah as a transfer of ownership from the lender to the borrower against the borrower's commitment to return assets similar to those borrowed upon a particular date. A deposit, by contrast, is defined in halakhah as transfer of possession without transfer of ownership.

The promulgation of the hetter iskah by the Sages during the talmudic period was not necessarily to avoid the prohibition of interest. The Sages intended to create a uniform model for partnership of capital and labor (whether for manufacture, trade, or enterprise). The legal structure of the iskah is that half of the money invested is considered as a deposit, over which the one "giving" continues to be the owner, while the other half of the sum is treated as a loan, over which the one "engaged" in business (i.e., the borrower) is considered the owner. He is the sole party to absorb losses from that half and he is the only one entitled to any revenue from it. The practical result is a division of both opportunities for profit and of risk between the owner of the capital, on the one hand, and the entrepreneur, manufacturer or merchant, on the other hand. In order to avoid transgressing the prohibition of interest, talmudic halakhah provided that the owner of the capital should pay wages, even if only a symbolic sum, to the one receiving the capital for his handling of that part of the capital that is considered as a pledge.

The first hetter iskah document is attributed to Rabbi Menachem Mendel of Cracow, known as the Maharam (Naḥalat Shiva, 40), at the end of the 16th century. The hetter received the halakhic approval of the sages of Ashkenaz and even attained legislative status (Kuntres ha-Ribbit by the author of Me'irat Einayim, and the decision of the Council of the Four Lands at the Kremnitz fair in 1607). This hetter became popular and many of the loan agreements incorporated this classic formulation, which was accepted by all of the halakhic decisors of Ashkenaz, by way of reference – that is, that a provision was made that all transactions between parties be in accordance with the hetter iskah as promulgated by the Maharam (Rabbi Jacob Blau, Brit Yehudah, chap. 41.8). During this time similar hetteirim were fashioned by the Sephardi authorities (Ginat Veradim, yd, klal 6, no. 4), which have long been accepted by all Jewish communities.

The legal structure upon which the hetter iskah rests involves three basic components: (1) iskah (the transaction); (2) the investor (the lender); and (3) the one intended to use the money (the borrower).

Every loan or credit transaction is considered as a partnership between the investor (i.e., the lender) and the one intended to use the money (the borrower). On the basis of the Talmudic model of iskah, the investor is entitled to a portion of the revenue because of that portion of the loan that is considered as a "deposit." There are also hetterim based upon the classical talmudic model, i.e., a partnership between the "deposit" portion of the capital and that portion which is a "loan" throughout the period of the credit. There are other hetterim, such as that of the Maharam, based upon a deposit which, once it realizes an agreed-upon level of profit, is turned into a loan.

Given that the parties are free to make conditions, the lender can protect his investment by including in the agreement a condition that the loan may only be used for solid, profitable businesses – a condition making it difficult for the borrower to claim that he suffered a loss, one that even obligates him to pay profits.

Essentially, the hetter iskah is based upon the freedom to make conditions in laws of evidence. The lender/"investor" is entitled to receive a detailed report of the objectives of the investment, profits, losses, etc. He is entitled to set forth stringent means of proof regarding all these subjects in the loan/"partnership" agreement. Along with these stringent means of proof, there is also a clause exempting the borrower/"business user" from the requirements of reporting, in exchange for payment of a predetermined percentage of the value of the loan.

In practice, the borrower "acquires" from his partner the potential profit and the need to provide proofs in exchange for payment of a fixed amount or percentage agreed-upon in advance. Thus, the "interest" is paid as a waiver fee for the loaner's right to accounting and proof ("compromise fee"), and not as an addition to the principal of the loan. In this way, the prohibition of interest is circumvented.

These hetterei iskah were accepted by all of the later decisors and there is no one who questions their validity. This is the accepted manner of entering into credit agreements where the parties observe mitzvot. The use of hetter iskah for banking transactions is mentioned in the responsa literature at the end of the 19th century (Responsa Maharsham, Pt. i, no. 20). The banking industry in Israel has also adopted this device, and in many bank branches the accepted version of the hetter iskah is displayed in public. The classic hetter iskah has been expanded to include investments that do not realize profits, on the basis of the assumption that even consumer credit allows the borrower to invest time or money in other pursuits (Resp. Sho'el u-Meishiv, Pt. i, no. 137; Resp. Maharsham, Pt. ii, no. 216). Decisions of Israeli civil courts have likewise recognized the hetter iskah as part of the contractual framework obligating the parties and has analyzed its provisions as part of the agreement between them (Motion 5317/86 Bank Mizrahi v. Tishler et al., psm 48(2) 353).

The hetter iskah as a valid contractual provision was also recognized in a decision of a New York State court (290 nys 2d 997, Leibovici v. Rawicki). The positive attitude to the hetter iskah and its perception as a vital instrument for the capital market, which prevents doors being closed to borrowers, has also been recognized in contemporary rabbinical court decisions (File 17046/44, 16 pdr 74).

[Ben-Zion Eliash (2nd ed.)]


J. Marcuse, Das biblisch-talmudische Zinsenrecht (1895); E. Cohn, in: Zeitschrift fuer vergleichende Rechtswissenschaft, 18 (1905), 37–72; J. Hejcl, Das alttestamentliche Zinsverbot im Lichte der ethnologischen Jurisprudenz sowie des altorientalischen Zinswesens (1907); H.L. Strack, in: Realencyklopaedie fuer protestantische Theologie und Kirche, 21 (19083), 518–21; I.S. Zuri, Mishpat ha-Talmud, 5 (1921), 63f., 134–9; Gulak, Yesodei, 2 (1922), 72, 107, 172–6; I. Bernfeld, Das Zinsverbot bei den Juden nach talmudisch-rabbinischen Recht (1924); S. Rosenbaum, in: Ha-Mishpat ha-Ivri, 2 (1926), 27, 191–4; E.L. Globus, in: Ha-Mishpat, 2 (1927), 23–43; E.S. Rappaport, in: Zeitschrift fuer vergleichende Rechtswissenschaft, 47 (1932/33), 256–378; A. Gulak, Toledot ha-Mishpat be-Yisrael bi-Tekufat ha-Talmud, 1 (Ha-Ḥiyyuv ve-Shi'budav, 1939), 45, 117f., 145; Herzog, Instit, 2 (1939), 135; S.J. Rabinowitz, in: Yavneh, 3 (1949), 165–74; R. Katzenelboigen, ibid., 175–9; B.N. Nelson, The Idea of Usury, from Tribal Brotherhood to Universal Otherhood (1949); et, 1 (19513), 46f.; 2 (1949), 51; 4 (1952), 111; 7 (1956), 394; 9 (1959), 714–22; 10 (1961), 102f., 108; J. Rosenthal, in: Talpioth, 5 (1951/52), 475–92; 6 (1952/53), 130–52; T. Be'eri, in: Ha-Torah ve-ha-Medinah, 5–6 (1952/54), 296–301; J. Segal, ibid., 9–10 (1957/59), 451–90; E. Neufeld, in: jqr, 44 (1953/54), 194–204; idem, in: huca, 26 (1955), 355–412; M. Elon, in: Ḥok u-Mishpat, 1 (1955), issue 22, pp. 6–8; S. Stein, in: jss, 1 (1956), 141–64; B. Rabinowitz-Te'omim, in: Ha-Torah ve-ha-Medinah, 11–13 (1959–62), 16–45; J.T. Noonan, The Scholastic Analysis of Usury (1957); N.N. Lemberger, in: No'am, 2 (1958/59), 33–37; J. Wassermann, ibid., 3 (1959/60), 195–203; M.N. Lemberger, ibid., 4 (1960/61), 251–7; Z. Domb, ibid., 258–65; Elon, Mafteʾaḥ, 302–7; B. Cohen, Jewish and Roman Law, 2 (1966), 433–56, 784f.; S.E. Loewenstamm, in: em, 5 (1968), 929f. add. bibliography: M. Elon, Ha-Mishpat ha-Ivri (1988), 1:94, 97, 114, 197, 489, 575, 577, 642, 654, 660, 730, 738, 764, 787–89; 2:993, 1031, 1051, 1053, 1069, 1073, 1231, 1247; 3:1443; idem, Jewish Law (1994), 1:105, 109, 128, 222; 2:596, 708, 711, 795, 809, 816, 901, 910, 941, 966–68; 3:1201, 1246, 1269, 1272, 1294, 1475; 4:1716; M. Elon and B. Lifshitz, Mafte'aḥ ha-She'elot ve-ha-Teshuvot shel Ḥakhmei Sefarad u-Ẓefon Afrikah (legal digest) (1986), 2:448–59; B. Lifshitz and E. Shochetman, Mafte'aḥ ha-She'elot ve-ha-Teshuvot shel Ḥakhmei Ashkenaz, Ẓarefat ve-Italyah (legal digest) (1997); B-Z. Eliash: "Ideological Roots of the Halakhah: A Chapter in the Laws of Interest," in: Shenaton ha-Mishpat ha-Ivri, 5 (1977), 7; A. Hacohen, "Banka'ut lelo Ribit ve-Hetter Iskah bi-Medinah Yehudit ve-Demokratit, Halakhah ve-Eein Morin Ken?" in: Sha'arei Mishpat, 2 (1999) 77; N. Dreyfus, "Dinei Ribbit ve-Hetter Iskah be-Re'i ha-Kalkalah ha-Modernit," in: Teḥumin, 14 (1992), 207; Z.Y. Ben-Yaakov, "Hetter IskahSetimat Kol ha-Peraẓot," in: Teḥumin, 23 (2003), 373.

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From the Latin usura, usury originally meant a charge for the loan of a fungible, i.e., perishable, nonspecific good, whose use consisted of its consumption. Such a loan was called a mutuum. Money, considered to be "consumed" in the process of exchange for other goods, was classified as a fungible good. As a money loan became the most common form of loan of this type, usury came to signify a charge for the use of money. Only after repeal of the laws prohibiting interest (usury in the above sense) and the establishment of legal rates did usury assume its present meaning of a charge for a money loan that is exorbitant or exceeds the legal rate. The concept of interest underwent a similar metamorphosis. In Roman law interest was a title to compensation for loss suffered by the lender if the borrower failed to return a loan on time. This concept survived until the close of the Middle Ages, when the old concept of usury was superseded by the new one of interest, which now means the price of loanable funds. Hence, the former meaning of usury and the present meaning of interest are practically identical.

Usury Controversy. There is hardly an older or keener dispute than that of the ethics of interest. Old Testament prohibitions of interest, based on exigencies of the times, include: (1) explicit prohibitions of interest on loans to the poor; (2) prohibitions referring only to loans to Jews, foreigners being specifically excepted; and (3) condemnations of greed, and the amassing of riches by oppressing the poor with usury. Greek law did not forbid, but often regulated, interest. The Greek philosophers vehemently attacked it. Plato condemned it as inimical to the welfare of the state, setting one class, poor borrowers, against another, wealthy lenders. Aristotle shared this contempt for the usurer, considering him guilty of injustice, pettiness, and illiberality. Going beyond its social effects, he attempted to prove that interest by its very nature violates justice. Money, he declared, is a barren thing, incapable of reproduction. Hence interest, in effecting the "birth of money from money," is contrary to nature and violates justice, which requires the exchange of two equal sums.

Roman philosophers like Cicero, Cato, and Seneca approved the Greeks' condemnation, but the attitude of Roman law, apart from its few unsuccessful attempts to forbid interest, was one of limited tolerance. The Law of the Twelve Tables (451450 b.c.) and the Lex Unciaria (88 b.c.) set maximum legal rates of about 12 percent that remained in effect until the Code of Justinian (533 a.d.) differentiated the legal rate according to the status of the borrower. The New Testament makes no direct statement on the ethics of interest, referring with tolerance at least to the practice in the parable of the Talents. The pre-Nicene Fathers of the Church merely repeated the scriptural teaching that exacting usury of the poor is contrary to charity and mercy. On the other hand, the great Fathers vehemently denounced the exploitation and oppression of the poor by usury, contrasting with it the gospel precepts of charity and mercy. The later Fathers repeated these sentiments. Hence, for the Fathers of the Church the evil of usury lay in its origin and its effects. The lenders' greed resulted in exploitation and oppression, often driving the poor to despair, slavery, and even suicide. Nowhere do we find a discussion of the ethics of interest in general or of the morality of moderate rates of interest.

Early Scholastics. Although still considering isolated exchange rather than an organized market, scholastic philosophy changed the ethical criterion from the motive of the lender and the consequences of the loan to the intrinsic nature of interest by forging a tool of analysis intended for all debtor-creditor relationships. The bases of scholastic condemnation of interest as a violation of commutative justice were: (1) the classification of voluntary contracts as found in Roman law and (2) the Aristotelian condemnation of interest founded on the "sterility" of money. They argued that in the case of a mutuum, i.e., of a loan of a fungible or perishable or generic good (e.g., bread, grain, wine), it is unjust to demand, in addition to the return of the good, a charge for its use. For, unlike a horse or a house, its use consists of its consumption, i.e., of its immediate destruction. Money was considered a fungible good since, once it was exchanged for other goods, its use ceased to exist for the borrower. "Therefore," concluded Aquinas, "it is in itself illicit to accept a price for the use of money loaned, which is called usury." Although condemned on intrinsic grounds, i.e., the nature of the loan itself, interest was permitted on the basis of certain extrinsic titles, such as actual loss sustained or opportunities of profit forgone by the lender as a result of the loan. Hence until the close of the Middle Ages and the growth of industry and commerce, the justification for interest lay in an increasingly liberal interpretation of the applicability of these extrinsic titles.

Later Scholastics. From the 16th century onward the usury controversy followed two main streams of thought, one of continuity with, and the other of departure from, traditional scholastic analysis. In the former are found some of the early reformers (Luther, Melanchthon, Zwingli) and most of the later scholastic writers (such as Biel, Eck, Major, Peter of Navarre, Medina, Gregory of Valencia, Molina, de Lugo, Lessius, and Laynez) who liberalized the application of the extrinsic titles, such as loss sustained, profit forgone, and risk of nonrepayment. Likewise in the latter school we find both Protestant writers (Calvin, Beza, Bucer, Bullinger, Molinaeus, Salmatius, Broedersen) and a growing number of Catholic moralists and economists (Pirot, Le Correur, Collet, Maffei, Galiani, Cardinal de Luzerne, Mastrofini, Lemkuhl, Antoine, Claudio-Jannet) who attacked the minor premise of the scholastic syllogism (the sterility of money) by distinguishing between loans for production and those for consumption, insisting that in the former case money capital was fertile or productive, or quasi-productive. Hence, interest could be justified on intrinsic as well as extrinsic grounds. To this some added that present and future sums of money of equal amount are not of equal present value. Interest serves to equalize the difference between present values of present and future sums of money.

Attitude of the Church. As for the official attitude of the Church, the taking of interest was forbidden to clerics by the 44th of the Apostolic Canons, by the first Council of Arles (314), by the first general Council of Nicea (325), and repeatedly in later councils. It was declared reprehensible also for laymen by the first Council of Carthage (345) and, in order to combat "the insatiable rapacity of usurers," strictly forbidden by the great general councils of the Middle Ages. These were the third Council of the Lateran (1179), the second Council of Lyons (1274), and the Council of Vienne (1311), the last declaring that anyone who maintained that the practice of usury is not sinful should be punished as a heretic. Yet nowhere is it stated that interest is in itself and under all conditions a violation of justice. Later canonists and theologians accepted the scholastic analysis, and from the 15th century popes and councils dealt for the most part with the licitness of new practices and institutions, such as the contractus trinus, census, and societas, montes pietatis. The scholastic doctrine was formally proclaimed in Benedict XIV's encyclical Vix Pervenit, 1745 (which was not an infallible decree), but this did not prevent subsequent confusion and divergence of policy among confessors that arose from the differences of opinion among moralists regarding the justification of interest. This disquietude was ended by the issuance in the 19th century of some 14 decisions of the Congregations of the Holy Office, the Penitentiary, and the Propaganda stating that the faithful who lend money at moderate rates of interest are "not to be disturbed," provided that they are willing to abide by any future decisions of the Holy See. The practical problem settled, the theoretical question of how interest is justified remains open to discussion. While the Holy See now puts out its funds at interest and requires ecclesiastical administrators to do the same, the Church still provides in the Code of Canon Law (c.2354) severe penalties for those convicted of usury in the modern sense.

Interest in the Modern Economy. As for the theoretical question, although the justification of interest on either extrinsic or intrinsic grounds as surveyed above is compatible with recent decisions of the Church andc.1543 of the Code of Canon Law, neither analysis seems realistic or practical in the modern economy. Although the extrinsic titles of the scholastics served a useful purpose when, in the absence of an organized capital market, the rate of interest was determined by bargaining between individual lenders and borrowers, they seem to be irrelevant in the presence of a market rate of interest. In the case of exchanges between places or currencies, the scholastics declared that the equilibrium market price, determined by conditions of demand and supply in an open market, was acceptable as the criterion of the just price. It expressed the common estimate of the value of the good, in the presence of which there could be no exploitation. Why, then, cannot the market rate of interest be taken as the criterion of the just price in exchanges of money available today for money available later? It represents the common estimate of the price of loanable funds, the present values of goods available at different points of time. It constitutes a profit or gain only in that any consumer profits or gains when he values a commodity more highly than the price he has to pay for it. Otherwise, there would be no mutual advantage to buyer and seller, which Aristotle and Aquinas clearly recognized.

Though moralists have devoted their attention to interest almost exclusively as a problem of commutative justice, its role as an instrument of policy in the field of social justice should not be overlooked.

Bibliography: b. w. dempsey, Interest and Usury (Washington 1943). t. f. divine, Interest: An Historical and Analytical Study in Economics and Modern Ethics (Milwaukee 1959). j. t. noonan, The Scholastic Analysis of Usury (Cambridge, Mass. 1957). j. a. schumpeter, History of Economic Analysis, ed. e. b. schumpeter (New York 1954).

[t. f. divine]

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The crime of charging higher interest on a loan than the law permits.

State laws set the maximum amount of interest that can be charged for a loan of money. A lender that charges higher than the maximum amount of interest is guilty of the crime of usury. In addition, courts may modify contracts that contain usurious rates of interest by reducing the interest to the legal maximum.

The charging of excessive interest in exchange for a monetary loan has been considered reprehensible from the earliest times. Chinese and Hindu law prohibited it, while the Athenians scorned persons who charged more than a moderate rate of interest for a loan. The Romans at one time abolished the practice of charging interest. Although they later revived it, the rates were strictly regulated.

During the Middle Ages in western Europe, the Catholic Church censured usurers, and when they died, the Crown confiscated their lands and property. In England, until the thirteenth century charging any interest was defined as usury. As commerce and trade increased, however, the demand for credit grew, and usury was redefined to mean exorbitant interest rates. In 1545 the English Parliament set a legal maximum interest rate. Charging higher interest constituted usury.

The United States followed the English practice, as states passed laws that set maximum legal interest rates. Rate restrictions vary from state to state, and different limits are set for different kinds of loans. For example, higher interest rates are usually allowed on consumer loans than on home mortgages. Some states do not restrict the interest rates that corporations can be charged under the assumption that corporations have sufficient bargaining power and business sense to negotiate a fair rate independently.

Restrictions on legal interest rates apply to banks, consumer loan companies, and other businesses that extend credit. Loan agreements between private individuals are also governed by state usury laws. For example, if a person agrees to lend a friend $5,000, the interest rate cannot exceed the maximum set by the state usury statute. Persons who charge excess interest and then threaten extortion are known as loan sharks. They may be prosecuted for usury and, if convicted, fined and possibly imprisoned. The persons who typically borrow from a loan shark are those who cannot qualify for a loan from a commercial lender. organized crime has traditionally relied on loan sharking as a source of income.

The penalty for usury is ordinarily a fine, forfeiture of the interest, or both. In some cases involving consumer credit, courts may modify usurious contracts and allow the borrower to pay only the principal sum and legal interest. Courts have often concluded, for example, that the high interest rates charged by "rent-to-own" businesses for the rental of consumer goods, such as furniture and televisions, are usurious and force the consumer to pay an exorbitant price for the goods.

The uniform consumer credit code (UCCC) was drafted to address many of these consumer credit problems. Though only nine states have adopted the code in its entirety, most states have included selected provisions from it in their consumer credit laws. The UCCC is designed to provide protection to consumers who buy goods and services on credit. It attempts to simplify, clarify, and update legislation governing consumer credit and usury. The UCCC also sets interest rate ceilings to ensure that consumers are not overcharged for credit. The UCCC works in concert with the federal consumer credit protection act of 1968 (16 U.S.C.A. § 1601 et seq.), which mandates that consumers purchasing on credit be provided with full disclosure on the cost of the loan.

Rent-to-Own Contracts: Should They Be Subject to Usury Laws?

For more than thirty years, the legal status of rent-to-own (RTO) contracts has been the subject of debate. Consumer advocates decry the high cost of these contracts, which typically involve furniture, appliances, televisions, and other electronic goods. The RTO industry argues that it has been unfairly accused of consumer exploitation, when in fact it provides a needed service to individuals who either have poor credit or prefer to rent certain consumer goods. In most states RTO businesses must follow disclosure requirements when making RTO contracts, yet these businesses are allowed to charge rates that, if characterized as credit, would violate state usury laws.

The RTO industry, which serves close to 3 million customers a year and generates almost $4 billion in revenues annually, is composed of dealers who rent consumer goods with an option to buy. An RTO contract normally allows a customer to rent something for one week or one month at a time. At the end of the week or month, the customer can either terminate the agreement without any cost or obligation or renew the contract by making another advance rental payment. If the contract is renewed a prescribed number of times—typically, a period of eighteen months—and the customer meets the terms of the rental agreement, the store conveys ownership of the item to the customer.

Critics of RTO contracts contend that the cost of an eighteen-month contract greatly exceeds the value of the item purchased. If the contract was considered a credit sale rather than a lease, it would violate state usury laws. Usury laws are designed to prohibit excessive finance charges and to prevent creditors from gouging consumers, who are typically in a weaker bargaining position. Consumer advocates contend that RTO customers are mostly poor and uneducated and have poor credit histories. These customers spend a larger percentage of their disposable income on RTO contracts than more affluent consumers do using traditional credit arrangements. Consequently, these critics believe states should reclassify RTO contracts as installment sales rather than as leases.

Consumer advocates note that if RTO contracts were recognized as credit sales, the federal consumer credit protection act, also known as the truth in lending act (15 U.S.C.A. § 1601 et seq. [1968]), would apply. The act requires strict disclosures in consumer credit sales, as do state retail installment sales (RIS) laws. An RTO dealer would have to disclose the contract price of the consumer good, the total RTO price, the associated finance charges, and the applicable interest rate. In theory, such disclosures would allow a consumer to shop around for the best RTO deal.

More than forty states have adopted some type of RTO legislation. For example, Minnesota's Rental Purchase Agreement Act (RPAA) (Minn. Stat. § 325F.84 et seq. [1990]), provides a number of protections to consumers. It requires specific disclosures in the RTO contract, in advertising, and on in-store merchandise tags. The RPAA also provides restrictions and protections in the event of the customer's default, gives the consumer reinstatement rights, and limits delivery charges, security deposits, and collection fees.

The RTO industry rejects the idea that consumers are subjected to usurious interest rates when they enter into a contract. The industry says that an overwhelming majority of customers do not pursue the ownership option. Dealers point out that 75 percent of customers return the rented item within the first four months and that fewer than 25 percent rent long enough to own the item.

RTO supporters also challenge the stereotype of the typical RTO customer. A 1994 survey, sponsored by the Association of Progressive Rental Organizations (APRO), a national industry group, found that almost 60 percent of RTO customers earned between $24,000 and $75,000 annually. In addition, a 1996 APRO survey found that 45 percent of RTO customers had a high school education and almost 30 percent had some college education. The industry's customer base includes students, business executives on temporary assignment, military personnel, and families in transit. The RTO business contends that it provides products to consumers who have immediate needs for consumer household goods but who either do not want or cannot accept long-term obligations, as well as to customers who do not have access to traditional credit arrangements.

The RTO industry challenges the claim that it wishes to keep customers in the dark about the cost of RTO contracts. The industry, which sees potential for continued growth, is taking steps to protect customers and ensure that RTO dealers are ethical. The APRO notes that it has participated in the debate and drafting of RTO disclosure laws in forty-four states. The industry agrees that contracts should disclose basic information, including the cash price of the product, the amount of each rental payment, the number of payments necessary to acquire ownership, and the total cost of the product acquired. The RTO industry believes that once this information is disclosed, customers should have the freedom to make an RTO contract.

The industry does not agree that state usury laws should be applied to RTO agreements. RTO operators note that no one is compelled to enter into an agreement. In addition, the costs of doing business in the RTO market dictate the rental rates charged to customers. RTO businesses must provide full service, including repairs, loaners, and pickup and delivery. Finally, RTO dealers do not agree that an RTO agreement is a credit sales agreement. Instead, they see it as a no-obligation, no-debt agreement that gives the customer the option of ending the agreement at the end of the rental cycle.

further readings

Association of Progressive Rental Organizations (APRO) site. Available online at <> (accessed November 24, 2003).

Letsou, Peter V. 1995. "The Political Economy of Consumer Credit Regulation." Emory Law Journal 44.

Pimentel, Eligio. 1995. "Renting-to-own: Exploitation or Market Efficiency?" Law and Inequality Journal 13.


Consumer Protection.

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Money lending is one of many business ventures practiced by Buddhist monks. Although commercial activities are not usually associated with Buddhism, from the inception of Buddhist communities as landowners to restaurants run by American Zen communities, monasteries have long been involved in a wide variety of economic enterprises. Because Buddhism identifies desire, rather than the objects of desire, as a source of suffering, wealth per se is not condemned; on the contrary, the proper use and enjoyment of wealth is encouraged. Commercial operations within the monastery also reflect Buddhism's origins in the urban, mercantile centers of ancient India and in the systems of exchange, trade, and commerce, as well as the legal status of property and ownership, that developed there. The spread of Buddhism along trade routes meant that Buddhism and commerce traveled hand-in-hand. In China, for example, the innovation of lending banks was introduced by Buddhists traveling from India. The material needs of Buddhist devotional practice also encouraged the development of various crafts and guilds, as well as construction, agriculture, and other technologies.

Capital resources were provided by a model of the pure gift in which the laity contributed material goods to the monastic community (dāna) in return for religious merit (puṇya) that would enable better circumstances in future rebirths. As the wandering community of Buddhist renunciants quickly came to live the settled life of the vihāra (monastery), monastic regulations began to allow the accumulation of donations beyond the immediate needs of the community. Some communities permitted such surplus to be used to endow funds that would generate interest for the purchase of clothing, food, and other community needs, or even for reinvestment. Because the funds generated interest and the principal investment was not depleted, they were called "inexhaustible" or "permanent" goods (akṣayanīvī; Chinese, wujinzai). With the lands, serfs, livestock, grains, oil, cloth, gold, and silver thus acquired, renunciant communities were able to undertake a great variety of investment and commercial ventures. Later Chinese pilgrims reported that Indian monks supported themselves primarily by their land holdings and interest-bearing investments, rather than by daily rounds of alms seeking.

Lending at interest was one such practice. The assets lent from the inexhaustible goods could be commodities such as cloth, food, oils, seed, and other goods donated to the monastery. The lendable assets may also have included monies generated from land rents, commercial activities, and investments. The precepts of the various Indian schools give permission and rudimentary procedures for these lending practices. The MŪlasarvĀstivĀdavinaya (Monastic Code of the Mūlasarvāstivāda [Group that Teaches that All Exists]), for example, gives specific instructions for lending the inexhaustible goods of the monastery, including details on the amount of collateral required (double the value of the loan), the form of the contract, the number of witnesses and guarantors needed, provisions for property seizure in the event of forfeiture, and other contractual details. The interest collected from monetary loans varied from as little as nothing to as high as 100 percent of the principal, but typically 50 percent of the principal was charged.

Although interest rates were frequently usurious, Buddhist monasteries were often the only source of large amounts of capital, so they performed an important and necessary social function that peasants, merchants, the gentry, and even monks took advantage of. At the same time, however, the vast wealth of the monasteries put them into competition for revenue with the state, so Buddhist economic enterprises were often attacked as corrupt and fraudulent. This was particularly true in China, where charges of financial impropriety were frequently raised during periods of imperial suppression of Buddhism.

The commercial activities of monasteries were not conducted solely for the purpose of economic gain—charitable lending and other social welfare institutions also developed. In China, for example, the Sanjie jiao (Three Stages school; late sixth–early eighth centuries), which operated several famous "Inexhaustible Storehouses," combined rules that provided for the endowment of inexhaustible funds with teachings from the Huayan (Flower Garland) and VimalakĪrti sūtras about the bodhisattva's inexhaustible storehouse of compassion for living beings. Their Inexhaustible Storehouse at the Huadu Monastery in Chang'an received donations from the faithful that were then lent out free of interest to the poor and needy of the empire. Because the goods of the storehouse were "inexhaustible," the donor acquired inexhaustible merit. This type of social welfare program was also seen in the development of pawnshops, another type of lending operation run by Buddhist monasteries.

Although in modern times many of the commercial ventures of Buddhist monasteries have been taken over by secular enterprise, the scope of Buddhist economic activities remains wide, and includes mutual-aid societies and cooperative banks, as well as modern forms of investment like credit cards and nonprofit corporations.

See also:China; Economics; India; Monasticism


Ch'en, Kenneth. The Chinese Transformation of Buddhism. Princeton, NJ: Princeton University Press, 1973.

Gernet, Jacques. Buddhism in Chinese Society: An Economic History from the Fifth to the Tenth Centuries, tr. Franciscus Verellen. New York: Columbia University Press, 1995.

Miller, Robert J. "Buddhist Monastic Economy: The Jisa Mechanism." Comparative Studies in Society and History 3, no. 4 (1961): 427–438.

Schopen, Gregory. "Doing Business for the Lord: Lending on Interest and Written Loan Contracts in the Mūlasarvāstivāda-Vinaya." Journal of the American Oriental Society 114, no. 4 (1994): 527–554.

Schopen, Gregory. Bones, Stones, and Buddhist Monks: Collected Papers on the Archaeology, Epigraphy, and Texts of Monastic Buddhism in India. Honolulu: University of Hawaii Press, 1997.

Sizemore, Russell F., and Swearer, Donald K., eds. Ethics, Wealth, and Salvation: A Study in Buddhist Social Ethics. Columbia: University of South Carolina Press, 1990.

Jamie Hubbard

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Usury. The lending of money at interest. The exacting of interest on loans to a fellow-Jew is forbidden in the Hebrew scriptures (Exodus 22. 24), including loans to a resident alien (Leviticus 25. 35–7) but it is permitted on loans to a ‘foreigner’ (Deuteronomy 23. 20 f.). In the Middle Ages, Jews were excluded from trade and craft guilds, and money-lending became a common Jewish activity. The Christian Church forbade usury to Christians in 1179, but the canon law did not apply to Jews. The stereotype of the Jew in the late Middle Ages was thus of an avaricious usurer (e.g. Shakespeare's Shylock, Marlowe's Barabbas).

For usury in Islam, see RIBĀ.

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usury laws. The idea that it is wrong to profit from lending money is found in the Old Testament, and was linked to the belief that there exists a just or fair price for every commodity. In the 4th cent. the church banned clerics from making loans to each other. In the reign of Charlemagne, this instruction was extended to include all Christians. But church doctrine did not forbid interest being paid as compensation for the use of capital tied in some venture. This double standard endured throughout the medieval period. The usury laws coexisted with the widespread acceptance that payment of interest was legitimate in some circumstances, such as by merchant banks on deposits.

Clive H. Lee

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usury lending money at interest XIV; (arch.) interest on money lent XV. — AN. *usurie = (O)F. usure or medL. ūsūria, f. L. ūsūra, f. ūsus USE; see -Y3.
Hence usurious XVII. So usurer XIII. — AN. usurer, OF. usureor, (also mod.) usurier; see -ER2.

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671. Usury

  1. Fledgeby cowardly and deceitful moneylender. [Br. Lit.: Our Mutual Friend ]
  2. Gride, Arthur extorting moneylender. [Br. Lit.: Nicholas Nickleby ]
  3. Milo loaned gold for huge interest rates and sexual favors. [Gk. Lit.: The Golden Ass ]
  4. Nickleby, Ralph avaricious and ungentlemanly moneylender. [Br. Lit.: Nicholas Nickleby ]
  5. Shylock shrewd, avaricious moneylender. [Br. Lit.: Merchant of Venice ]
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u·su·ry / ˈyoōzh(ə)rē/ • n. the illegal action or practice of lending money at unreasonably high rates of interest. ∎ archaic interest at such rates.