Buying on Credit

From Halachipedia

Discounts

  1. Usually it is considered a rabbinic prohibition of taking interest to have a two tiered system in which the buyer could either pay a lower price now and receive the merchandise or can get the merchandise now and only pay later but at a higher price.[1]
  2. It is common in some businesses to require a deposit when a customer places a sale to ensure that the seller follows through with the sale. It is permitted for the seller to charge a lower price to the buyer who makes a deposit since the seller’s intent in requiring a deposit isn’t to charge interest but to ensure that the sale takes place.[2]
  3. It is forbidden to pay a camp an early bird special or discounted price if you pay early.[3]
  4. It is forbidden to pay for a sefer in advance before the printer published the sefer.[4]
  5. Using advanced discounted payments for a yeshiva or non-profit tzedaka organization is permitted since this is only a rabbinic form of interest.[5]

Buying on Credit

  1. Generally it is forbidden[6] to charge someone extra for buying on credit.[7]
  2. It is forbidden to make up a contract that if the buyer pays at the end he should pay a certain amount and if he wants he can pay earlier less.[8]
  3. Even if the two tiered pricing is set up that the on time payment is called a discount and buying on credit as the regular price that is still forbidden.[9]
  4. It is forbidden even if the seller doesn't need the money now and even if he is charging for buying on credit because it costs him more to buy from his suppliers on credit.[10]
  5. If in a certain market the majority or all of the sales are down on credit and the standard price is the credit price then it can established that the regular price is the credit price and paying up front can be discounted.[11]
  6. If a Jewish store has a different price for buying with a credit card than if you buy with cash it is forbidden to buy at that store with a credit card.[12]

Undetermined Price (Tarsha)

  1. If an item doesn't have a fixed price then one can charge more for it when the buyer pays later than the delivery date. The reason is that since there's no established price the seller can set the price of the item at the higher price that the buyer will pay later. However, if there is a market price that is known[13] or the seller specifies a price for the item if one wanted to pay now and another price for buying on credit it is forbidden.[14] Therefore, having a two tiered pricing system for buying regularly and buying on credit is interest and forbidden between two Jews.[15]
  2. Even when there's no clear price, the market hasn't established a price, and the seller didn't specify a price, the seller can only increase the price a little. There is a dispute as to this amount:
    1. Some say that the seller can only raise it to an amount that one could expect the price to rise by the time of the payment date. For example, if it is known that in the rainy season the price of umbrellas rise, and the price of umbrellas weren't fixed in the market, then one could have someone pay the price of the rainy season even though the umbrellas were bought in the dry season and they were delivered then. One couldn't charge a higher rate that wouldn't be expected to be the price of the market. We are strict for this opinion.[16]
    2. An alternate opinion to the first one is that the seller can charge up to the price that the market sometimes surges to when some event occurs if that event happens on a frequent basis.[17]
    3. Some say that the seller can raise it up to 20 percent above the range of prices in the market. If this is a stringency we follow this opinion.[18]
  3. If something doesn't have a clear price and the market price fluctuates frequently even if there is currently a market price it is considered eligible for the leniency of charging more for buying on credit as long as the seller doesn't specify a price for purchasing it up front.[19]
  4. If the price isn't clear and sometimes is sold for one price when sold in the market and another price when sold at a private home, it is permitted to charge a higher price when selling it at the private home even if the buyer is buying on credit.[20]

Limitation on Tarsha

  1. If the buyer's intention is purely to buy the item on credit in order to sell it immediately for a cheaper value that is considered a prohibited since it as though the cheaper price is stipulated as the value of the loan and yet he agreed to repay a higher amount.[21]

Prepayments to Reduce Cost

  1. A buyer and seller agreed upon a price for buying on credit and the sale was validated with a complete and formal acquisition. Then they renegotiate that if the buyer pays right away he doesn't have to pay as much that is permitted.[22]

Benefits of the Seller

  1. If a seller sells a product on credit he can't continue to use the product after he sold it. Doing so would be a form of interest since he sold the product he is entitled to be paid, therefore, letting the buyer pay later is a loan and the seller using the buyer's product is interest.[23]

Contracts with a Deliverer

  1. If one arranges with a middle man to purchase a product for cheap in one location and deliver it to him if he pays in advance there is a concern of interest since the middle man is working for the buyer because of the advanced cash. To permit this one could either take responsibility for the product once the middle man buys it[24] or pay the middle man a wage for his work.[25]
  2. If the arrangement is that if the middle man shouldn't use the money for himself then it is permitted since the middle man is merely an agent.[26]
  3. If a retailer gives his wares on credit to a peddler to sell in a place where the price is more expensive and he is going to return the amount that the wares are worth in that expensive place because the peddler can use the money before it is returned for investment, that is an issue of interest. Since the peddler is working on the behalf of the retailer to sell his wares for more money than they're worth where they are, and in return he is being given a loan it is interest. The way to solve this problem is by having the retailer pay[27] the peddler for his efforts and also take responsibility for the wares if they are lost, stolen, or otherwise.[28]

Return Policies

  1. If a seller has a regular return policy in which the buyer can use the item[29] and return it within a certain amount of time[30] or forever that is considered interest. Since the buyer has paid already and in the event that he returns it the sale is voided then we view the purchase money as a loan. Once the buyer has already used the item once and benefited from it if the seller returns him all his money the buyer is receiving interest upon his loan. This can be solved with one of two ways:[31]
    1. The language of the return policy should clearly state that if someone wants to return an item within a certain period of time the seller will buy it back. This language makes it evident that the original sale was complete and never voided even in the event that the buyer wants to return it.[32]
    2. The seller specifies that the buyer can't return it before a certain period of time.[33]
    3. According to most poskim one can rely on the first method. According to others one can rely on the second method. Ideally a person would use both languages to be strict for both sides.[34]
  2. Some poskim hold that since generally the fact that the seller lets the buyer use the product is merely in order to interest him in order buying it and there's no time-value of money because of the fact that the seller had the buyer's money in the meantime it is permitted with whatever language they use. However, even according to this opinion if it is a large sale and the time-value of money does play a role and the seller is interested in using the money of the buyer between the time of the sale and the return then it is problematic.[35]
  3. If someone sells a field or any product on condition that the seller can buy it back when he wants to that isn't a sale, rather it is considered a loan.[36] Therefore, it is forbidden for the buyer to use the field or product. Doing so would be either biblical interest or rabbinic interest.[37]
  4. After the original sale if the buyer decides on his own violation to let the seller buy it back, he can do so and he can even grant that right to the seller with an acquisition. That wouldn't invalidate the original sale and the buyer would be permitted to use that product.[38]

Discounted for Subscriptions

  1. A Jewish journal or magazine which offers a discount for those who purchase a subscription in advance should present it as the price for a year or half a year and not that it is the price for paying in advance. A newspaper which uses the money for investments should offer the subscriptions with a heter iska.[39]

Transactions Established with Interest

  1. If someone set up a transaction with interest, such as a sale with a later payment that included interest, the sale is valid in a way that doesn't require the payment of interest. This only applies if they did a formal kinyan. If there was no kinyan and it was only establish verbally then it is voided if it includes interest.[40]

Sources

  1. ↑ Shulchan Aruch YD 173:7, The Laws of Ribbis p. 132, Rav Hershel Schachter (Dinei Ribbis min 40)
  2. ↑ The Laws of Ribbis p. 133
  3. ↑ Rav Hershel Schachter (Dinei Ribbis approx min 40)
  4. ↑ Rav Hershel Schachter (Dinei Ribbis approx min 40)
  5. ↑ Rav Hershel Schachter (Dinei Ribbis approx min 40)
  6. ↑ Rambam Malveh Vloveh 8:1 clarifies that it is only rabbinically forbidden to charge more for buying on credit since it is presented as a sale not a loan. Shach 173:4 agrees. Brit Yehuda 12:2 based on Shach 173:6 writes that many poskim hold that it is considered biblical interest if they specified that there is a higher price for buying on credit.
  7. ↑ Gemara Bava Metsia 65a, Shulchan Aruch Y.D. 173:1, Brit Yehuda 12:1, Torat Ribbit 8:1
  8. ↑ Torat Ribbit 8:2
  9. ↑ Torat Ribbit 8:3
  10. ↑ Torat Ribbit 8:4
  11. ↑ Torat Ribbit 8:15 based on Imrei Yosher 1:107, Vaomer Yizchak YD 56, Bet Avi YD 131, Brit Yehuda 22:8, Kitzur Dinei Ribbit of Rav Shternbuch 7:7. He explains that since this market is paid on credit it is considered like a rental (see Shulchan Aruch Y.D. 175:6).
  12. ↑ Torat Ribbit 17:29 based on Shulchan Aruch Y.D. 173:1, Mishpatei Ribbit 1:26:6. The reason to forbid it is that when paying with a credit card the payment is delayed to the seller and certainly for the buyer. Therefore charging more for buying on credit is rabbinic interest. However, see Rav Yehuda Aryeh Diner in Mayim Chayim p. 28 who permits paying more with credit card since when there is a sale with a credit card it is effectuated and transferred to the seller immediately. It is only a loan between the credit card company and the buyer. Kuntres Ezrat Eliezer Ribbit p. 11 points out that in reality the money is not immediately transferred to the seller. creditcardprocessing.com describes it as taking between 24 and 72 hours. Rav Zeev Cohen in Kuntres Poalim BShabbat by Chicago Kollel p. 10 writes that there is no problem to charge extra for the credit card fee since the seller isn't charging less for buying on credit but rather because they are paid less by the credit card companies and to offset that they charge extra.
  13. ↑ Tosfot b"m 63b, Rosh b"m 5:22
  14. ↑ Gemara Bava Metsia 65a
  15. ↑ Shulchan Aruch Y.D. 173:1
  16. ↑ Baal Hatrumot 46:4:30 citing Ramban 65a s.v. amar, Rabbi Akiva Eiger 173:1, Shach 173:5, Chelkat Binyamin 173:28
  17. ↑ Chelkat Binyamin 173:28 citing the Sama 173:30 based on Rama 173:1
  18. ↑ Chelkat Binyamin 173:28
  19. ↑ Chavot Daat 173:3, Chelkat Binyamin 173:31
  20. ↑ Shulchan Aruch Y.D. 173:2
  21. ↑ The Ritva b"m 65a cited by Bedek Habayit 173 writes that if someone purchases a commodity on credit it is permitted if the price isn't clear. However, if the buyer immediately sells it for less it shows that the loan obligated him to pay more than the value of the item and is interest. Chatom Sofer YD 137 follows the Ritva and writes that one can't bring a proof from Shulchan Aruch 163:3 or Taz 163:6 who imply otherwise since they didn't have the Ritva.
  22. ↑ Shulchan Aruch Y.D. 173:3
  23. ↑ Rama 174:1
  24. ↑ Shulchan Aruch Y.D. 173:16
  25. ↑ Rama 173:16, Shach 173:33
  26. ↑ Shach 173:31, Chelkat Binyamin 173:181
  27. ↑ Bet Yosef 173:15 learns from the Rosh that the payment has to be a fair wage for such a delivery man. However, Taz 173:24 holds that it is sufficient to pay a minimal amount as we find by iska. Chelkat Binyamin 173:175 cites both opinions and doesn't resolve it. He also cites the Graz and Chavot Daat who follow the Taz and the Chachmat Adam who quotes both opinions. Avkat Rochel 5 s.v. umaata implies like the Taz.
  28. ↑ Gemara Bava Metsia 72b, Shulchan Aruch Y.D. 173:15
  29. ↑ Even though Shulchan Aruch Y.D. 174:1 which is the basis for this law is discussing real estate, it applies equally to movable items. This is pointed out by Laws of Interest p. 40 and Malveh Hashem 2:10:16
  30. ↑ Pitchei Teshuva 174:2 cites Bet Efraim YD 42 who contemplated the question of whether a sale that was on condition of return for a certain period of time if it would mature into a full sale after that time expired. He concludes that it isn't a complete sale either way.
  31. ↑ Laws of Interest p. 40
  32. ↑ Chavot Daat 174:1, Machaneh Efraim 13, Nodeh Beyehuda 2:75, and Kereti 168:10 and 18. Pitchei Teshuva 174:1 cites Nodeh Beyehuda. Har Tzvi YD 139 disagrees with the Chavot Daat because it is contradicted by the Ritva 63a. The dispute in essence is whether the language that the original sale be a complete sale and then later it should be sold back completely avoids interest or perhaps language isn't sufficient if the transaction as a whole results in a situation of interest and the Torah understands it to be a case of a loan. Chelkat Binyamin 174:7 cites many poskim on both sides and concludes that one who is lenient like the Chavot Daat has what to rely upon. Laws of Interest p. 40 also concludes that way. Horah Brurah 174:4 and Malveh Hashem 2:10:16 are strict. Brit Yehuda 28:8 cites the dispute but in fnt. 22 he writes that majority of poskim are strict. However, he cites the Mahara Sason 49 who is lenient when they specify that the original sale was complete as long as it is up to the buyer to decide whether or not to return it and in that case the original sale was a sale.
  33. ↑ Sama CM 207:11
  34. ↑ Laws of Interest p. 41
  35. ↑ Chelkat Binyamin 174:3. He cites Chut Shani ch. 13 and Kuntres Kitzur Dinei Ribbit Hametzuyim 9:5 to support this approach.
  36. ↑ Gemara Bava Metsia 65b, Rambam Malveh Vloveh 6:5, Rashba 3:435, Tur and Shulchan Aruch Y.D. 174:1. Netivot Shalom Ribbit 174:3:2 infers from the Taz that when Shulchan Aruch writes it isn't a sale he means that if the buyer ends up returning the item otherwise it is considered a complete sale.
  37. ↑ Shulchan Aruch 174:1 based on Rambam Malveh Vloveh 6:5 write that it is biblical interest to eat the fruit of a field that was sold conditionally. Shach 174:1 writes that those who hold that eating the fruit of a mashkon is only rabbinic interest would say the same in this case. See however, Rambam Malveh Vloveh 6:5-7 and Even Haezel 6:4 s.v. vheneh biyarnu who seem to imply otherwise. Taz 174:1 writes that those who think that interest that is conditional upon someone's choice, Sad Echad Bribbit, is rabbinic would deem this rabbinic as well.
  38. ↑ Rashba (Teshuvot Chadashot 1:85), Shulchan Aruch 174:2
  39. ↑ Malveh Hashem 1:9:40
  40. ↑ Shulchan Aruch Y.D. 175:8. Rosh Bava Metsia 5:19 quotes Rav Hai Goan to say that if one made a sale with ribbit the sale is valid; just one doesn't have to pay the ribbit.
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