Ribbit Related to Penalty Clauses
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Many transactions involve a late fee if an obligation isn't repaid on time. The halacha considers such a penalty for late payment to be considered interest since it is a payment for the time-value of money.
- It is forbidden to charge or pay a late fee for a payment that is due. Having such a fee is a subterfuge of interest. It is forbidden even on a one time basis and all the more if the late fee is recurring.
- It is equally forbidden if it is a loan with a collateral.
- It is permitted to pay a late fee with a commodity and not cash. That doesn't have the appearance of paying interest.
- If someone agrees to give a complete gift and stipulates that if he doesn't give it at a certain date then he will add another gift that is permitted. However, once he completed his initial offer and is obligated to fulfill it, it is forbidden to then stipulate that if he doesn't fulfill it on time he will add a gift at a later date. This is relevant to dowries as well.
- It is permitted for a person to stipulate that if he doesn't deliver a product by a certain date he will have to pay a late fee. Even though generally late fees are considered like interest, it is permitted in the case of a sale since it isn't a loan in essence. Nonetheless, it is is only permitted to have a one time late fee. It would be forbidden to stipulate that at every week or any other interval that it isn't delivered there is an increasing late fee. Have such a recurring late fee is interest even with sales.
- Some only permit a late fee with a sale if it is structured such that after the late fee is incurred it can be paid immediately or over a certain period of time. If it is stipulated that the late fee once incurred is not due to be paid until a later date, some say that it is forbidden, while others permit it.
- Bet Yosef 177:14 cites a dispute between the Baal Hatrumot 4:32 and Ri Migash on the one hand, and the Rashba (teshuva 2:2, meyuchasot 221, 175) and Rabbenu Yerucham 16 on the other. The first group of rishonim held that it is permitted to have a late fee for a payment since it doesn't accrue over time. The second group says that it is forbidden because of it is a legal subterfuge around interest. Shulchan Aruch and Rama Y.D. 177:14 accept the Rabbenu Yerucham and Rashba.
- Bet Yosef and Darkei Moshe 177:16 cite a heter iska document of the Ri Morleans who constructed a loan document with interest and replaced interest with late fees being considered presents. Either way, the Bet Yosef completely disregards this suggestion and claims it is absolutely interest. The Shach 177:33 holds that it is biblical interest, while he also cites the Mabit who thinks it is only rabbinic interest.
- Shulchan Aruch Y.D. 177:17
- Rivash 335, Rama 177:14, Shach 177:30. There is a discussion if Shulchan Aruch agrees with this ruling. In Shulchan Aruch Y.D. 177:17 he forbids late fees with a loan such that the lender can keep the collateral which is worth more than the loan and seems to contradict this Rama. Shcah 177:35 tries to answer that Shulchan Aruch agrees with the Rama, however, with a collateral it is forbidden since it has more of the appearance of interest than a regular payment with commodities. Yet, even this would be permitted with a land collateral since it even less has the appearance of interest with land as there's no fixed price for land.
- Shulchan Aruch Y.D. 177:15, 176:6
- Shulchan Aruch Y.D. 177:18
- Chelkat Binyamin 177:164
- The Bach forbids, while Taz 177:23 permits. Shach 177:37 according to the old version forbids it, but according to the Chavot Daat 177:18's emendation permits it. Chelkat Binyamin 177:160 has a long discussion of this point and in conclusion is strict like the Taz as is the ruling of the Chachmat Adam 132:13.