Oh the questions they ask

Driving home today from the store little Prince ChatterBox decided to ask me how credit cards work. I explained to him as simply as I could, and of course he asked me a ton of questions. He then wanted to know how credit card companies in Israel make money, after I told him that if you don’t pay your balance they charge you interest. According to biblical law you cannot charge interest on a loan to another Jew.

I was stumped. How do the credit card companies and banks in Israel get around this prohibition? Anyone?

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  1. shorty says:

    i know there is a way around it by (ok i’m hoping some can explain it better) you lend money as an investment kind of thing. So you lend 100$ expecting 10 in return, so it isn’t really a lone technically. ok something like that anyway.

  2. Jess says:

    excellent question! especially since banks in israel charge you up the wazoo for every little thing. it’s actually quite a racket they’ve got going on.

  3. So, Shorty, what WOULD a loan be?

    • shorty says:

      i so don’t know all the halacha on this, but i *think* a loan should technically be lending out without interest (to a Jew). that being said, there is a lot of technicalities in all of this that i am completely ignorant of, i only know of bits and pieces.

  4. odm says:

    Heter iska sometimes. also, there are some (relatively few!) people who are careful not to go into overdraft with their bank for that reason.

  5. Dovid says:

    Smart kid! The issue is not only limited to banks in israel but also to a lot of Jewish owned banks and jewish investors here in the the States. The easies way out of it is that the MGMT signs what is called a heter Iska. For more on that in simple terms, have a look. http://www.jlaw.com/Articles/heter1.html

  6. anne says:

    I think credit card companies mainly live on the transaction fee they cash from the sellers (around 3,5% per transaction), and I suppose this is not against halacha.

  7. anne says:

    …and I suppose the interests they charge when debitors do not pay in time can be considered a sort of “fine” expressed in percent…

    …so I suppose this would be OK too, according to halacha…

  8. lady lock and load says:

    oh he is so smart and squishable!!! :)

  9. um, absolutely *fascinating* and amazingly smart that ti came from your little prince!

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