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Ruling: [Last time we saw that the regular interest in this case could have been permitted but the punitive interest made the total interest too high.]
More fundamentally, interest as a penalty for late payment, which does not fit into the legal logic of a heter iska, is forbidden, as we shall explain. A penalty payment that increases by the day (as opposed to a one-time penalty) is classic ribbit, as it is agar natar (reward for waiting) (Shulchan Aruch, Yoreh Deah 177:16). The Rama (ad loc.) cites those who are lenient regarding a penalty, but most disagree, and the Shach (ad loc. 33) and the Shulchan Aruch Harav posit that it is a Torah-level prohibition. The Shach is lenient in the case where there is a heter iska, but Brit Yehuda (38:9) writes that this is only regarding a one-time penalty. While there might be room for leniency regarding a corporate entity, like a bank, here we are dealing with an individual, and therefore one must not be lenient in this case.
We calculate that after def’s last payment, he owed 33,237 NIS, which increased to 37,369 NIS by the time pl went to Hotza’ah Lapo’al. After this point, interest should no longer be accrued for two reasons. First, def should not have been expected to pay because pl sued for an exaggerated amount of money. Second, a heter iska is based on the expectation that the recipient is investing the money, whereas in a case in which the "lender" is demanding the money immediately, it is apparently forbidden to invest anymore, and therefore there is no justification for the amount to increase.
P'ninat Mishpat (832)
Beit Din Eretz Hemda - Gazit
681 - Limits of Interest Rate for Loan with Heter Iska – part I
682 - Limits of Interest Rate for Loan with Heter Iska – part II
683 - Limits of Interest Rate for Loan with Heter Iska – part III
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Beit Din Eretz Hemda - Gazit
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