Late Payment Losses

Question

  1. Benny borrowed $1000 from Yossi and gave him a post-dated cheque for
    repayment of the loan. When the repayment date arrived, Yossi duly
    deposited the cheque. A few days later he received a letter from his
    bank stating that the cheque had not been honoured and that he would
    have to pay a fee for the bounced transaction. May Yossi claim this
    fee from Benny in addition to repayment of the loan, or is this a form
    of interest?

  2. Hershel asked Fishel for a six-month loan. Fishel agreed, but warned
    Hershel that the loan must be repaid on time since he needs the money
    to pay for the matzos which he trades in before Pesach.
    Hershel made the required promise, adding that he would pay for any
    expenses incurred through late payment – but failed to keep it! As a
    result, Fishel had to take a bank loan, which cost him a lot of money
    in interest payments. Can Fishel reclaim the interest from Hershel,
    whose failure to pay on time caused him these expenses?

Answer

The Taz (Yoreh Deah 170, Note 3) rules
that even if the borrower promised to pay all expenses or damages caused
to the lender through late payment, he does not have to pay for interest
paid by the lender on a loan necessitated through delay in repayment.
Indeed, it would be forbidden for the borrower to make such a payment;
were such compensation to be paid, the lender would be obligated to return
it to the borrower.

The Rashba (Responsa, Vol. 3, No. 227) discusses a
similar case. The lender required prompt repayment of the loan, since the
cash was needed to acquire goods. The borrower undertook to compensate the
lender for any expenses or loss caused by late payment. Since repayment
was delayed, the lender was unable to purchase the merchandise and thus
lost an opportunity to make a profit. He therefore claims the lost profit
from the borrower. The Rashba ruled that even if there was no problem of ribbis,
there would be no obligation for the borrower to compensate the lender for
loss of profit. There is a basic difference between causing a person a
loss (to lose what he already has) and preventing him from making a
profit. The borrower had promised to reimburse the lender for any loss
that he may incur, but not to compensate him for loss of profit.
Furthermore, to compensate the lender for interest he had to pay on a loan
to cover the shortfall caused by delayed repayment is also forbidden. What
is interest, asks the Rashba? Surely it is compensation paid to the lender
for the fact that he was unable to make a profit with his money while it
was out on loan! If we are going to permit this borrower to compensate the
lender for loss of earnings, we might as well allow all lenders to charge
interest!

Rav Blau (Bris Yehudah, Chapter 2, Note 31)
explains that the Rashba wants to teach us not to draw a distinction
between loss of earnings during the agreed loan period and such loss
incurred by delay in repayment. One could argue that a lender implicitly
agrees to forego earning a profit with his money only for the time he
agreed to lend the money. The Torah tells him not to charge
interest, to which he agrees. However, if the borrower fails to repay the
loan on time, he is in fact preventing the lender from making a profit
against his will. The lender never agreed to forego such profits, and one
could therefore argue that he should be entitled to compensation. The
Rashba informs us that this distinction is invalid. No compensation for
loss of earnings can be claimed, even if such earnings were to be assured,
since the basis of ribbis is compensation for being unable to make
a profit.

Accordingly, in question (1) Benny must pay Yossi the
bank charges which were incurred through his failure to make prompt
payment. However, in (2), it is forbidden for Hershel to compensate Fishel
for the interest he had to pay on the bank loan.