Thursday, December 04, 2008

A Fine Line Between Helping and Hindering

A recent guest poster wrote about an organization Mesila, which works with the Chareidi population to help instill healthy financial habits. After reading many of the Mesila profiles, as well as sorting through the various solicitation letters that arrive in my mailbox each year, I couldn't help but ask, is the lending, as it takes place now, helping or hindering families? (I think you can guess the answer).

It is very obvious to me that if the Feldman family, featured on the Mesila website, was forced to live on a cash budget from the inception of their marriage, and never had access to free loans, that they would have slowly built some financial footing, even if it was weak footing. Instead they borrowed their way into a personal hell. Their first interest free loan was taken to make a more upscale brit milah than they could afford. That loan was followed by numerous loans, including a gemach loan for which the funds were used to rent a car and a hotel or a summer vacation. The loans taken were certainly a hindrance.

The easy access to (interest free) cash for such purposes is rather astounding on its own. Obviously there is a need from reform, should free loan fulfill their purpose of helping. Borrowers with limited to no means are being extended loans that they will likely never be able to pay back. Lenders are left in the dark as there is no credit reporting system giving vital information about the borrower. In today's society one can run from one gemach to another, borrow from numerous grocers, bakers, and candlestick makers in numerous cities thanks to mass transportation. In the middle of a system is the klal, giving tzedakah with the intention to help, yet much of the funds end up falling into a black hole.

Chazal tells us that the interest from debt is like a snake bite, i.e. crippling. But the Torah certainly favors credit for positive purposes, commanding us to lend freely and generously to our brethren. And we also learn that debt must be repaid. I can't imagine that our sages would think it a good idea to lend money to those with hardly enough income to support their basic needs, so they could consume.

Paanomim's English diary has divrei Torah on the subject of lending. Rabbi Yaakov Ariel reminds us that the purpose of lending is to help a person achieve financial independence, “One who lends is greater than one who gives charity; even greater is one who provides merchandise with which to do business” (Shabbat 63a). He also warns of the danger of lending wrongly writing "Loans sometimes give the borrower the illusion that he has more money than he has, leading him to start living beyond his actual means. This could end up entangling him in debt, and possibly even financial collapse, Heaven forbid.A loan must not lead to financial misjudgment and misplaced spending. Loans must therefore be carefully supervised, for without proper guidance, they might not only not help, but could even lead to the exact opposite of its original intention."

Rabbi Ariel refers to a concept called a "taste for credit." One of the most targeted demographics for new credit cards are those who have bankrupted. Why? As Elizabeth Warren, a Harvard professor noted for her research on bankruptcy, notes in a documentary film that those who have bankrupted have a "taste for credit," yet cannot bankrupt again, making them a very profitable demographic to lend to.

Where is that fine line between helping and hindering? I hope to look at this subject more in future posts. But for now I think it is safe to conclude that at least some gemach lending is quite hurtful.


Anonymous said...

Why in the world are we allowing interest-free loans for a brit milah kiddush (let alone an upscale one), hotels, or summer vacations?

This is so mind-bogglingly stupid I can't believe it. Interest-free loans for luxuries. Crazy.

Somewhat Anonymous said...

The Chofetz Chaim in Ahavas Chesed discusses the standards for making loans (which he describes in glowing terms). In a nutshell, he says that loans should only be made to those who are (relatively) good credit risks and not to those who cannot pay back.

I think that to the extent loans are being made to help people in trouble , the loan needs to come along with assistance in the form of financial advising, budgeting, etc., otherwise as Rabbi Ariel says, the loan just becomes the source of more trouble down the line.