The Laws of Interest part 3 vol.3 no.3

If the lender collects interest prohibited by the Torah he is obligated to return the interest to the borrower. A Rabbinic court has authority to retrieve the money from the lender but they cannot collect from his possessions. However if the lender took the interest by force a Rabbinic court can collect from the lender’s possessions. There is a difference of opinion if the lender obtains ownership over the interest he collected, or if it has the status of a stolen object and he does not obtain possession. Therefore if the lender uses the interest in a transaction it is questionable if it is binding. If the borrower absolves the lender from returning the interest he is not obligated to return it.

If the lender died after collecting the interest the inheritors do not have to return the interest. However, if the interest was an object which would be easily identified they should return it for the honor of their father. This applies if he attempted to return the interest himself before he died.

If the lender collected the interest but part of the principal remained unpaid there is a difference of opinion if the borrower can subtract the interest paid from the remaining principal.
Borrowing items for items
Our Sages prohibited lending an amount of items for the same amount of items because the price may rise before payment and it would appear like the borrower is paying interest. It should be noted that lending items in this context means that an item is lent to the borrower to use as he wishes and he repays another in its place. There are those that are of the opinion that it is permissible to lend a small item like a loaf of bread for another loaf of bread. This is especially relevant to a staple item which is likely to retain a stable price during the normal lending period.

One who wants to borrow a number of items or an expensive item should evaluate the goods according to their present value and establish the loan as a monetary loan. This way if the price goes up the borrower can pay back money according to the present value or a lesser amount of goods equal to the present value.

If they did not evaluate the items and the price went up the lender is not allowed to accept the higher priced items. Rather he should take money or items of equal value to the items as they were at the time of the loan.

These restrictions only apply if the borrower does not have any items in his possession to replace the items he is borrowing. However if he has even a minimal amount of these items in his possession he can borrow as much as he wants without any restrictions. This can even be accomplished by the lender lending the borrower some of the goods prior to the loan. If the goods are owed to the borrower by some one else they are not considered in his possession.

This issue dedicated to the memory of Devorah Felstein of blessed memory.

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