Lakewood: First Bank to Ever Include Heter Iska

Zach Patberg of the Asbury Park Press reports: The heter iska procedure avoids outright interest collection by redefining the lender-borrower relationship as a partnership. One partner invests the money and the other manages the venture, according to financial and Jewish law experts. The borrowing partner then guarantees a percentage return on the investment. The rare problem, one bank founder said, was collateral: defaulting on the investment does not automatically entitle the investor to collect collateral since, as a partnership, both parties share the risk evenly. But one rabbi called that more of a technical than substantive problem.

Orthodox Jews are considered the driving force behind making Lakewood the fastest-developing town in the state.

Imagine what they could do with a little more borrowing power.

That was First Commerce Bank’s thinking when it applied to include in its lending structure a Heter Iska, which allows Jews to lend to other Jews without violating religious law against collecting interest.

It likely will be the first bank in town, if not the country, to formally incorporate the concept. It also reflects the growing prominence of Lakewood’s unique demography.

“We’re coming in at the right time to satisfy a niche,” said Abraham Penzer, a board member at First Commerce, which broke ground Nov. 10 at Madison Avenue and John Street. The bank is scheduled to open early next summer.

Virtually unheard of in the secular banking world and rarely used outside Israel, Heter Iska is only needed when a Jew borrows directly from another Jew or Jewish-run business.

“It’s not a common occurrence because it (a large bank like JPMorgan Chase) is a corporation and not necessarily one Jew lending to another,” said Ivan Brick, chairman of the Finance and Economics Department at Rutgers Business School.

The biblical law does, however, occasionally present a conflict, added Brick, who recalled when his own synagogue in Brooklyn withdrew its deposits from a bank that was mostly Jewish-owned.

With Lakewood’s growth – the township expects upwards of 230,000 people by 2030 – more Orthodox residents here are struggling to open fiscal doors while obeying Torah law, bank officials said.

“It creates a difficulty for them,” said C. Herbert Schneider, First Commerce’s president.

On the banking side, even several years ago, Lakewood branches such as First Washington were hurting for not having the loan alternative, said Schneider, who sold First Washington in 2004.

And it does have the potential to become a more popular practice, “if we’re talking about a community bank signing up in a mainly Jewish population,” Brick said.

First Commerce founders want to plant that stake. Despite being only about a third Orthodox, its board of directors flew to Israel to seek approval for a Heter Iska as a first step. Since then, the bank has raised $7.6 million in capital, with hopes to get $33 million from stock subscribers by the year’s end.

Rabbi Moshe Zev Weisberg, a community leader in Lakewood, described Heter Iska as a “great service” that has evolved from a perceived charity 200 years ago to an effective modern-day investment tool.

“The fact that they (First Commerce) are doing it in Lakewood suggests the banks are paying more attention to the Orthodox customers and want to satisfy what needs they have,” Weisberg said.

Yet Jews are just one customer base First Commerce hopes to draw from Lakewood’s melting pot. As Penzer half-joked, “Our bank is geared to want all your money.”

 {APP/Matzav.com Newscenter}