A person who lends money to another Jew on interest transgresses six Torah prohibitions. The Torah introduces the prohibition against lending on interest in five instances (twice in Shemot 22:24, once in Vayikra 25:36, and twice in Vayikra 25:37), and lending on interest entails as well a violation of "Lifnei Iver Lo Titen Michshol" (Vayikra 19:14), the prohibition against causing others to sin. As the Torah forbids borrowing on interest, as well, one who lends on interest in effect causes the borrower to violate the Torah, and he is thus liable for "Lifnei Iver," in addition to the prohibitions against lending on interest. (See Rabbi Moshe Halevi's "Milveh Hashem," page 29)
The borrower is in violation of the prohibition of "Lo Tashich" (Devarim 23:20) – borrowing on interest – as well as "Lifnei Iver," in that his acceptance of the loan causes the lender to transgress the Torah. ("Milveh Hashem," page 42)
Furthermore, all other parties participating in the loan may likewise be in violation of the Torah prohibition of "Lifnei Iver." This includes the one who draws up the contract, the witnesses who sign the contract, and any agents or lawyers involved in arranging or overseeing the loan. The level of their transgression depends on the circumstances. If the loan could not have taken place without their involvement, then these parties indeed transgress the Torah prohibition of "Lifnei Iver." If, however, the loan would have given even without their participation, then they do not transgress "Lifnei Iver," but they nevertheless violate the Rabbinic prohibition of "Mesayei'a Li'dvar Aveira" – taking part in a Torah violation. ("Milveh Hashem," page 45)
If somebody did lend to another Jew on interest, he obviously cannot collect the interest despite the arrangement he made with the borrower. He is, however, entitled to the principal amount that he lent, though his ability to collect will depend on the particular circumstances. If the borrower admits to owing the sum, then he must certainly pay the lender that sum. If the borrower denies the debt, and the lender produces the contract as evidence to the loan, the contract is not necessarily valid. Since the witnesses committed a violation by signing this contract, they become disqualified as witnesses and the contract is thus worthless. The contract is valid only if the witnesses were unaware when they signed that their involvement in this loan constitutes a violation. In this case, since they did not intentionally violate Halacha through their participation, their signing does not disqualify them as witnesses and the contract is perfectly valid. Thus, the lender is entitled to collect the principal only if the lender admits to owing the money, or if the signatories were unaware that their participation violated Torah law. ("Milveh Hashem," page 61)
(Based on Rabbi Moshe Halevi's "Milveh Hashem," chapter 2)
Summary: Halacha forbids lending or borrowing money on interest, or participating in any way in such a loan, such as by drawing up the contract, or serving as a witness, agent or lawyer for one of the parties. If a person did lend on interest, he may not collect the interest. He may collect the principal amount if the borrower admits to owing the money; if the borrower denies the debt, the lender can prove his case with the contract only if its signatories were unaware when they signed that their participation violated Torah law.
