And don't forget that there will be gear deterioration ...
Yea, this could definitely be a problem because the borrowing person might not repair the weapon or armor that they used, leaving the responsibility to the actual owner of that item.
I can definitely see a lot of disputes on this topic alone.
On the borrowing idea, I sort of like it but I sort of don't. The idea itself is sort of 'iffy', but I like the way the OP has implemented the hypothetical system.
The idea of letting the owner reclaim the item at any time, or at least give a prior warning that the item will be reclaimed shortly, is a good idea if the system were to exist. It could stamp out fraud if players were inclined to loan out their items.
Only once did I loan out an item to a friend, who needed my awesome sword to "kill a golem in a single blow". I lent it to him, but it took a few tries and lost some durability (permanently because then the NPC repairer failed). I didn't really mind though because I only used it for special occasions.
But I can definitely see repair cost disputes.
The other reason I don't really like the concept itself is because, as Zackary said, people should own their own items. That's the number one reason why I almost never lend out items or money. Not because I'm worried about being scammed, but because I feel that if "I had to work my **** off to get this item then so do you." Even if you're my friend. Otherwise people are going to be dependent on others and it will quickly turn into a "newbs depending on more experienced players for items and never learning how to do things on their own" game.
Then we'll have a game were people run around begging to borrow weapons and getting angry at higher leveled players when they disagree.
A: Hey, let me borrow that totally awesome sword! I need it to kill X monster on this quest.
B: No thanks, my team and I had to work for hours to earn this sword so I could do that quest.
A: Oh come on, I'll just "borrow" it.
B: The answer is still no. You'll have to earn it yourself.
A: Wow, what a loser! You can't even let me BORROW it?
A walks to a different part of town and spots someone else with said weapon.
A: Hey C, let me borrow that totally awesome sword!
C: Repeats cycle...
I've played enough games were beginners rely on others to do or get everything for them and I'm pretty tired of it. They need to learn how to get things themselves and do things for themselves (this includes looking for a group and working with
others toward a common goal, not just being 'handed' things), otherwise you're going to have a lot of level 75 (or FFXIV skill equivalent) players with still no idea how to really play and still relying on others.
Sort of like the cliche guy who borrows his parents car, their food, their basement, etc...and never really learns how to take care of himself.