Tying (commerce) - The Bank Holding Company Act's Anti-tying Provision

The Bank Holding Company Act's Anti-tying Provision

In 1970, Congress enacted section 106 of the Bank Holding Company Act Amendments of 1970 (BHCA), the anti-tying provision, which is codified at 12 U.S.C. § 1972. The statute was designed to prevent banks, whether large or small, state or federal, from imposing anticompetitive conditions on their customers. Tying, of course, is an antitrust violation, but the Sherman and Clayton Acts did not adequately protect borrowers from being required to accept conditions to loans issued by banks; and section 106 was specifically designed to apply to and remedy such bank misconduct.

Banks are allowed to take measures to protect their loans and to safeguard the value of their investments, such as requiring security or guaranties from borrowers. The statute exempts so-called “traditional banking practices” from its per se illegality, and thus its purpose is not so much to limit banks' lending practices, as it is to ensure that the practices used are fair and competitive. A majority of claims brought under the BHCA are denied. Banks still have quite a bit of leeway in fashioning loan agreements, but when a bank clearly steps over the bounds of propriety, the plaintiff is compensated with treble damages.

At least four regulatory agencies including the Federal Reserve Board oversee the activities of banks, their holding companies, and other related depository institutions. While each type of depository institution has a “primary regulator”, the nation’s “dual banking” system allows concurrent jurisdiction among the different regulatory agencies. With respect to the anti-tying provision, the Fed takes the preeminent role in relation to the other financial institution regulatory agencies, which reflects that fact that it was considered the least biased (in favor of banks) of the regulatory agencies when section 106 was enacted.