The Bank Holding Company Act’s Anti-Tying Provision: Almost 50 Years Later

 By Timothy D. Naegele[1]

The way that you bank is about to change, in ways you cannot fathom today.

The title of this article is also the title of a new law review article of mine—the third in a series for the esteemed, almost 130-year-old Banking Law Journal—which discusses the changes that are occurring.[2]  To protect those who deal with banks and other financial institutions, Congress enacted the anti-tying provision of the Bank Holding Company Act in 1970, which I wrote as a young attorney when I was counsel to the U.S. Senate’s Committee on Banking, Housing, and Urban Affairs.  The law established per se illegality for predatory tying on the part of such banks and other financial institutions.[3]

One commentator has noted:

[B]ankers looking at a wealth of new products have their eye on Section 106 of the Bank Holding Company Act Amendments of 1970, otherwise known as the Anti-Tying provision. This law bars a bank from providing or pricing one financial product on the condition that a customer commit to another, unrelated product.  . . .

As banks learn more and more about their customers and begin to build new products and packaged offerings, anti-tying laws will become increasingly dangerous. Institutions that can successfully navigate this law will be able to offer new, data-driven services, making mortgage offers to consumers who’ve just begun looking, or offering financial advice to households that may not even realize they’re in trouble yet.

Banks which are not careful, however, can very easily find themselves offering packaged deals that will bring the [regulators and/or litigators] calling.

Technology is about to change the way retail banking works, as long as they can stay on the right side of the law.[4]

More foreign entities are likely to enter U.S. markets, and do everything imaginable to escape the reach of American laws such as the anti-tying provision. This has been happening already. And at least one prominent U.S. District Court has looked the other way, with respect to (1) a California plaintiff, (2) a bank incorporated under the laws of Australia that maintained representative offices in Houston, (3) where “decisions” were made ostensibly in London.[5]

The anti-tying provision remains an effective tool that provides treble damages and other financial rewards to those who have been injured by the misconduct of banks and other financial institutions.

© 2018, Timothy D. Naegele

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[1]  Timothy D. Naegele was counsel to the United States Senate’s Committee on Banking, Housing, and Urban Affairs, and chief of staff to Presidential Medal of Freedom and Congressional Gold Medal recipient and former U.S. Senator Edward W. Brooke (R-Mass). He and his firm, Timothy D. Naegele & Associates, specialize in Banking and Financial Institutions Law, Internet Law, Litigation and other matters (see www.naegele.com and Timothy D. Naegele Resume). He has an undergraduate degree in economics from the University of California, Los Angeles (UCLA), as well as two law degrees from the School of Law (Boalt Hall), University of California, Berkeley, and from Georgetown University. He served as a Captain in the U.S. Army, assigned to the Defense Intelligence Agency at the Pentagon, where he received the Joint Service Commendation Medal (see, e.g., https://en.wikipedia.org/wiki/Commendation_Medal#Joint_Service). Mr. Naegele is an Independent politically; and he is listed in Who’s Who in America, Who’s Who in American Law, and Who’s Who in Finance and Business. He has written extensively over the years (see, e.g., www.naegele.com/whats_new.html#articles), and can be contacted directly at tdnaegele.associates@gmail.com

[2]  See Timothy D. Naegele, The Anti-Tying Provision: Its Potential Is Still There, 100 BANKING L. J. 138 (1983) (Naegele 1983) [http://www.naegele.com/articles/antitying.pdf]; Timothy D. Naegele, The Bank Holding Company Act’s Anti-Tying Provision: 35 Years Later, 122 BANKING L. J. 195 (Naegele 2005) [http://www.naegele.com/documents/antitying_3.pdf]; Timothy D. Naegele, The Bank Holding Company Act’s Anti-Tying Provision: Almost 50 Years Later—Part I, 135 BANKING L. J. 315 (June 2018) (Naegele 2018, Part I) [Timothy D. Naegele-Part I]; Timothy D. Naegele, The Bank Holding Company Act’s Anti-Tying Provision: Almost 50 Years Later—Part II, 135 BANKING L. J. 372 (July/August 2018) (Naegele 2018, Part II) [Timothy D. Naegele-Part II] [The combined article, which was printed as Parts I and II, can be read by clicking on this link: Timothy D. Naegele Banking Law Journal]. See also Timothy D. Naegele, Are All Bank Tie-Ins Illegal? 154 BANKERS MAGAZINE 46 (1971) (Naegele 1971) [http://www.naegele.com/articles/banktieins.pdf]; and Naegele 2018, Part I, p. 318 n.3 (“[T]hose within the Federal Reserve System (‘Fed’) tried to weaken [the anti-tying provision] with a proposed ‘interpretation’ [that the Fed never adopted . . . and wisely so]”) (see also OP-1158_56_1 [letter sent by Timothy D. Naegele to each member of the Federal Reserve Board (March 16, 2005), and Timothy D. Naegele, Fed Plan Would Simply Gut Enforcement Of Ban on Tying, AMERICAN BANKER (January 21, 2005)]); and Timothy D. Naegele, Standby Letters of Credit And Other Bank Guaranties, Compendium Of Major Issues In Bank Regulation, Committee On Banking, Housing And Urban Affairs, United States Senate 621 (May 1975) [Naegele-Standby Letters of Credit And Other Bank Guaranties].

[3]  It is the only American law that was adopted expressly to prevent such predatory tying arrangements by banks and other financial institutions.  The Sherman and Clayton Acts were deemed inadequate to address such problems.  See, e.g., Naegele 2018, Part I, p. 335 (“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. Section 106 was specifically designed to apply to and remedy such bank misconduct”).

[4]  See Eric Reed, “How to Make the Most Money From Your Bank in 2018,” TheStreet (Feb 15, 2018) (emphasis in original) [https://www.thestreet.com/story/14489253/1/how-to-make-the-most-money-from-your-bank-in-2018.html]; see also Naegele 2018, Part I, n.2.

[5]  See Signal Hill Service, Inc. v. Macquarie Bank Limited, 2013 U.S. Dist. WL 12244056 (C.D.Cal. June 12, 2013); see also Naegele 2018, Part II, n.78-95.

The exceptions to the Anti-Tying Provision are not the eye of a needle through which a “herd of camels” can or should be driven.  Yet, this is what some misguided and wrongly-decided court decisions would lead us to believe.