Mills Company, Inc., is a manufacturing company with a working capital line of credit from First National Bank. The credit agreement governing the loan states that
Mills cannot obtain additional unsecured credit without the approval of the bank. Mills believes that such a clause violates the Bank Holding Company Act's anti- tying clause. Does it?
Click on the arrows to vote for the correct answer
A. B. C. D.C
The Bank Holding Company Act (BHCA) is a federal law that regulates the organization, ownership, and operations of bank holding companies and their non-bank subsidiaries. One of the provisions of the BHCA is the anti-tying provision, which prohibits banks from engaging in certain tying arrangements that restrict competition.
In this case, Mills Company, Inc. has a working capital line of credit from First National Bank. The credit agreement governing the loan includes a clause that prohibits Mills from obtaining additional unsecured credit without the approval of the bank.
Mills argues that this clause violates the anti-tying provision of the BHCA. The question asks whether this is the case.
Option A suggests that the clause is a restraint of trade and therefore violates the anti-tying provision. However, this is not necessarily the case. The anti-tying provision prohibits tying arrangements that restrict competition, but not all tying arrangements are illegal. It depends on the specific circumstances.
Option B suggests that the clause would only violate the anti-tying provision if the bank unreasonably refuses to grant additional credit at Mills's request. This is closer to the mark. The BHCA does allow banks to tie credit, as long as it is not done unreasonably and does not result in a substantial lessening of competition.
Option C suggests that the clause is permissible because it relates to the soundness of the credit. This is also a plausible argument, as banks have a legitimate interest in protecting their financial interests and ensuring that borrowers do not take on too much debt.
Option D suggests that the clause would not violate the anti-tying provision unless the bank refuses to grant additional credit to Mills itself. This is not accurate, as the BHCA prohibits tying arrangements that restrict competition, regardless of whether the bank grants additional credit to the borrower or not.
In conclusion, the best answer is probably Option B: the clause would only violate the anti-tying provision if the bank unreasonably refuses to grant additional credit at Mills's request. However, there are plausible arguments for both Option C and Option D as well.