Are all tying arrangements prohibited under the Bank Holding Company Act?

Part 225, Bank Holding Companies and Change in Bank Control (Regulation Y) (“Regulation Y”). Section 106(b) of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. § 1972) generally prohibits a bank from tying a product or service to another product or service offered by the bank or any of its affiliates.

What is Section 106 of the Bank Holding Company Act?

Section 106 prohibits a bank from requiring that the customer purchase homeowners insurance (the tied product) from the bank or an affiliate of the bank as a condition to granting the customer the mortgage loan or a discount on the loan.

What Reg is anti-tying?

In 1997, the Federal Reserve Board modified Regulation Y (which includes the anti-tying provisions) to eliminate the provision that formerly subjected bank holding companies and nonbanking subsidiaries to the same anti-tying restrictions as apply directly to the banks.

Why were the anti-tying regulations enacted?

Congress enacted the anti-tying provisions to keep banks from using bank credit and other services to coerce customers and reduce competition.

What are the results of tying arrangements?

One effect of tying can be that low quality products achieve a higher market share than would otherwise be the case. Tying may also be a form of price discrimination: people who use more razor blades, for example, pay more than those who just need a one-time shave.

What is a tie in sale?

A tie-in sale or lease is ordinarily defined as one in which the seller of the ‘tying’ good requires that one or more other goods used with the tying good also be purchased from him.

What can trigger an anti tying risk?

In order to prevail on a claim for a violation of the anti-tying restrictions, the borrower needs to show three things: (1) the bank conditioned the extension of credit upon the borrower’s obtaining or offering additional credit, property, or services to or from the bank or its holding company; (2) the arrangement was …

What is regulation W?

Regulation W is a U.S. Federal Reserve System (Fed) regulation that limits certain transactions between depository institutions, such as banks, and their affiliates. In particular, it sets quantitative limits on covered transactions and requires collateral for certain transactions.

What is a tied product?

(1) (other than where (2) applies) a product, other than linked borrowing or a linked deposit, that a customer is obliged to purchase through a mortgage lender or reversion provider as a condition of taking out a regulated mortgage contract or home reversion plan with that firm; or.

Is product tying illegal?

Overview. Tying arrangements are not necessarily unlawful. Antitrust concerns are raised by tying arrangements to the extent that they are used to maintain or augment the seller’s pre-existing market power or impair competition on the merits in the market for the tied product.

Why is tying good for society?

Tying may result in lower production costs. It may also reduce transaction and information costs for consumers and provide them with increased convenience and variety. The pervasiveness of tying in the economy shows that it is generally beneficial–it could not survive in competitive markets if it were not.

What are some examples of anti tying restrictions?

Thus, for example, the statute prohibits a bank from conditioning the availability of a loan from the bank (or a discount on the loan) on the requirement that the customer also purchase an insurance product from the bank or an affiliate. [ 2]

Why did Congress pass the anti tying law?

Congress enacted the anti-tying provisions to keep banks from using bank credit and other services to coerce customers and reduce competition. The anti-tying provisions of 12 U.S.C. 1972 (1) generally prohibit banks from extending credit, leasing or selling property, furnishing services, or varying prices on the condition that the customer:

What do banks need to know about tying restrictions?

A bank may require, as a condition to extending credit, that the customer obtain financial advisory services from an unrelated third party in an effort to improve the customer’s financial condition. A bank may reduce charges for credit for customers who obtain trust services from an affiliate.

Can a tying arrangement violate antitrust laws?

Tying arrangements may violate other laws, including the federal antitrust laws, in addition to the anti-tying provisions. The following are examples of arrangements that would be allowed under the anti-tying provisions.