I. INTRODUCTION
The Bank Holding Company Act Amendments of 1970 added provisions to generally prohibit any practice in which either a state or national bank requires its customers to accept or provide some product or service or not deal with other parties so as to obtain a desired product or service of the bank. Exceptions to such “anti-tying” arrangements are allowed when either the two tiered products or services are loans, discounts, deposits or trust services available from the same bank or when the Federal Reserve Board has determined by order or regulation that a particular tying relationship is not contrary to law. Tie-In arrangements are prohibited for loans, discounts, deposits or trust services between a bank and its affiliated banks or other nonbank subsidiaries of the same bank holding company.
Section 106 of the Bank Holding Company Act Amendments of 1970 and § 225.7 of Federal Reserve Board Regulation Y govern these anti-tying restrictions. The intent of the law serves to prevent banks from using its loan products or other services to reduce competition, to compel customers to purchase unwanted products or services, or to prevent the purchase of such products or services from bank competitors.
II. TYING RESTRICTIONS
Section 106(b) provides that a bank will not, in any manner, extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of such products or services on the condition or requirement:
III. EXCEPTIONS TO ANTI-TYING RESTRICTIONS
The five anti-tying provisions of § 106(b) as listed above contain “other than . . .” language which is commonly referred to as the “traditional bank products exceptions.” For example, the exceptions contained in § 106(b) allow a bank to extend credit, sell or lease property, furnish services or vary prices if the customer: (1) obtains a loan, discount deposit or trust service from the same bank; (2) purchases another bank product or service related to and usually provided in connection with a loan, discount, deposit or trust service to the same bank; or (3) does not obtain additional products or services from bank competitors under a condition that is reasonably imposed in a credit transaction to assure the soundness of the credit.
Section 225.7(b) of Regulation Y lists four additional regulatory exceptions that the Federal Reserve Board has adopted to the anti-tying restrictions.
A. Traditional Bank Products
A bank holding company or any of its bank or nonbank subsidiaries may vary the consideration charged for a “traditional bank product” on the condition or requirement that a customer also obtain a traditional bank product from an affiliate. A traditional bank product is defined in § 225.7(d) to mean a loan, discount, deposit, or trust service.
B. Securities Brokerage Services
A bank holding company or its bank or nonbank subsidiaries may vary the consideration charged for securities brokerage services on the condition or requirement that a customer also obtain a traditional bank product from that bank holding company or bank or nonbank subsidiary, or from any affiliate of such company or subsidiary.
C. Discount on Tie-In Arrangements Not Involving Banks
A bank holding company or its bank or nonbank subsidiaries may vary the consideration for any extension of credit, lease or sale of property of any kind, or service, on the condition or requirement that the customer obtain some additional credit, property, or service from itself or a nonbank affiliate.
D. Safe Harbor for Combine-Balance Discounts
A bank holding company or its bank or nonbank subsidiaries may vary the consideration for any product or package of products specified by the company varying the consideration (i.e., “eligible products”), if:
The above-listed exceptions apply only if all products involved in the tying arrangement are separately available for purchase. These exceptions may be terminated should the Federal Reserve Board find the tying arrangements are resulting in anti-competitive practices.
Note that the “tying arrangement” law and regulation do not prohibit a bank from cross-marketing its products or services when a customer is merely made aware that such products or services are available from the bank or a bank affiliate.