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OCC BULLETIN 1995-20
To: Chief Executive Officers and Bank Counsels of all National Banks, Department and Division Heads, and all Examining Personnel

Description: Guidance on Tying

PURPOSE

This bulletin reminds national banks of their obligations under the anti-tying provisions of 12 U.S.C. 1972(1) and advises them to implement appropriate systems and controls that promote compliance with these provisions. Congress enacted the anti-tying provisions to keep banks from using bank credit and other services to coerce customers and reduce competition.

TYING RESTRICTIONS AND EXCEPTIONS

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:

  • Obtain an additional product or service from or provide an additional product or service to the same bank, its holding company, or another subsidiary of its holding company; or
  • Not obtain an additional product or service from competitors of the bank, its holding company, or another subsidiary of its holding company.

The anti-tying provisions provide exceptions to the prohibitions. These exceptions permit a bank to extend credit, lease or sell property, furnish services, or vary prices on the condition that the customer:

  • Obtain a loan, discount, deposit, or trust service from the same bank (this is commonly known as the "traditional bank product exception");
  • Provide an additional product or service related to and usually provided in connection with a loan, discount, deposit, or trust service to the same bank; or
  • Not obtain additional products or services from competitors if the condition is reasonably imposed in a credit transaction to assure the soundness of the credit.

The provisions also provide that the Board of Governors of the Federal Reserve System ("Board") may by regulation or order permit exceptions to the anti-tying prohibitions. The Board has issued 12 CFR 225.7, which includes the following exceptions:

  • Traditional bank products. A bank holding company or any bank or nonbank subsidiary may vary the price charged for a traditional bank product on the condition or requirement that a customer also obtain a traditional bank product from an affiliate.
  • Securities brokerage services. A bank holding company or any bank or nonbank subsidiary thereof may vary the price charged for securities brokerage services on the condition or requirement that a customer also obtain a traditional bank product from that bank holding company, bank, nonbank subsidiary, or any affiliate of such company or subsidiary.
  • Discounts on tie-in arrangements not involving banks. A bank holding company or any nonbank subsidiary thereof may vary the price 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.

The exceptions in 12 CFR 225.7 apply only if all products involved in the tying arrangement are separately available for purchase. For purposes of the regulation, "traditional bank product" means a loan, discount, deposit, or trust service.

National banks, operating subsidiaries of national banks, and federal branches and agencies of foreign banks must comply with the anti-tying provisions. Tying arrangements may violate other laws, including the federal antitrust laws, in addition to the anti-tying provisions.

PERMISSIBLE ARRANGEMENTS

The following are examples of arrangements that would be allowed under the anti-tying provisions.

  • A bank may cross-sell or cross-market products or services. A bank cross-sells when it informs a customer that other products or services are available from the bank or its affiliates.
  • 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.
  • A bank may reduce the price of securities brokerage services obtained from a broker-dealer affiliate for customers who obtain credit from the bank.

PROHIBITED TYING ARRANGEMENTS

The following are examples of tying arrangements that are prohibited by the anti-tying provisions, unless exempted by the Board.

  • A bank may not condition the extension of credit or the reduction of the price of credit on the customer purchasing credit-related insurance from the bank.
  • A bank may not condition the extension of credit on the customer obtaining securities underwriting services from the bank's "Section 20" affiliate.
  • A bank may not condition the extension of credit on the customer purchasing securities using a broker-dealer affiliate.
  • A bank may not condition the extension of credit on the customer purchasing other real estate owned ("OREO") from the bank.

RISK MANAGEMENT SYSTEMS

National banks should adopt and implement systems and controls to provide for adequate training of employees and to promote compliance with the anti-tying provisions.

Suggested systems and controls include, but are not limited to, provisions for:

  • Eliminating impermissible coercion when offering customers multiple products or services.
  • Training bank employees about the anti-tying provisions, including providing relevant examples of prohibited practices and responding to questions about tying.
  • Involving management in reviewing training, audit, and compliance programs to ensure full compliance with the anti-tying provisions.
  • Routinely updating the policies and procedures to reflect changes in products and services.

Suggested audit and compliance programs include, but are not limited to, provisions for:

  • Reviewing customer files to determine whether any extension of credit (loans, lines of credit, letters of credit, etc.) is conditioned impermissibly on obtaining another product or service from the bank or its affiliates.
  • Monitoring incentives that may encourage tying by bank employees, such as commission structures and fee-splitting arrangements between departments.
  • Responding to any customer allegations of prohibited tying arrangements.

ENFORCEMENT

The U.S. Department of Justice and the OCC may initiate actions to remedy violations of the anti-tying provisions by national banks. In addition, customers or competitors, who suffer injury to their businesses or property due to violations, may (1) pursue a civil suit for treble damages for those injuries and attorneys fees and (2) sue for injunctive relief against threatened loss or damages resulting from violations of the anti-tying provisions.

ADDITIONAL INFORMATION

For further information, contact the Office of the Chief National Bank Examiner, (202) 649-6670, or the Securities and Corporate Practices Division, (202) 649-5510.

Jimmy F. Barton
Chief National Bank Examiner