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?
The clause that Mills Company cannot obtain additional unsecured credit without the approval of the bank is designed to protect the financial stability and soundness of the original credit agreement. This type of clause is common in credit agreements to ensure that the borrower does not take on additional financial risk that could affect their ability to repay the existing loan. This does not constitute a violation of the Bank Holding Company Act's anti-tying clause because it is not an attempt to force the borrower to obtain other products or services from the bank; rather, it is a prudent financial measure to ensure the creditworthiness of the borrower.
The clause in the credit agreement stating that Mills Company cannot obtain additional unsecured credit without the approval of First National Bank could potentially violate the Bank Holding Company Act's anti-tying provisions. Tying arrangements, where one product or service is conditioned on the purchase of another, can violate antitrust laws by restricting competition. In this case, the bank may be leveraging its lending relationship to compel Mills to use its other financial services.