Analyzing Antitrust Issues in Lending

Although antitrust is rarely among issues practitioners who structure, document and enforce loans address, that field nevertheless does pose risks for lenders. Last month, for instance, a group of plaintiffs in a civil action against 16 banks embroiled in the ongoing LIBOR (London Interbank Offered Rate) controversy sought leave to file an amended complaint alleging that the banks conspired to rig LIBOR in violation of the Sherman Act,¹ and, in April, one of those banks agreed with the Department of Justice to pay a $150 million fine arising from a criminal LIBOR price-fixing violation of the Sherman Act.² These actions reflect what some say is a greater willingness by regulators, prosecutors and private parties to pursue antitrust violations in banking, after a more relaxed period of antitrust enforcement following the financial crisis.³ The LIBOR imbroglio has been well-publicized, of course, but other lending activities potentially giving rise to antitrust exposure remain under the radar. Today, we examine some antitrust issues that lenders may face in conducting their lending business.⁴

Background

The Sherman Antitrust Act of 1890⁵ and the Clayton Antitrust Act of 1914,⁶ together with the case law thereunder and the rules and regulations promulgated by the DOJ and the Federal Trade Commission, form the main body of federal antitrust law in the United States. The Sherman Act generally prohibits contracts, combinations or conspiracies in unreasonable restraint of interstate commerce, and explicitly prohibits monopolization and attempted monopolization. The Clayton Act expands upon the Sherman Act by (a) enumerating several additional categories of prohibited behaviors, including price discrimination, exclusive dealing arrangements, predatory pricing and certain mergers, and (b) providing a private right of action for violations under both acts. Courts interpreting the acts have distinguished between two types of violation: per se and Rule of Reason. Per se violations are proven by their mere existence—simply engaging in the proscribed conduct is illegal, regardless of the perpetrator’s motives or market power or the economic effects of its actions. The Rule of Reason, conversely, requires courts to consider those factors but to find a violation only where the behavior’s anticompetitive effects outweigh the freedom to contract.⁷ Notably, neither act distinguishes between enterprises in different industries; they apply to banks and other financial institutions as readily as to manufacturers or service companies. This makes sense, since the purpose of antitrust law—fostering competition—applies across industries. Moreover, §106 of the Bank Holding Company Act Amendments of 1970⁸ places an additional layer of antitrust regulation on banks. As detailed below, §106 broadens certain antitrust restrictions on banks while narrowing others.