Magazine article Business Credit

The Credit Team's Best Practices with the US Federal Antitrust Laws

Magazine article Business Credit

The Credit Team's Best Practices with the US Federal Antitrust Laws

Article excerpt

Consider the setting where a sales manager presents to the credit team an applicant requesting credit. The sales manager believes the applicant can be a significant source of revenue. The applicant is recently incorporated and the public information is limited as to the applicant's ability to pay on terms. The credit team's new account evaluation may include contacting industry group members, competitors and suppliers to assist in evaluating credit risk. What kind of information can be shared and what are the best practices regarding the form of information shared? What of a customer pushing back on normal terms and insisting on extended terms. May the credit team reject the request after consultation with a competitor that is also supplying the customer? What of the credit team reaching out to industry group members as to whether they have been approached by the customer requesting extended terms? What of the credit card paying customers? Is it legal to surcharge the interchange fee to one customer, while simultaneously waiving the surcharge for a like-classed customer? This article considers the federal antitrust laws, the Sherman Act and the Robinson-Pat man Act, and how these laws may impact the credit team at the various stages of the credit process.

Federal Antitrust Laws

The Sherman Act

The Sherman Act prohibits any person from contracting or otherwise conspiring to monopolize or restrain trade. The following may constitute illegal activity under the Sherman Act as they relate to the credit team:

* Agreement between competitors or credit group members to fix credit terms;

* Agreement between competitors or credit group members to "black list," or hold the customer to particular terms;

* Agreement between competitors to secure an outcome in a bidding situation; and

* Agreement between competitors to allocate geographic territories.

The Sherman Act is both a civil and criminal statute, punishable by fine and/or imprisonment. Individual violators may receive up to 10 years in prison and fines up to $1 million. Corporate fines are capped at the greater of $100 million or double the amount gained by the violators/the amount lost by the victims as a result of the illegal activity.

The Federal Trade Commission (FTC) and the US Department of Justice (DOJ) boast an impressive prosecution record, having collectively won 96% of the civil and criminal antitrust cases brought to trial from 2003-2012. (1) If civil action is taken, price-fixers are liable for treble damages. Between 1990 and 2008, private suits over price-fixing generated roughly $33 billion in awards and settlements (four times more than official fines for price-fixing during that same period). (2)

The Robinson-Patman Act (RPA)

The RPA, which amended Section 2 of the Clayton Act, bars discriminatory pricing. Vendors may not offer more favorable pricing to one customer without extending comparable prices all similarly-situated customers. Pricing under the RPA is not limited to the price charged for a particular product. Instead, pricing also includes:

* Credit terms;

* Discounts;

* Rebates;

* Promotional allowances; and

* Shipping terms.

The RPA requires that the vendor offer comparable pricing and terms to like-classed customers. For example, if a vendor lists one price for goods, and provides a discount to some, but not all like-customers, it may have engaged in discriminatory pricing. Another example is granting one customer free weight, while charging freight costs to another similarly-situated customer is price discrimination. A third example is imposing a surcharge on one credit card paying customer, while absorbing the surcharge for another like-classed customer (a favored customer). The RPA's scope is limited to tangible goods sold within the United States--it covers neither services nor export sales. …

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