Section 106(b) of the Bank Holding Company Act Amendments of 1970 generally prohibits a bank from tying a product or service to another product or service offered by the bank or any of its affiliates. Although banks, like their nonbank competitors, already were subject to general antitrust prohibitions on tying, Congress concluded that special restrictions were necessary "to provide specific statutory assurance that the use of the economic power of a bank will not lead to a lessening of competition or unfair competitive practices." See S. Rep. No. 1084, 91st Cong., 2d Sess. 16 (1970).

The GAO report, entitled "Bank Oversight: Few Cases of Tying Have Been Detected," looks at banks' compliance with the tying provisions and how the provisions are viewed by financial industry representatives. GAO reported that OCC and Federal Reserve examiners followed required procedures, but the parts of examinations or inspections devoted to tying were "less extensive than other portions" and that only one tying violation had been identified during regulators' routine examinations of banks or inspections of bank holding companies since 1990. From January 1990 to September 1996, regulators received and investigated 13 tying-related complaints, only 3 of which resulted in actions against the bank or holding company. Only one of these included a $10,000 civil penalty. A 1992 complaint prompted the Federal Reserve and OCC to launch a special investigation, which found 24 suspicious transactions out of 344 reviewed, but only one transaction resulted in regulatory action: a loan officer tried to force a customer to select the bank's securities affiliate to manage the placement of a revenue bond issue. The bank got off with a slap on the wrist: it was merely required to promise the Fed to strengthen its policies, procedures, and internal compliance program. No penalty was imposed.

Some respondents suggested that the results showed there was little tying going on as a result of the laws' deterrent effect. Others pointed to the difficulty in finding documentation to support allegations of tying -- most violators are not dumb enough to put it in writing -- and to consumers' reluctance to make formal complaints for fear of retribution by the banks.

Dingell issued the following statement:

"The Bank Holding Company Act's tying provisions were enacted to safeguard consumers from being strong-armed by banks into obtaining unwanted products or services as a condition of obtaining credit or other desired products or services. The banking industry's position in the U.S. credit market is still strong. As banks continue to expand the array of products and services offered, the tying prohibitions become more not less important both to protect consumers and to prevent unfair competition. As OCC noted: "We believe that the tying provisions are important. They serve as a reminder to banks of their responsibilities to their customers." I am concerned about the apparent lack of regulatory vigor in this area and hope that these concerns can be addressed in any final financial modernization legislation."

Note: Copies of the report (GAO/GGD-97-58) are available through GAO at 202/512-6000.

Back to the Public Record Home Page