Understanding antitrust laws for credit managers

The American Industrial Revolution, spanning the late 18th and 19th centuries, marked a shift from manual labor to industrialization, leading to the rise of big businesses and the formation of monopolies. This era also gave birth to antitrust laws aimed at preventing businesses from gaining too much power.

Why it matters: Antitrust actions can have significant implications for defendants, industries and the economy. As a credit professional, understanding antitrust laws is paramount for protecting your company’s interests and ensuring regulatory compliance.

A History of Antitrust

Antitrust laws originated from concerns about excessive economic power being concentrated in a few hands. Between 1895 and 1984, thousands of manufacturing firms merged into just 157 corporations. These laws promote free and fair competition, allowing businesses to compete on price and quality without anticompetitive restrictions. Additionally, they prevent businesses from engaging in practices that can harm other businesses while consumers benefit from lower prices, more choices and better-quality products.

The first antitrust law, the Sherman Antitrust Act of 1890, empowered the federal government to dissolve monopolies and prevent actions in restraint of trade. Over time, additional laws came to be, such as:

• Clayton Act: Passed in 1914 to amend the Sherman Act, this act promotes fair competition and prevents unfair business practices that could harm consumers.

• Federal Trade Commission Act (FTCA): Passed in 1914, this act prohibits unfair methods of competition and deceptive acts and practices.

• Robinson-Patman Act: Passed in 1936, this act protects businesses from being driven out of the marketplace by prohibiting discrimination in pricing of the sale of commodities, promotional allowances and advertising. It also protects small businesses, who are usually unable to buy in against large competitors.

• Antitrust Procedure and Penalties Act (Tunney Act): Promotes transparency and ensures judicial review of certain antitrust settlements. Passed in 1976 and named after Senator John Tunney, the law regulates how the U.S. Department of Justice (DOJ) settles antitrust cases, particularly proposed consent decrees where agreements are reached without a trial.

As antitrust laws evolved, their implications for industries and business practices, especially credit, became more significant. For instance, the Sherman Antitrust Act explicitly prohibits “price fixing,” meaning that competitors cannot agree to set prices for their products at a certain level, effectively eliminating competition within a market. It defines price fixing as an agreement, whether it’s written, verbal or implied.

Price fixing relates not only to prices, but also to other terms that affect prices to purchases, such as credit terms, shipping fees, warranties, discount programs or financing rates, per the Federal Trade Commission (FTC). “Since we set, maintain and have access to our customers’ credit terms, and because the Supreme Court rules that terms are part of price, it is up to us to obey these laws,” said Brendon Misik, CCE, CICP, senior manager of AG credit at PCS Admin USA Inc. (Nutrien) (Deerfield, IL).

The antitrust case that determined that credit terms equals price is Catalano Inc. v. Target of 1967, after a group of competing beer wholesalers, including Target Sales, Incorporated, simultaneously stopped extending interest-free credit to beer retailers. Retailers like Catalano, Inc., could previously order beer on interest-free credit for up to 42 days. Credit terms varied among wholesalers, creating competition.

Shortly after, the beer retailers sued, alleging that the wholesalers’ mutual decision to stop extending credit was due to an anticompetitive agreement. They sought to have this conduct declared a per se violation of the Sherman Antitrust Act. The district court denied their motion and referred the matter to the Ninth Circuit, which ruled that competitors fixing credit terms is not a per se antitrust violation. The U.S. Supreme Court agreed to hear the case.

Implications for Credit Professionals

Credit professionals can violate antitrust laws by engaging in activities like price-fixing, market allocation, group boycotts or price discrimination, particularly when discussing or agreeing on credit terms with competitors.

Violations have occurred in the past in informal settings like golf courses, where sharing sensitive information or unintentionally swaying a credit decision led to anticompetitive behavior. “When discussing customers (or even just sending out references) it is important not to discuss credit terms, especially when we attend industry trade group meetings,” Misik said.

Breaking antitrust laws can result in civil penalties, criminal penalties and injunctive relief, which can significantly harm your company. “The law prohibits general discussions about whether to do business with a customer or not, or an involuntary petition in bankruptcy,” Wanda Borges, Esq., member at Borges & Associates, LLC (Syosset, NY), said during an NACM webinar, Antitrust Compliance: Debunking the Myth and Revealing the Realities. “[You can’t talk about] market or territory allocation as well as future intention.”

Best Practices

Everyone in a meeting risks an antitrust violation if any member breaks these laws, even if they’re not discussing terms. Here a just a few tips to ensure compliance and avoid violations of antitrust:  

Get it in writing: Credit professionals can enforce antitrust compliance by having all participants sign a statement saying they agree to adhere and abide by all antitrust regulations. Reading it aloud before each meeting serves as a verbal reminder to all in attendance what can and cannot be discussed. You can refer to this statement in an antitrust allegation.

Speak up and leave: By leaving the meeting or making it clear they are uncomfortable with certain discussions, credit managers demonstrate their commitment to compliance with antitrust laws, reducing the risk of liability. It also serves as a reminder to others about the importance of staying within legal boundaries. “Just mention that you are not comfortable with their statement(s) because you feel that it violates the trust,” said Christian Pedersen, CCE, corporate credit manager at Emcor Services Aircond (Smyrna, GA).

Work closely with sales: Salespeople often engage in discussions that could unintentionally lead to violations, such as price-fixing, bid-rigging or market allocation. Training them on antitrust laws ensures that they understand the legal boundaries when interacting with competitors, customers and suppliers.

“Often, with smaller companies, they don’t send references directly to the credit manager; instead, they send them to the location,” said Kevin Stinner, CCE, CCRA, credit manager at J.R. Simplot Company (Loveland, CO). “It’s important to train your sales staff to let the credit department handle those requests because we’ve had the proper training on what we can and can’t say on those references. Plus, it removes the emotion from the process because sales tends to have an emotional attachment to the customer, whereas credit professionals may not. For that reason, I always try to get myself invited to sales training sessions.”

Refer to the DOJ: The Antitrust Division of the DOJ, established in 1933 under President Franklin D. Roosevelt’s administration, has enforced and provided guidance to businesses on antitrust laws and principle.  

Invest in education: Credit professionals can receive in-depth antitrust training through NACM’s law courses and the modules available in the Credit Learning Center. NACM webinars provide its members with up-to-date information on antitrust compliance.

The bottom line: Today, almost every state has independent laws prohibiting monopolies, contracts, conspiracies and combinations in restraint of trade. Make it a priority to stay ahead of evolving antitrust regulations to safeguard your company’s long-term success.