Certified Regulatory Compliance Manager (CRCM) — Question 256

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?

Answer options

• A. Yes. It is a restraint of trade.
• B. Yes, unless the bank will reasonably allow additional credit at Mills's request.
• C. No, since this clause relates to the soundness of the credit
• D. No, unless the bank refuses to grant additional credit to Mills itself

Correct answer: C

Explanation

The correct answer is C because the clause is aimed at ensuring the financial stability of the loan rather than restraining trade. Options A and B misinterpret the purpose of the clause, and D incorrectly suggests that the bank's refusal would influence the legality of the clause.