Wanda Borges Explains Anti-Trust Issues and Why CMA Industry Credit Groups Exist

Those who attended a past CMA webinar learned some valuable information on how to steer clear of possible violations of anti-trust laws. The session, entitled “Navigating the Antitrust Rules: Myths To Dispel And Realities To Understand,” was presented by Wanda Borges, Esq., of Borges and Associates, LLC, who is an advisor to CMA on a range of legal issues relevant to business credit.

Borges discussed the three main federal statutes that pertain to antitrust and restraint of trade practices. They are the Sherman Antitrust Act of 1890, the Clayton Act of 1914, and the Robinson-Patman Act of 1936. She said the Sherman Antitrust Act prohibits contracts, combinations and conspiracies in restraint of trade in interstate commerce or with foreign nations. The act makes it a felony to conspire to restrain trade; or to monopolize (or attempt to monopolize). The Clayton Act was passed, she noted, to correct defects in the Sherman statute and further makes it unlawful to enter into any of several specified types of prohibited transactions whose purpose or
effect would be to restrain trade or injure a competitor. Robinson-Patman was partially an amendment to The Clayton Act, making it unlawful to “discriminate in price between different purchasers of commodities of like grade and quality” or knowingly to induce or receive a prohibited discrimination in price. She added that violations of this act could result in civil or criminal penalties.

Credit terms are tantamount to price, Borges noted, according to a 1980 Supreme Court decision. “Anytime you fix or adjust credit terms you are fixing a price,” Borges said. She pointed out that allowing a customer to pay in 30 days gives that customer the use of that money for that period and is of monetary value. “There is a big difference between C.O.D. and credit terms.”

In determining if an action constituted a conspiracy to commit an action that resulted in a restraint of trade, Borges pointed to four elements that must exist. There must be knowledge of all the parities, a common purpose, an actual restraint of trade and intent to restrain trade. She presented an actual example—where a movie distributor, in a written communication to 7 movie theaters, required a $2 increase in movie ticket prices in order to continue
getting first-run movies. She noted that six of the theaters complied by raising their prices while the seventh resisted and sued the other theaters and distributor for restraint of trade. The argument presented to the court by that
theater was that the economic status of the neighborhood in which the plaintiff’s theater was located could not sustain a ticket price increase. Therefore, the ticket price increase would render the theater incapable of
presenting first-run movies. The court ruled that the arrangement was a restraint in trade by the defendants. “You have to watch very carefully you don’t get roped into a conspiracy…,” Borges advised.

“You always have to keep in mind what price fixing is all about,” she said. “You have to charge the same prices to same quality customers.” She noted that different terms could be set for customers of differing qualities, however: “If one customer has a superior credit history you can give them a discount.”

The exchange of credit information is perfectly legal, she added. “You may exchange information—and today you are exchanging more information electronically. I heartedly recommend that when you exchange information you do not do so on the telephone, because that information can be misinterpreted.” Another way that credit information can be shared is through credit (industry) group meetings. However, she noted that these meetings must be run under strict guidelines that prevent the exchanging of information or comments that could be a violation of antitrust laws. “CMA runs credit group meetings exactly by the book,” she noted.

One of the critical things participants must observe during such a meeting is that any remarks relating to a customer be confined only to completed transactions. Any comments relating to intended future actions are not allowed under antitrust laws, she noted, such as saying, “I will never sell to that customer again.”

“You can’t say that,” Borges said. All you can say is “I’ve cut them off’. I’ve placed them on a credit hold.'”

Credit group meetings should have a written agenda that is followed, she said, and noted that the agenda and the minutes of the meeting should be kept on file. She also cautioned against holding any meetings outside
the scheduled credit group meetings: it would even be illegal to discuss future price or credit terms with other competitors regarding a customer in Chapter 11 bankruptcy.

A new rule in federal court requires complete disclosure of all electronic data pertaining to cases. Borges noted that even if an e-mail or other electronic document has been deleted on a computer it may still be retrieved. “What we think is gone, a forensic computer examiner can find,” she advised. “Be extremely careful what you transmit electronically.”

When Talk is Not Cheap, by Larry Convoy

Larry Convoy, lead group facilitator

We have all heard the expression that “talk is cheap.” Here’s an instance when it’s not: whenever 2 or more competitors get together to discuss the terms of business. In that situation, the potential to cross over into prohibited topics could put all companies at risk. That is one of the main reasons that you have chosen to protect your company by joining an industry credit group facilitated by a representative from CMA.

Your CMA representative monitors all group discussions to ensure compliance with the three statements read at the beginning of each meeting, Anti-Trust, Confidentiality and Anti-Defamation. CMA Group Facilitators have all been trained, certified and are responsible during the meetings (and extending to those conversations in the parking lot) to assure that all members adhere to the guidelines set forth by the government. We listen for any suggestions to restrict free trade or for any attempt to try influencing another’s decision to sell or not to sell an account. If the conversation drifts in that direction, your CMA rep will shut it down.

Sharing historical, factual data on common customers is perfectly legal. We encourage group members to bring new credit applications, slow paying customers and accounts sent to legal to the meeting to alert other members, who will in turn share similar information about their customers with you. The trust built up between competitors allows them to participate honestly and share information in good faith as long as only historical and factual trade experiences are exchanged.

So the next time your attempt at humor is shot down by your group facilitator, think if the punchline falls into one of the 3 statements read prior to every meeting. If it does, he or she has steered your company away from litigation with fees far exceeding the cost of membership for years to come.

We, at CMA, know that your time is valuable, that you are probably wearing more hats then in previous years with a reduced staff. Wasting time is not an option. Our job is to provide a comfortable environment free of distractions for you to gain knowledge, network and to get you back to the office so you can process what you learned quickly, and in turn make quicker, educated credit decisions.

Without a governing body like CMA overseeing your monthly get together, talk could be very expensive.

Advice from CMA’s Legal Workshop on Credit Agreements

On January 24th and 25th, attorneys Bruce Nathan, Esq., Lowenstein Sandler PC,
and Wanda Borges, Esq., Borges & Associates LLC, hosted the first of three
sessions in CMA’s 2008 Legal Workshop series. The two attorneys are familiar
faces in the association’s educational programs, and teamed up to speak in-depth
about credit applications and guaranties and the information that should and
should not be included in them.

The two-day session provided a wealth of information and advice on topics
ranging from references, stoppage of delivery, reclamation, compliance with
federal law and the “Battle of the Forms” to navigating antitrust violations,
and oft overlooked protections.

First and foremost, both agreed that every credit application should include
language, in bold, that verifies that the grantor adheres to the provisions of
the Equal Credit Opportunity Act (ECOA) and that there must be some reference to
the grantor’s standard terms and conditions, either by including them in the
credit application or noting that they are posted on the creditor’s website.

“Your terms and conditions have to be prevalent,” said Borges. “If the first
time your customer sees them is on the back of an invoice, you’ve got a problem.
More and more companies are putting the data on their website. If you’re going
to put your terms and conditions on your website, you have to make them readily

Under Article II of the Uniform Commercial Code (UCC), the failings of which
took centerstage, if the first time a customer sees terms and conditions is on
an invoice, it won’t always serve as confirmation or agreement to those

“The thing I love about Article II is that everybody is right,” said Nathan.
“There are court cases that say the invoice serves as confirmation of terms and
conditions, there are others that disagree. Do something such as posting them on
a website to lock in the terms and conditions.”

In terms and conditions, grantors want to make sure that the laws of the state where they are headquartered are recognized to rule in any legal proceedings. The two also suggested that interest rate charges and the
reimbursement of at least a portion, such as 25%, or all legal fees are included in the terms and conditions or on the credit application as well. Credit executives need to be wary though that if they do include interest charges on
invoices they must make their best effort to collect on them. If they are only collecting the charges from certain customers and not all, they may find themselves facing antitrust violations of the Robinson-Patman Act.

Common practices, such as asking for the social security numbers and home
addresses of board members, officers and other executives may not always end in
results, as most credit executives will know. The new privacy laws provide
individuals protection against having to submit these on a credit application,
and denying credit because an application is without these pieces of information
may lead to violations. Though the majority of attendees of the workshop
included sections on their applications asking for the social security numbers,
they all agreed that it was irregular for those to be given.

Other basic measures Nathan and Borges discussed were the importance of
verifying a company’s legal name before granting credit, as well as verifying
that the individual signing the application or a personal guaranty has the
authority to do so. They suggested checking the Secretary of State records and
website, and touted a subscription with court document websites such as PACER as
a must.


For more information on CMA’s education program, visit www.CreditManagementAssociation.com/events

Antitrust Issues for the Credit Professional

While the laws governing antitrust practices have been around decades, issues as to what constitutes a violation of these statutes still come up on a regular basis for business credit professionals. The Robinson Patman Act of 1936, The Clayton Act of 1914 and even the Sherman Antitrust Act of 1890 still beguile creditors today about what constitutes a violation of these laws and what the laws allow.

“I keep getting calls from creditors asking when must they adhere strictly to Robinson Patman [or] when can they change their terms,” said Wanda Borges, Esq. of Borges & Associates, LLC. Robinson Patman makes it illegal for any person engaging in commerce to “discriminate in price between different purchasers of commodities of like grade and quality” and was designed to prevent discriminatory practices that adversely affect competition. In essence, this means that credit terms are required to be a condition of price and charging different customers different prices is legally questionable.

However, credit professionals do this all the time and it’s become common business practice to offer better terms to some customers and other terms to the less worthy ones. Antitrust law also governs the exchange of information, particularly at industry meetings and trade groups. Borges noted that, for the most part, credit professionals at trade groups have become pretty stable in regard to what can and cannot be said. “However,” she said, “the issue still comes up as to who may be a member of a credit group.”

Borges noted that, for credit professionals, these antitrust issues could have “a real impact on their companies.”