We have recently received several inquiries concerning the reporting and discussion of terms of sale on credit reports and in industry group meetings. These questions came about due to the recent announcement by several NACM (National Association of Credit Management) affiliates that they would no longer include terms on their credit and industry group reports because of antitrust implications.

We find this ironic because for the past 38 years that we have been members of NACM and their various industry groups we have been repeatedly assured the reporting of terms in a factual manner did not violate U. S. antitrust laws. Rather it was the discussion of the reported terms that could influence another creditor to offer or change their terms to a particular customer or an agreement among the creditors present to sell to a specific customer on certain terms that was prohibited.

The information in the credit report is not actually the terms of sale but rather one component of the sales terms, payment. Terms of sale is composed of many items that include payment, order status, price, dispute notification and handling, method of delivery, returns and refunds, discounts and allowances, warranties, governing law and venue, rights of cancellation and other factors depending on the industry.

There is no question that terms are a component of price. Anyone with a lick of common sense knows the longer the period in which the customer has to pay a bill the lower the price becomes. There is also no question that the discussion of terms among competing suppliers is a violation of antitrust and it is one of the primary reasons that industry credit groups, whether they be sponsored by NACM or another association, have monitors in attendance to caution participants about discussing their terms.

The FTC (Federal Trade Commission), the federal agency responsible for investigating and enforcing anti-trust violations recognizes on its website that price similarities or changes in price that occur about the same time among competing firms does not mean that there is illegal activity among creditors. The FTC says that most similarities in price are a result of normal market conditions such as supply and demand.

There is a difference between reporting terms of payment and discussing terms of sale.

Credit reports and payment information, by there vary nature, are historic. They report what has already occurred not what is going to happen in the future. Credit reports, whether they be business or consumer, report how long someone has been doing business, the high dollar amount, the amount owed, the aging of the amount owed (current, 30, 60, etc.,) and the payment terms (COD, net 30, 2/10 net 30, varied). On some reports there is a comments section to indicate whether the amounts are secured, is guaranteed, or a promissory note.

One other thing that business credit reports have is anonymity. There are no names associated with the reporting, other than the name of the business being reported, that would allow anyone to know who reported the information.

The importance of payment terms on a credit report is to allow the credit professional to determine how the customer pays other creditors in relation to their industry and/or payment terms.

Let's look at the following example of a credit report.

Based on the information shown on the above example this credit applicant appears to pay the two creditors with large balances on a current basis and one creditor 30 days slow. To the credit professional the "Slow 30" may not be relevant due to the low dollar amount reported in comparison to the larger dollar amounts reported by the two creditors who report being paid on time.

Now let's look at the same report and substitute the "pay history" with the "terms of payment".

With the terms included we can see the applicant is slow paying on 30 day terms with the first creditor. The second creditor although "current" is either paid in 30 days because of a five percent discount not offered by the creditor who is being paid slow 30 or is actually paying in 60 days on net prox terms. Either way the two creditors were not reporting alike. The third creditor is also shown as current, however the customer has an additional 150 days to pay before they would be reported in the 31 - 60 day column. Without the inclusion of payment terms on the credit report the credit professional cannot make an educated decision.

To evaluate a customer's payment history on a credit report without knowing the terms of payment is paramount to analyzing a customer's financial statements without having the notes. The credit professional is making a decision on inadequate information and would be best served not to have the information at all.

The reporting of payment terms by another creditor whether it is on a credit report, in an industry group meeting, or through direct contact is not a violation of any law including anti-trust. Using this information to establish a credit line/limit also does not violate any laws. It is only when the parties enter into a discussion of their terms and what they are going to do in the future is there the potential for a violation of any laws.

The following is an excerpt of the NACM "Exchange of Credit Information through the Activities of Credit Groups" that it issues to all its affiliates and members concerning the proper exchange of credit information through its credit groups.

"Antitrust principles that apply to activities of individual companies apply similarly to activities of trade credit group meetings. Consequently, there are great risks inherent in involvement with trade credit groups that must be addressed and assessed. Individual members of trade groups may not engage in anti-competitive conduct such as price-fixing, market allocation or setting production quotas. During meetings, members should be advised to be cautious about group activities. Suggestions to avoiding problems might include:

1. Have the format of the credit interchange report reviewed by counsel for legal compliance.
2. Submit an agenda or programs to counsel prior to meetings.
3. Counsel should view papers before distribution.

The following conclusions can be made from the Sherman Act and the Federal Trade Commission Act concerning the activities of trade credit group meetings:

1. Any agreement, expressed or implied, between members of a credit group or other competitors to establish and maintain uniform prices, discounts, terms or conditions of sale, is illegal.
2. Any agreement, expressed or implied, between members of a credit group or other competitors to concertedly refuse to sell merchandise to a person listed as a delinquent in the payment of its accounts to other members of the group, is illegal.
3. Any agreement, expressed or implied, between members of a credit group or other competitors to concertedly refuse to extend credit to accounts listed as delinquent and to place all such accounts on a C.O.D. or cash basis, is illegal.
4. List of delinquent accounts identifying the name of the debtor and stating the amount owed and accounts turned over to attorneys and collection agencies, are unobjectionable if proper care is taken to exclude the names of persons who have an honest and legitimate reason for not paying their account, and the names are promptly removed when the accounts are paid. It is preferable that the names of the creditors to whom the delinquent accounts are owing, should not be revealed. Coded references to creditors are however, permissible provided such codes are known only to the agency issuing such report.
5. Discussions of delinquent accounts at meetings are unobjectionable provided the discussion is limited to past transactions and there is no agreement, expressed or implied, for uniform action with respect to such customers. Minutes should be taken of all group meetings.
6. A by-law provision for expulsion for membership in a trade credit group, or other penalty for violation of its rules, is not illegal and is strongly urged."

Regardless of these advisories and their educational programs, certain NACM affiliates have now decided that their members are not professional to not only abide by the anti-trust laws but also the rules for the exchange of information in their industry groups so they are taking the step to eliminate the information.

Has the credit industry declined over the past 40 years to the level that member associations now have to withhold information from their members to protect them? And what does this say about the quality of the education programs being presented to its members? It would appear that these member-owned associations no longer recognize their members as credit professionals and have less confidence in their ability of handling the information they provide to them properly.

What do you think? We welcome your comments on this turn of events.

We wish you well.

The information provided above is for educational purposes only and not provided as legal advice. Legal advice should be obtained from a licensed attorney in good standing with the Bar Association and preferably Board Certified in either Creditor Rights or Bankruptcy.