Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 79 C 80 -- Frank J. McGarr, Judge.
Before Swygert, Circuit Judge, Gewin, Senior Circuit Judge,*fn* and Sprecher, Circuit Judge.
The issue raised by this appeal is whether the business of making direct cash loans by finance companies is a line of commerce within the meaning of section 7 of the Clayton Act, 15 U.S.C. § 18. More specifically, the issue is whether finance companies effectively compete with other financial institutions, e. g., banks, credit unions, and savings and loan associations, in the extension of loans. The district court found that personal loans from finance companies do not constitute a separate line of commerce. We hold, however, that the district court in reaching this conclusion both incorrectly applied legal standards and made clearly erroneous findings of fact. Accordingly, we reverse.
On January 9, 1979, the United States filed a civil action against Household Finance Corporation (HFC), one of its subsidiaries, and American Investment Company (AIC). The complaint alleged that a proposed merger between HFC's subsidiary and American Investment Company would violate section 7 of the Clayton Act, 15 U.S.C. § 18. This violation was premised on the fact that the proposed acquisition would allegedly lessen substantially competition in the making of "direct cash loans" by finance companies in numerous sections of the country.
On February 5 the parties agreed to the following stipulation for the purpose of narrowing the issues to be tried.
1. The only issue to be tried in this case is whether the business of making direct cash loans by finance companies is a line of commerce within the meaning of § 7 of the Clayton Act.
2. If the court finds that the business of making direct cash loans by finance companies is a line of commerce in the United States generally, the acquisition of AIC by HFC would constitute a violation of § 7 of the Clayton Act in various sections of the country and a permanent injunction against the acquisition of any stock in AIC by HFC directly or indirectly should be entered.
3. Such injunction should require divestiture of the existing stock ownership in AIC by HFC and prohibit the acquisition of any finance company assets of AIC by HFC directly or indirectly without the approval of the Department of Justice or of the court.
4. If the court finds that the business of making direct cash loans by finance companies does not constitute a line of commerce in the United States generally, the acquisition of AIC by HFC would not constitute a violation of § 7, and an order of the court dismissing this action should be entered.
The issues having been thus narrowed, the district court conducted a 13-day trial. During this trial testimony was introduced from various government officials who regulate financial institutions, executives and managers of financial institutions, and professional economists. The district court then made its findings of fact and concluded that the making of direct cash loans by finance companies was not a separate line of commerce.
The district court opinion begins by conceding that at one time consumer finance companies served a distinct consumer population consisting of "a lower-income and higher-risk consumer market than (was served by) the commercial banks, savings and loan associations, and other lending institutions." However, the district court believed that recent expansions by other institutions in lending activity with respect to this lower-income, higher-risk group "has created a very substantial overlap of a number of competitors seeking and serving the same consumer market as was once deemed to be the exclusive province of the consumer finance companies."
Various facts were relied on by the district court in support of this conclusion. First, the court cited statistics demonstrating the increasing involvement of commercial banks, credit unions, and savings and loan associations in the consumer installment market. Whereas the finance company market share, based on dollar amount of loans, decreased between 1967 to 1978 from 30.9 percent to 19.6 percent, the market share of banks increased from 41.7 percent to 49.9 percent and the market share of credit unions increased from 11.3 percent to 16.8 percent. The court also cited figures which, after adjustment for inflation, showed that real dollar amounts of bank credit during this period increased 99.8 percent; of finance company credit, 5.8 percent; and of credit union credit, 147.9 percent. The court sought to explain these alterations in market shares by finding that consumers were increasingly aware of interest rates, thereby giving a competitive advantage to lower-cost forms of credit.
Next, the court analyzed the competitive inroads made on consumer finance company business by credit cards and credit unions. Although the court made no findings as to how many customers of consumer finance companies could obtain, or had obtained, credit cards on which there were sufficient balances to meet the consumer's credit needs,*fn1 the court found that these cards have had a "major" impact on the credit market and have served as "the vehicle for permitting commercial banks to move aggressively into the consumer credit market . . . ." Further, the court found that obtaining cash advances through credit cards was more convenient than, and a substitute for, obtaining a cash loan from a finance company. As to credit unions, the court found that they have experienced "impressive" growth and have been effective competitors with ...