Federal court rules candidate loan limit unconstitutional
June 07, 2021
D.C. District Court rules federal candidate loan repayment limit unconstitutional
By Tom Josefiak, Jason Torchinsky, Matt Petersen, Jessica Johnson, Steve Roberts
Recently, a special three-judge panel of the U.S. District Court for D.C. unanimously ruled that a provision of the Federal Election Campaign Act (“FECA”) limiting federal candidate loan repayments is an unconstitutional burden on political speech that violates the First Amendment. Under this ruling, federal candidates can continue to make unlimited loans of personal funds to their own principal campaign committees, but without the timing and amount repayment limitations currently codified in federal law.
What to Know
Federal candidates may contribute, either as an outright contribution or as a loan, an unlimited amount of their personal funds to their own principal campaign committee. However, under Section 30116(j) of FECA, federal candidate loans of personal funds of more than $250,000 may not be repaid from contributions made after the date of the election. If the aggregate amount of loans from a candidate to the principal campaign committee of that candidate exceeds $250,000 as of 20 days after the date of the election, the excess amount over $250,000 must either be repaid in accordance with repayment limitations or forgiven, i.e., treated as a candidate contribution, down to $250,000. 11 C.F.R. § 116.11(c).
In Cruz v. Federal Election Commission, No. 19-cv-809 (D.C. Dist. Jun. 3, 2021), the three-judge panel held that this repayment limit does not “serve an interest in preventing quid pro quo corruption”; is “a substantial mismatch between the government’s asserted interest” in preventing corruption and the loan-repayment limit; and “intrudes on fundamental rights of speech and association without serving a substantial government interest.” As a result, the loan repayment limit and timing requirements are unconstitutional.
What this Means
- Federal candidates are no longer required to treat amounts they loan to their campaigns in excess of $250,000 (in the aggregate) as a contribution to their campaigns after 20 days post-election.
- Federal campaigns can repay candidate loans incurred pre-election day with funds raised after election day.
- Loan balances can be carried forward without any statutory or regulatory time limit, and campaigns can fundraise against those balances up to a donor’s contribution limits.
What Happens Next
- The Court’s decision has not been enjoined or stayed, so it is effective immediately.
- Since the candidate loan repayment provision was enacted as part of the Bipartisan Campaign Reform Act (“BCRA”) and the challenge to this provision raised a constitutional question, the case was handled by a special three judge panel, meaning any appeal of the decision will be directly to the U.S. Supreme Court. The Attorney General may make such a decision in the coming months.
- There is no guidance from this Court about how the FEC should treat a previously forgiven candidate loan in excess of $250,000 for an election cycle. We anticipate that a candidate who has previously forgiven a loan in accordance with this law may request an FEC advisory opinion on this topic. If the FEC does not allow a candidate to amend past reports to resurrect a candidate loan, that candidate-requestor may choose to pursue litigation in federal court.
This update is for informational purposes only and should not be considered legal advice. Entities should confer with competent legal counsel concerning the specifics of their situation before taking any action.