FEC v. Cruz for Senate: Supreme Court Strikes Down Federal Cap on Campaign Loan Repayment

On Monday, the U.S. Supreme Court struck down a federal law limiting a candidate’s ability to repay personal campaign loans using funds raised post-election. The 6-3 decision, written by Chief Justice Roberts, held that the $250,000 cap on the use of post-election contributions for candidate loan repayment unconstitutionally burdened core political speech protected by the First Amendment.  Going forward, candidates may carry forward personal loans in amounts greater than $250,000 and be fully repaid using money raised during subsequent election cycles.

Rules at Issue

FEC v. Cruz concerned Section 304 of the Bipartisan Campaign Reform Act (52 U.S.C. § 30116(j)), which provided that a candidate who loans personal funds to his or her campaign may only be repaid up to $250,000 using funds raised after that election.  The FEC’s implementing regulations further required loan amounts over $250,000 to be repaid within 20 days of an election if the candidate wished to use funds raised prior to that election date, and any amount over $250,000 not repaid within 20 days must be converted to a contribution.  While these provisions did not limit the amount that candidates could loan their campaigns, they sharply limited candidates’ ability to be repaid after an election.

The Court’s Decision

Senator Cruz loaned his 2018 U.S. Senate campaign $260,000 and was repaid the maximum of $250,000 after the election. The remaining $10,000 could not be repaid under Section 304 and Senator Cruz filed this litigation challenging the constitutionality of that rule.

The Supreme Court held that the loan repayment limit unconstitutionally chills political speech. “By restricting the sources of funds that campaigns may use to repay candidate loans,” the Court explained, “Section 304 increases the risk that such loans will not be repaid. That in turn inhibits candidates from loaning money to their campaigns in the first place, burdening core speech.” The Court characterized the restriction as a “barrier to entry” likely intended to protect incumbents from self-funding challengers.

In striking down the limitation, the Court reemphasized that the “one permissible ground for restricting political speech [is] the prevention of ‘quid pro quo’ corruption or its appearance,” and dismissed Section 304 as “yet another in a long line of 'prophylaxis-upon-prophylaxis approach[es]’ to regulating campaign finance.”  The Court majority reiterated that existing contribution limits ($2,900 per candidate per election) and disclosure requirements are sufficient to protect against this danger.

Next Steps: What About Loans From Past Elections?

Candidates up for election in 2022 may now loan their campaigns unlimited amounts, carry those loans forward, and repay those loans using funds raised after the 2022 elections.  As for candidates like Senator Cruz who were previously required to convert excess personal loan amounts to contributions in past elections, the FEC will need to address—through either rulemaking or advisory opinion—whether past loan “conversions” – required under now-invalidated regulations – may be “undone” and treated as candidate loans that may now be repaid.

What About Similar State Laws?

The Cruz decision also calls into question the validity of similar loan repayment restrictions at the state and local levels. For example, Georgia and South Carolina follow the federal model: both cap post-election contributions to repay candidate loans, with Georgia employing the same $250,000 limit and South Carolina setting lower limits.  Alaska, Rhode Island, Texas, and Washington limit candidate loan repayment both pre- and post-election, while California, Massachusetts, and Nebraska directly limit the amounts that candidates may lend their campaigns. Florida prohibits post-election contributions for any purpose.  These restrictions may be subject to First Amendment challenges moving forward in light of the Supreme Court’s guidance.