Cruz Victorious: Court Declares Campaign Loan Repayment Rule Unconstitutional

WASHINGTON – A federal court in Washington struck down a provision of the Bipartisan Campaign Reform Act last week, declaring it unconstitutional after Sen. Ted Cruz complained it barred him from repaying the $260,000 he lent himself during his 2018 campaign.

The ruling is a victory for the Republican from Texas, and his campaign committee, Ted Cruz for Senate, but election watchers said the longer term victors are likely to be wealthier candidates who self-fund their campaigns.

A three-judge panel found that by setting a loan repayment limit, Section 304 of the Bipartisan Campaign Reform Act unconstitutionally restricts free speech by imposing a constraint on the repayment options available to candidates who choose to make personal loans to their campaigns.

The section prohibits federal candidates who made personal campaign loans before the election from using more than $250,000 in post-election contributions to repay them.

As for the FEC, the court found it “failed to demonstrate that the loan-repayment limit serves an interest in preventing quid pro quo corruption, or that the limit is sufficiently tailored to serve this purpose, the loan repayment limit runs afoul of the First Amendment.”

A spokesman for Cruz said of the ruling, “Today’s unanimous decision was a resounding victory for the First Amendment and free speech.  The existing FEC rules benefited incumbent politicians and the super wealthy and they made it harder for challengers to run, and the court rightly struck them down as unconstitutional.”

The case arose from Cruz’s 2018 run for Senate. 

According to the complaint he filed against the FEC on April 1, 2019,  Cruz extended two loans totaling $260,000 of his own money to his campaign just before the 2018 election.

Of the $260,000, $5,000 originated from Cruz’s personal bank accounts and $255,000 originated from a margin loan secured with Cruz’s personal assets. 

After the election, Cruz had  $406,194 left, money he used to start paying off campaign debts. In late November 2018  — following the 20-day deadline for repaying any personal loans in excess of the $250,000 limit under the 2002 law — the Cruz committee made four repayments to Cruz himself ranging from $25,000 to $100,000.

The committee has not to date repaid any portion of Cruz’s $5,000 personal loan.

After the FEC intervened, it argued in court that Congress could impose the limit to stop the risk and appearance of corruption when elected officeholders solicit contributions that will be used to repay their personal loans.

Cruz and his campaign committee contended that the loan-repayment limit unconstitutionally infringes on the First Amendment rights of the senator, his campaign, and any individuals who might seek to make post-election contributions.

On review, the judges found that post-election contributions are subject to the same base limits as those made before an election. 

They then held that when layered upon the base limits, the loan-repayment limit places an additional restriction on pre-election expenditures and post-election contributions, which intrudes on fundamental rights of speech and association without serving a substantial government interest. 

“When it comes to campaign finance regulation, the foxes are effectively in charge of the political henhouse, because elected officials set the rules for future elections,” wrote U.S. Circuit Judge Neomi Rao, who sat on the panel by designation.

“The Constitution, however, does not leave our liberties to the foxes. Laws regulating political speech implicate First Amendment rights essential to a free democracy, and courts have an independent duty to scrutinize the government’s interest as well as the means chosen to realize it,” she continued. 

“To protect the political responsiveness at the heart of the democratic process, Congress may regulate political speech only to prevent the specific problem of quid pro quo corruption,” Rao said. “The loan-repayment limit does not serve that interest, and the government’s arguments to the contrary boil down to hypothetical concerns about influence and access to incumbents. Such justifications are not sufficient under the First Amendment to uphold a statute that burdens political speech.”