FEC audit reports often address obscure topics, but today one touched on an important issue for banks.  At an open meeting, a majority of FEC Commissioners would not support a staff recommendation that a bank violated the campaign finance laws when it made a loan based on collateral that was commercially reasonable under the banking laws, but from a source that was illegal under the election laws.  All Commissioners agreed the campaign and source of the improper collateral could face a fine from the FEC, but so long as the bank operated in a commercially reasonable way to ensure repayment of the loan, it would not face liability.

The FEC staff audited the Kelly for Congress campaign, and found that it had secured a $50,000 bank loan with collateral from a campaign donor.  Under the FEC’s rules, that collateral is considered an excessive contribution by the donor to the campaign.  On this point, all four FEC Commissioners agreed.  But the staff went further, recommending a finding that the bank had also violated the Federal Election Campaign Act of 1971, as amended (FECA), by permitting the loan to be made with collateral that was illegal under the campaign finance laws.  The FEC staff reasoned that this meant the bank loan was not made under terms that “assured repayment.”  Only two of the four Commissioners supported this view.  Chair Hunter and Commissioner Petersen found the regulation that permitted the agency to look at the totality of the circumstances to determine if the loan was made on a basis that assured repayment had been met when the bank followed its normal course in securing adequate collateral for the loan.

This is not the first time the FEC has reached a similar result, although the facts were a bit different here.  See, e.g., MUR 5262.  But its effect is significant, for it means that banks need not be as concerned with the requirements and restrictions of FECA, and can remained focused on traditional banking standards and regulations when considering federal candidate loans.  As with any rule based on a “facts and circumstances” test, banks should not read these decisions as a blank check.  Had the collateral offered here not been from one of the bank’s trusted customers, but a secured interest in a Russian bot farm instead, presumably the FEC would have cast a colder eye on the commercial reasonableness of the transaction.  But these decisions should provide some comfort to banks considering loans to federal candidates, parties and PACs, for it will limit their exposure in many instances.

Photo of Robert Lenhard Robert Lenhard

Robert Lenhard has helped guide decision makers in corporations, trade associations, and advocacy groups on complying with the laws regulating political activity for over 20 years. As a senior member of the firm’s Election and Political Law Practice Group, he provides compliance advice…

Robert Lenhard has helped guide decision makers in corporations, trade associations, and advocacy groups on complying with the laws regulating political activity for over 20 years. As a senior member of the firm’s Election and Political Law Practice Group, he provides compliance advice relating to federal and state campaign finance, lobbying, pay-to-play, and government ethics laws. As an advocate, counselor, and regulator, Mr. Lenhard brings a depth of experience on matters that involve legal as well as political risk.

Bob led Covington’s representation of the Biden for President campaign, the Super PAC supporting President Obama’s re-election, as well as several prominent professional sports leagues, pharmaceutical manufacturers, technology companies, advocacy groups, and trade associations.

Prior to joining the firm in 2008, Mr. Lenhard served as Chairman of the Federal Election Commission (FEC) in 2007 and Vice Chairman of the agency in 2006, during which time the agency handled over 10 major rulemakings, had among its most productive years in enforcement and audit, and adopted several reforms to the enforcement process. Mr. Lenhard also led the Presidential Transition Team that reviewed the FEC for the incoming Obama administration in 2008-2009.

Mr. Lenhard is frequently quoted in the press, has lectured at major law schools, and Before his service to the FEC, Mr. Lenhard provided legal advice to labor organizations active in the political process at the federal, state, and local levels. Mr. Lenhard also was involved in litigation in the Florida trial and appellate courts over the counting of absentee ballots in Seminole County, Florida in 2000.

Robert Lenhard is a member of the firm’s Election and Political Law Practice Group and advises corporations, trade associations, not-for-profit organizations, and high-net-worth individuals on compliance with federal and state campaign finance, lobbying, and government ethics laws.

Mr. Lenhard routinely assists clients in establishing and operating federal and state PACs, compliance programs associated with campaign finance and pay-to-play laws; advises advocacy groups and their donors; conducts compliance trainings and audits of federal and state lobbying and political programs; and counsels clients on compliance with congressional gift and travel rules. According to Chambers, sources report: “He is strategic and always sees the big picture. He is a great person who provides excellent non-legal counsel as well.”