[Federal Register Volume 66, Number 143 (Wednesday, July 25, 2001)]
[Proposed Rules]
[Pages 38576-38583]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-18439]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 66, No. 143 / Wednesday, July 25, 2001 / 
Proposed Rules  

[[Page 38576]]



FEDERAL ELECTION COMMISSION

11 CFR Parts 100, 104, and 113

[Notice 2001--10]


Brokerage Loans and Lines of Credit

AGENCY: Federal Election Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department of Transportation and Related Agencies 
Appropriations Act, 2001, amended the Federal Election Campaign Act 
(``FECA'' or ``the Act'') to allow a candidate to obtain a loan derived 
from an advance on a candidate's brokerage account, credit card, home 
equity line of credit, or other line of credit available to the 
candidate. The Federal Election Commission (``Commission'') is issuing 
this notice of proposed rulemaking (``NPRM'') to solicit comments on 
its proposal to implement this amendment to the FECA. Please note that 
the draft rules that follow do not represent a final decision by the 
Commission on the issues presented by this rulemaking. Further 
information is provided in the supplementary information that follows.

DATES: Comments must be received on or before August 24, 2001. If the 
Commission receives sufficient requests to testify, it will hold a 
hearing on these proposed rules on September 19, 2001, at 10 a.m. 
Persons wishing to testify at the hearing should so indicate in their 
written or electronic comments.

ADDRESSES: All comments should be addressed to Ms. Rosemary C. Smith, 
Assistant General Counsel, and must be submitted in either written or 
electronic form. Written comments should be sent to the Federal 
Election Commission, 999 E Street, NW., Washington, DC 20463. Faxed 
comments should be sent to (202) 219-3923, with printed copy follow-up. 
Electronic mail comments should be sent to [email protected]. 
Commenters sending comments by electronic mail must include their full 
name, electronic mail address and postal service address within the 
text of their comments. Comments that do not contain the full name, 
electronic mail address and postal service address of the commenter 
will not be considered. The hearing will be held in the Commission's 
ninth floor meeting room, 999 E Street, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Ms. Rosemary C. Smith, Assistant 
General Counsel, or Ms. Mai T. Dinh, Attorney, 999 E Street, NW., 
Washington, DC 20463, (202) 694-1650 or (800) 424-9530.

SUPPLEMENTARY INFORMATION: As part of its 1999 legislative 
recommendations to Congress, the Commission sought guidance ``* * * on 
whether candidate committees may accept contributions which are derived 
from advances from a financial institution, such as advances on a 
candidate's brokerage accounts, credit card, or home equity line of 
credit * * *'' See 1999 Fed. Election Comm. Annual Rep. at 45 (2000). 
The Commission recognized that, since the FECA was first enacted, 
financial institutions have created new financing products to allow 
consumers more access to credit. The Commission recommended that the 
FECA be amended to allow candidates to access these new forms of credit 
to finance their campaigns for federal office, provided that the 
extension of credit be done in accordance with applicable law, under 
commercially reasonable terms and by persons who make these loans in 
the normal course of their business. Id.
    In the Department of Transportation and Related Agencies 
Appropriations Act, 2001, Congress amended the FECA (2 U.S.C. 
431(8)(B)) to exclude from the definition of contribution ``a loan of 
money derived from an advance on a candidate's brokerage account, 
credit card, home equity line of credit, or other line of credit 
available to the candidate * * *'' The amendment also included the 
three conditions contained in the Commission's legislative 
recommendation described above. The Department of Transportation and 
Related Agencies Appropriations Act, 2001, became Public Law 106-346 on 
October 23, 2000.\1\
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    \1\ Public Law 106-346 included other statutory changes 
regarding reporting of independent expenditures, which are being 
addressed in a separate rulemaking.
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    The following represents the Commission's proposal to implement the 
amendment to the FECA allowing candidates to receive advances from 
their brokerage accounts, credit cards, home equity lines of credit, or 
other lines of credit. In the narrative below, the Commission raises 
several issues associated with this NPRM. It welcomes comments on those 
issues as well as any additional comments that may be pertinent to this 
rulemaking but that have not been addressed in this NPRM.

Proposed Rules

11 CFR 100.7  Contribution

A. General Provisions on Brokerage Loans and Lines of Credit

    In order to implement this amendment to the FECA, the Commission 
proposes to amend 11 CFR 100.7(b) by amending the introductory language 
of paragraph (b)(11) and adding a new 11 CFR 100.7(b)(22) to include 
brokerage loans, credit card advances, and other lines of credit made 
to candidates as among the items that are not considered contributions. 
The proposed rules would track the language of the amendment to the 
FECA including the conditions set forth, along with some additional 
clarifications and guidance regarding reporting requirements.
    The Commission recognizes that commercial banks offer various lines 
of credit to their customers. Because the amendment to the FECA 
specifically establishes different criteria for lines of credit for 
candidates, the Commission proposes to amend 11 CFR 100.7(b)(11) to 
specifically exempt brokerage loans, credit card advances, and other 
lines of credit extended to candidates from the requirements of bank 
loans contained in section 100.7(b)(11). The proposed rules would amend 
paragraph (b)(11) by adding a sentence at the end of the introductory 
text that states that brokerage loans, credit card advances, and other 
lines of credit made to candidates under Sec. 100.7(b)(22) would not be 
subject to Sec. 100.7(b)(11). This exception would also include 
overdrafts made on personal checking or saving accounts of candidates 
because overdraft protection is a form of a line of credit. Thus, 
overdrafts made on a candidate's personal accounts would be subject to 
the requirements of proposed Sec. 100.7(b)(22). It is important to note 
that the Sec. 100.7(b)(11) would still apply to all loans and lines of 
credit made to a political committee and to

[[Page 38577]]

conventional bank loans made to a candidate.

B. Endorsers, Guarantors, and Co-signers

    Proposed paragraph (b)(22) would contain the three statutory 
requirements for obtaining a loan derived from an advance on a 
candidate's brokerage account, credit card, home equity line of credit, 
or other line of credit, which are: that the loan would be made in 
accordance with applicable law; that the loan would be made under 
commercially reasonable terms; and that the persons making the loans 
make such loans in the normal course of their business. This new 
regulation would also address situations where there are endorsers, 
guarantors, or co-signers of these loans. New paragraph (b)(22) , like 
current paragraph (b)(11), would provide that an endorser, guarantor, 
or co-signer would be considered a contributor for the amount that the 
endorser, guarantor or co-signer is liable. This information would be 
disclosed on new schedule C-2 or C-P-2. See infra. The exception would 
be when the endorser, guarantor, or co-signer is the spouse of the 
candidate and the candidate's share of collateral used to obtain a 
secured loan equals or exceeds the amount of the loan. See 11 CFR 
100.7(a)(1)(i)(D). Under proposed Sec. 100.7(b)(22)(ii)(B), when a 
spouse is an endorser, guarantor, or co-signer of an unsecured loan, 
the spouse would not be considered a contributor if the candidate uses 
only one-half of the available credit in connection with the campaign. 
The Commission seeks comments on whether the regulations should allow 
the candidate to use the entire amount of the available credit in 
connection with a campaign in instances where the loan is in the 
ordinary course of business and the candidate is liable for the entire 
amount of the loan even though the spouse has endorsed, guaranteed, or 
co-signed for the loan.
    Section 432(e)(2) of the FECA and 11 CFR 101.2 state that a 
candidate is an agent of the candidate's authorized committee when he 
or she obtains a loan in connection with a campaign. Because the 
amendment to FECA did not distinguish loans derived from an advance on 
the candidate's brokerage account, credit card, home equity line of 
credit, or other line of credit, from other types of loans, a candidate 
who obtains these loans in connection with the candidate's campaign is 
acting as an agent for his or her authorized committee under 2 U.S.C. 
432(e) and 11 CFR 101.2.

C. Loans for Personal Living Expenses

    Proposed section 100.7(b)(22) also contains a provision whereby a 
candidate would be able to obtain a loan derived from an advance on the 
candidate's brokerage account, credit card, home equity line of credit, 
or other line of credit for personal living expenses without the loan 
being reportable. Further, the loan would not violate 2 U.S.C. 439a or 
11 CFR 113.2(d) prohibiting personal use of campaign funds. The loan, 
however, would have to be repaid from the candidate's personal funds.
    It is important to note that this exception in paragraph 
(b)(22)(iii) is limited to loans used solely for personal living 
expenses. Thus, if all or part of the loan proceeds is used in 
connection with a campaign, the loan would need to be reported under 11 
C.F.R. part 104. As an alternative to proposed paragraph (b)(22)(iii), 
the Commission seeks comments on whether to require the candidate's 
authorized committee to report loans used exclusively for the 
candidate's personal living expenses.
    The Commission is seeking comment on how to make proposed 
Sec. 100.7(b)(22)(iii)(A) more precise, since a candidate might borrow 
money for any number of personal, commercial or investment purposes 
that would fall outside the category of ``personal living expenses,'' 
yet such a loan would not be appropriate to characterize as ``in 
connection with a campaign.'' For example, if a candidate establishes a 
margin account at a brokerage firm to acquire additional securities, 
this would not appear to be a ``personal living expense.''
    In addition to seeking comment on whether the term ``personal 
living expenses'' is sufficiently descriptive and inclusive, the 
Commission is also seeking comment on the scope of the phrase ``used 
for the candidate's campaign,'' which is included in proposed 
Sec. 100.7(b)(22)(ii)(A) and is derived from 2 U.S.C. 432(e)(2). Should 
this phrase encompass only loans the proceeds of which are lent or 
contributed to the candidate's campaign or are used to defray campaign 
expenses? Even with this narrowing construction, because money is 
fungible, what additional guidance should the Commission provide as to 
the reporting obligations of candidates who receive money from multiple 
sources (e.g., a loan and the liquidation of stock) and who contribute 
or lend money to their candidate committee?
    The exception in new paragraph (b)(22)(iii) would not apply, 
however, if a third party repays, guarantees, endorses, or co-signs a 
loan for personal living expenses, in part or in whole. The third party 
would be deemed to make a contribution in the amount of the 
endorsement, guarantee, or liability and this amount would be subject 
to the limitations and prohibitions of the FECA. See 11 CFR 
113.1(g)(6). Thus, if a third party repays, guarantees, endorses, or 
co-signs the loan, the authorized committee must report the loan and 
the repayment under 11 CFR 104.3, 104.8 and 104.9.
    The Commission is considering making similar clarifications 
regarding the reporting of bank loans that are used solely for the 
candidate's personal living expenses. Please note this is not reflected 
in the proposed rules that follow. Under this clarification, bank loans 
would not be required to be reported if: (1) No part of the loan 
proceeds is used in connection with a campaign; (2) the loan is repaid 
wholly from the candidate's personal funds; (3) the loan does not pass 
through the authorized committee's account and the authorized committee 
does not endorse, guarantee, co-sign, or pay the loan; and (4) there is 
no endorsement, guarantee, co-signature, or payment by a third party. 
The Commission seeks comments on whether it is advisable to adopt such 
clarifications regarding bank loans used for a candidate's personal 
living expenses.

D. Repayments of Loans by Authorized Committees to Either the Candidate 
or the Lending Institution.

    Under proposed Sec. 100.7(b)(22)(iv), the candidate's authorized 
committee would have the option of repaying the loan directly to the 
lending institution or to the candidate. If the repayment is made to 
the candidate, however, the candidate must repay the lending 
institution within 30 days of receiving the committee's repayment. This 
is to ensure that the funds will not be available for the candidate's 
personal use. See 2 U.S.C. 439a and 11 CFR 113.2(d).

E. Other Amendments to 11 CFR 100.7(b)

    The proposed rules would also delete an obsolete reference in the 
introductory text of 11 CFR 100.7(b)(11) to the Federal Savings and 
Loan Insurance Corporation (FSLC). The FSLC has been dissolved and its 
deposit insurance responsibilities have been transferred to the Federal 
Deposit Insurance Corporation pursuant to the Financial Institutions 
Reform, Recovery, and Enforcement Act of 1989, Public Law 101-73 
(August 9, 1989).

[[Page 38578]]

11 CFR 100.8  Expenditure

    Currently, 11 CFR 100.8(b)(12) exempts bank loans from the 
definition of ``expenditure'' and contains parallel language to that 
found in the exceptions to the definition of ``contribution'' in 
provision of Sec. 100.7(b)(11). The Commission proposes to exempt loans 
derived from advances on a candidate's brokerage account, credit card, 
home equity line of credit, or other line of credit available to the 
candidate from the definition of ``expenditure'' by amending 
Sec. 100.8(b)(12) and by adding a new Sec. 100.8(b)(24). The proposed 
amendments to Sec. 100.8(b)(12) are similar to the proposed amendments 
to Sec. 100.7(b)(11). Proposed Sec. 100.8(b)(24) adopts, by reference, 
the language of proposed Sec. 100.7(b)(22).

11 CFR 104.3  Contents of Reports

    As noted above, the Commission would require that loans derived 
from an advance on a candidate's brokerage account, credit card, home 
equity line of credit, or other line of credit in connection with the 
candidate's campaign would have to be reported by the candidate's 
principal campaign committee. The requirements would be set out in 
several sections in 11 CFR part 104. In Sec. 104.3, the candidate's 
principal campaign committee would be required to report the loan of 
money as a receipt under proposed paragraph (a)(3)(vii)(D). It would 
also be required to report any repayment of the loan as a disbursement 
under proposed paragraph (b)(2)(iii)(D).
    Under the proposed rules, Sec. 104.3(b)(4)(iii) would be amended to 
specifically include persons who receive repayments from a reporting 
committee of loans derived from an advance on a candidate's brokerage 
account, credit card, or lines of credit, as among those who must be 
identified and itemized in the report. ``Persons'' in this proposed 
section would include candidates and lending institutions. The proposed 
amendment to Sec. 104.3(b)(4)(iv) would make the same change with 
regard to persons who receive a repayment of a loan from a candidate.
    Current 11 CFR 104.3(d) describes the requirements for reporting 
debts and obligations. The proposed rules would amend this paragraph to 
include loans derived from advances on a candidate's brokerage account, 
credit card, home equity line of credit and other lines of credit. 
First, the introductory language of paragraph (d) would be amended to 
make clear that these advances must be reported if they are used for 
the candidate's campaign even if the advances were received before the 
individual became a candidate for federal office. Paragraph (d)(1) 
would also be changed to recognize that lines of credit established by 
a candidate at any lending institution would be subject to the 
reporting requirements of new 11 CFR 104.3(d)(4) and not the reporting 
requirements of current Sec. 104.3(d)(1). The amendment would clearly 
state that only lines of credit obtained by political committees would 
be subject to the bank loan regulations.
    The proposed rules would add a new Sec. 104.3(d)(4) to describe the 
information that must be disclosed in the report. The proposed 
paragraph would require committees to disclose loans derived from an 
advance from a candidate's brokerage account, credit card, or line of 
credit on new schedules C-2 and C-P-2. The Commission will design these 
new schedules to reflect the final rules and will have them available 
by the effective date of the final rules.
    Under proposed Sec. 104.3(d)(4), committees would be required to 
disclose the following information: Date, amount and interest rate of 
the loan; name and address of the lending institution; type and value 
of collateral or security; and each draw or advance on the credit card 
or line of credit. The Commission seeks comment on whether additional 
information is necessary.

11 CFR 104.8  Uniform Reporting of Receipts

    Current 11 CFR 104.8 requires that certain receipts, including 
loans, be disclosed on Schedule A. The proposed rules would add new 
paragraph (g) to Sec. 104.8 to describe how receipt of a loan derived 
from an advance from a candidate's brokerage account, credit card, or 
line of credit would be reported on Schedule A. When the candidate's 
committee receives the funds directly from the lending institution, it 
would be reported as an itemized entry on Schedule A. If the candidate 
receives the funds from the lending institution and then makes a loan 
or a gift to the committee, then the transfer of funds from the lending 
institution to the candidate would be reported as a memo entry on 
Schedule A and the loan or gift of money from the candidate to the 
committee would be reported as an itemized entry on Schedule A. A cross 
reference to Sec. 100.7(b)(22)(iii) would also be included in new 
Sec. 104.8(g) regarding the reporting of loans obtained solely for the 
candidate's personal living expenses.
    The Commission is also considering expanding the scope of proposed 
Sec. 104.8(g) to include similar changes to the way in which bank loans 
obtained by candidates directly must be reported on Schedule A as memo 
entries if they are used in connection with a campaign. This would 
provide further guidance to authorized committees on the proper 
reporting mechanism for bank loans obtained by candidates where the 
funds are turned over to the committee. The Commission seeks comments 
on whether it is advisable to expand the scope of proposed 
Sec. 104.8(g) to address bank loans received initially by the 
candidate.

11 CFR 104.9  Uniform Reporting of Disbursements

    Current 11 CFR 104.9 requires that certain disbursements, including 
loan repayments, be disclosed on Schedule B. New paragraph (f) would be 
added to Sec. 104.9 to explain how repayments of a loan derived from an 
advance from a candidate's brokerage account, credit card, or line of 
credit would be reported on Schedule B. If the candidate's committee 
directly repays the lending institution, then the repayment would be an 
itemized entry on Schedule B. If the committee repays the candidate 
who, in turn, repays the lending institution, then the repayment to the 
candidate would be an itemized entry and the repayment to the lending 
institution would be a memo entry. The Commission also seeks comments 
on whether it is advisable to expand the scope of proposed 
Sec. 104.9(f) so that the repayment of bank loans would be reported in 
the same manner on Schedule B.

Alternative Approach on the Authorized Committee's Receipt of Loan 
Proceeds

    Proposed 11 CFR 100.7(b)(22)(vi), 104.8(g), and 104.9(f) would 
permit the proceeds of the loan to be paid directly to the candidate's 
authorized committee and would permit the authorized committee to repay 
the loan directly to the lending institution. As an alternative to the 
approach set out in the proposed rules, the Commission is considering 
whether to require that the payment and repayment of the loan pass 
through the candidate's personal account, in order to distinguish bank 
loans made directly to an authorized committee from loans derived from 
a candidate's brokerage account, credit card, home equity line of 
credit, or other line of credit. In other words, the lending 
institution must disburse the loan to the candidate who would then loan 
or contribute the money to the authorized committee. If the candidate 
loans the money to the authorized committee, the committee would be 
required to repay the loan to the candidate, not to the lending

[[Page 38579]]

institution, and the candidate would then repay the lending 
institution.

Alternative Reporting Approach

    As an alternative to the foregoing reporting approach in the 
proposed amendments to 11 CFR 104.3, 104.8, and 104.9, the Commission 
seeks comment on a less extensive reporting system. A committee only 
would be required to report certain limited information about the 
sources of bank loans and loans derived from advances on brokerage 
accounts, credit cards, home equity lines of credit, or other lines of 
credit when the candidate has loaned or contributed outright such funds 
to the committee. This information would include the name of the 
institution and any applicable interest rate and the due date. Further, 
in the situation where the candidate has lent the funds to the 
committee, the committee only would be required to report repayments to 
the candidate, not the repayments by the candidate to the lending 
institution. This reporting approach would be applied to loans from 
banks as well as the loans derived from other sources covered by the 
recent statutory amendment. It would rely on the complaint and audit 
processes to monitor situations where the committee makes loan 
repayments but the candidate does not use such repayments to repay the 
lending institution or relies on third parties to make the repayments 
to the lending institution. It would involve repeal of 11 CFR 
104.3(d)(1)(iii)-(v), (d)(2)-(3), and the elimination of lines A 
through F of schedules C-1 and C-P-1.

11 CFR 104.18  Electronic Filing of Reports

    Paragraph (h) of section 104.18 sets forth the requirements for the 
filing of special schedules and forms that must accompany the 
electronic filing of reports. These special schedules and forms 
generally require original signatures on them. The Commission has not 
yet designed schedules C-2 and C-P-2 described in proposed 11 CFR 
104.3(d)(4). However, the Commission intends to require signatures on 
these new schedules and therefore, Sec. 104.18(h) would be amended to 
include schedules C-2 and C-P-2. The proposed change is based on the 
proposed amended language for Sec. 104.18(h) in the notice of proposed 
rulemaking entitled ``Independent Expenditure Reporting.'' See 66 FR 
(2001). The Commission seeks comments on the advantages and 
disadvantages of requiring the lenders' signatures on these new 
schedules and whether the Commission should require these signatures.

11 CFR 113.1  Definitions

    Under the proposed rules, the third party payments provisions of 
the definition of ``personal use'' in 11 CFR 113.1(g)(6) would be 
amended to include a repayment, endorsement, guarantee, or co-signature 
of a loan derived from a candidate's brokerage account, credit card, 
home equity line of credit, or other line of credit and used for the 
candidate's personal living expenses within the meaning of ``payment''. 
A cross reference to Sec. 100.7(b)(22) would be included in this 
paragraph.

Additional Issues

11 CFR 104.14  Formal Requirements Regarding Reports and Statements

    Unlike the regulations for bank loans, the proposed rules would not 
require principal campaign committees to submit to the Commission loan 
agreements or similar documents that are connected with a loan derived 
from an advance from a candidate's brokerage account, credit card, or 
line of credit. The committees, however, would still be required, under 
current 11 CFR 104.14, to maintain records connected with these types 
of loans for three years. For example, committees would be required to 
maintain any agreements or documents that are connected with these 
loans, including but not limited to: the Federal Reserve Board's Form 
T-4 that is required to obtain a brokerage loan, any loan agreements, 
and any receipts or copies of a credit card company's check that are 
evidence of an advance from a candidate's credit card. The Commission 
seeks comments on whether it should require the candidate's principal 
campaign committee to submit loan agreements and similar documents on 
loans derived from an advance from a candidate's brokerage account, 
credit card, or line of credit when the committee files schedule C-2 or 
C-P-2.

Margin Requirements

    A loan derived from a brokerage account is obtained by opening a 
non-purpose credit account. Margin accounts and non-purpose credit 
accounts are subject to the Federal Reserve Board's Regulation T, 12 
CFR part 220. Under 12 CFR 220.6(e), non-purpose credit accounts are 
not subject to Regulation T's margin requirements but are subject to 
the rules of the self regulating organizations (SRO) that regulate the 
exchanges. Recognizing that non-purpose credit accounts contain similar 
inherent risks to margin accounts, the two largest SRO, the New York 
Stock Exchange (NYSE) and the National Association of Securities 
Dealers (NASD), established minimum maintenance margins for non-purpose 
credit accounts that are applicable to the members in their 
exchanges.\2\ Generally, the minimum maintenance margin is 25 
percent.\3\ That is, a customer must maintain securities valued at 125 
percent of the outstanding non-purpose credit. Individual brokerage 
firms may require higher maintenance margins.
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    \2\ Margin is the amount of securities held or maintained in an 
account above the balance of outstanding credit. The maintenance 
margin is the minimum margin that must be held or maintained in an 
account. As long as the value of the equity in the customer's 
account exceeds the maintenance margin, the customer is not required 
to make payments on the loan. A margin call occurs when the value of 
a customer's account falls below the maintenance margin and the 
brokerage firm issues a demand to a customer to deposit more cash or 
securities into the account so that the value of the account 
increases to at least the maintenance margin.
    \3\ However, the SRO may change the maintenance margin with the 
approval of the Security Exchange Commission (SEC).
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    Brokerage firms are supposed to issue a margin call if the equity 
in a customer's account falls below the maintenance margin. Both the 
NYSE and the NASD, however, allow firms not to issue a margin call if 
the firm is willing to take a charge against its net capital, pursuant 
to SEC Rule 15c3-1, for the amount the customer would have been 
required to deposit to meet the margin call. See NYSE Rule 431(e)(7) 
and NASD Rule 2520(e)(7).
    Although this practice may be considered to be in the ordinary 
course of business, nevertheless, the candidate would receive something 
of value--not having to deposit additional cash or securities into an 
account--for free. Essentially, the brokerage firm is providing 
additional collateral to the candidate without being compensated. Even 
though the brokerage firm may provide the same service to other 
customers who are not seeking federal office, the Commission has 
determined that services offered free of charge by corporations in the 
ordinary course of business for promotional or good will purposes (if 
these services might otherwise have required consideration) are 
prohibited by 2 U.S.C. 441b. See Advisory Opinions 1996-2, 1988-25, 
1988-12. Moreover, by not making the margin call, the candidate has 
increased his or her risk exposure and may be less likely to be able to 
repay the loan. The Commission seeks comments on whether a brokerage 
firm that takes a charge against net capital may, under certain 
circumstances, be providing

[[Page 38580]]

something of value to candidates which is prohibited by 2 U.S.C. 441b.

Repayment and Termination

    Loans derived from a candidate's brokerage account, credit card 
account, home equity line of credit, or other lines of credit, present 
a few repayment issues. Under 2 U.S.C. 432(e)(2), a candidate is 
considered an agent of the authorized committee when obtaining a loan 
for use in connection with the candidate's campaign for federal office. 
As such, the authorized committee has a continuing obligation to report 
the loan until it is repaid. Because of the nature of brokerage loans, 
the Commission is unsure as when to consider a loan repaid. In 
practice, customers are not required to make payments on the loan 
unless the value of the non-purpose credit account falls below the 
maintenance margin. If the securities in the non-purpose credit account 
continually increase in value, then the customer does not have to make 
any payments. Thus, a candidate could maintain a loan balance well 
after the candidate is no longer seeking federal office.
    Normally, a committee reports the disposition of its loans before 
it can terminate. See infra. For purposes of determining the 
disposition of these loans, the Commission seeks comments on when a 
brokerage loan should be considered paid in full. Should the candidate 
be required to liquidate an amount of securities, or make a deposit, or 
a combination of both, equal to the amount of the outstanding brokerage 
loan plus any interest that may have accrued?
    The other issue that needs to be addressed in the context of 
repayment of loans derived from a candidate's brokerage account, credit 
card account, home equity line of credit, or other lines of credit, is 
termination of political committees. Under 11 CFR 104.11, a loan 
remains an outstanding debt that the candidate's authorized committee 
must continue to report until it is extinguished. Additionally, these 
loans, similar to bank loans, would not be subject to debt settlement 
under 11 CFR 116.4. Because a political committee cannot terminate 
unless all outstanding debts are satisfied, the candidate's authorized 
committee cannot terminate, even if the candidate is no longer seeking 
federal office, until the loan is paid in full. See 11 CFR 102.3. The 
exception is when the Commission administratively terminates a 
political committee under 11 CFR 102.4. Under these circumstances, a 
committee would be terminated even if it has outstanding debts provided 
that the criteria for administrative termination are met.
    One option under consideration is requiring committees to report 
until the original amount of the loan plus any interest or penalty are 
repaid. Another option is to allow the committee to terminate if it has 
extinguished its debt to the candidate even if the candidate has not 
repaid the entire loan to the lending institution. Alternatively, 
committees would be allowed to terminate if it can demonstrate unique 
circumstances that will ensure that the loan would be repaid, under 
commercially reasonable terms, from the candidate's personal funds. An 
example of unique circumstances is a brokerage loan that is subject to 
fixed due date and a repayment schedule.
    The Commission seeks comments on which of these three approaches 
best advance the purpose of FECA. The Commission also welcomes 
suggestions on alternative methods of reporting outstanding debts and 
termination of a committee where either the candidate or the 
candidate's committee has an outstanding loan that is derived from the 
candidate's brokerage account, credit card, home equity line of credit, 
or other lines of credit.

Certification of No Effect Pursuant to 5 U.S.C. 605(b) (Regulatory 
Flexibility Act)

    The attached proposed rules will not, if promulgated, have a 
significant economic impact on a substantial number of small entities. 
The proposed rules would implement the changes to the FECA expressly 
permitting candidates to obtain loans from a wider range of financial 
institutions. This would increase the flexibility that candidates would 
have to seek financing for their campaigns. The requirement to report 
loans derived from an advance from a candidate's brokerage account, 
credit card, or line of credit would only impact the candidates and 
their campaign committees. It would not have a significant economic 
impact on these committees because they are already required to report 
all loans that are made in connection with a federal campaign. In fact, 
the reporting requirements in the proposed rules are minimal. The 
Commission does not anticipate that these changes will cause committees 
to devote much additional time or resources to comply with the proposed 
reporting requirements. Therefore, the attached proposed rules, if 
promulgated, will not have a significant economic impact on a 
substantial number of small entities.

List of Subjects

11 CFR Part 100

    Elections.

11 CFR Part 104

    Campaign funds, Political committees and parties, Reporting and 
recordkeeping requirements.

11 CFR Part 113

    Campaign funds.
    For the reasons set out in the preamble, it is proposed to amend 
Subchapter A, Chapter I of title 11 of the Code of Federal Regulations 
as follows:

PART 100--SCOPE AND DEFINITIONS (2 U.S.C. 431)

    1. The authority for part 100 would continue to read as follows:

    Authority: 2 U.S.C. 431, 434(a)(11), 438(a)(8).

    2. 11 CFR 100.7 would be amended by revising the introductory text 
of paragraph (b)(11) and adding new paragraph (b)(22) to read as 
follows:


Sec. 100.7  Contribution (2 U.S.C. 431(8)).

* * * * *
    (b) * * *
    (11) A loan of money by a State bank, a federally chartered 
depository institution (including a national bank) or a depository 
institution whose deposits and accounts are insured by the Federal 
Deposit Insurance Corporation or the National Credit Union 
Administration is not a contribution by the lending institution if such 
loan is made in accordance with applicable banking laws and regulations 
and is made in the ordinary course of business. A loan will be deemed 
to be made in the ordinary course of business if it: Bears the usual 
and customary interest rate of the lending institution for the category 
of loan involved; is made on a basis which assures repayment; is 
evidenced by a written instrument; and is subject to a due date or 
amortization schedule. Such loans shall be reported by the political 
committee in accordance with 11 CFR 104.3(a) and (d). Each endorser or 
guarantor shall be deemed to have contributed that portion of the total 
amount of the loan for which he or she agreed to be liable in a written 
agreement, except that, in the event of a signature by the candidate's 
spouse, the provisions of paragraph (a)(1)(i)(D) of this section shall 
apply. Any reduction in the unpaid balance of the loan shall reduce 
proportionately the amount endorsed or guaranteed by each endorser or 
guarantor in such written agreement. In the event that such

[[Page 38581]]

agreement does not stipulate the portion of the loan for which each 
endorser or guarantor is liable, the loan shall be considered a 
contribution by each endorser or guarantor in the same proportion to 
the unpaid balance that each endorser or guarantor bears to the total 
number of endorsers or guarantors. For purposes of this paragraph, an 
overdraft made on a checking or savings account shall be considered a 
contribution by the bank or institution unless: The overdraft is made 
on an account which is subject to automatic overdraft protection; the 
overdraft is subject to a definite interest rate which is usual and 
customary; and there is a definite repayment schedule. However, 
paragraph (b)(11) of this section shall not apply to any loan of money 
derived from an advance on a candidate's brokerage account, credit 
card, home equity line of credit, or other lines of credit described in 
paragraph (b)(22) of this section.
* * * * *
    (22) (i) Any loan of money derived from an advance on a candidate's 
brokerage account, credit card, home equity line of credit, or other 
line of credit available to the candidate, including an overdraft made 
on a personal checking or savings account of a candidate, provided 
that:
    (A) Such loan is made in accordance with applicable law and under 
commercially reasonable terms; and
    (B) The person making such loan makes loans derived from an advance 
on a candidate's brokerage account, credit card, home equity line of 
credit, or other line of credit in the normal course of the person's 
business.
    (ii) Each endorser, guarantor, or co-signer shall be deemed to have 
contributed that portion of the total amount of the loan derived from 
an advance on a candidate's brokerage account, credit card, home equity 
line of credit, or other line of credit available to the candidate, for 
which he or she agreed to be liable in a written agreement, including a 
loan used for the candidate's personal living expenses. Any reduction 
in the unpaid balance of the loan, advance, or line of credit shall 
reduce proportionately the amount endorsed or guaranteed by each 
endorser or guarantor in such written agreement. In the event that such 
agreement does not stipulate the portion of the loan, advance, or line 
of credit for which each endorser, guarantor, or co-signer is liable, 
the loan shall be considered a contribution by each endorser or 
guarantor in the same proportion to the unpaid balance that each 
endorser, guarantor, co-signer bears to the total number of endorsers 
or guarantors. However, if the spouse of the candidate is the endorser, 
guarantor, or co-signer, the spouse shall not be deemed to make a 
contribution if:
    (A) For a secured loan, the value of the candidate's share of the 
property used as collateral equals or exceeds the amount of the loan 
that is used for the candidate's campaign; or
    (B) For an unsecured loan, the amount of the loan used in 
connection with the candidate's campaign does not exceed one-half of 
the available credit extended by the unsecured loan.
    (iii) (A) A loan derived from an advance on a candidate's brokerage 
account, credit card, home equity line of credit, or other line of 
credit available to the candidate, that is used by the candidate solely 
for personal living expenses, does not need to be reported under 11 CFR 
part 104 provided that the loan, advance, or line of credit is wholly 
repaid from the personal funds of the candidate.
    (B) Any repayment, in part or in whole, of the loan, advance, or 
line of credit described in paragraph (b)(22)(iii)(A) of this section 
by the candidate's authorized committee constitutes the personal use of 
campaign funds and is prohibited by 11 CFR 113.2.
    (C) Any repayment, in part or in whole, by a third party of the 
loan, advance, or line of credit described in paragraph (b)(22)(iii)(A) 
of this section is a contribution and shall be reported under 11 CFR 
part 104.
    (D) Each endorser, guarantor, or co-signer of a loan derived from 
an advance on a candidate's brokerage account, credit card, home equity 
line of credit, or other line of credit available to the candidate that 
is used by the candidate solely for personal living expenses, shall be 
subject to the provisions of paragraph (b)(22)(ii) of this section, and 
the loan, advance, or line of credit and all repayments shall be 
reported under 11 CFR part 104.
    (iv) The candidate's authorized committee may repay a loan derived 
from an advance on a candidate's brokerage account, credit card, home 
equity line of credit, or other line of credit available to the 
candidate, directly to the candidate or the original lender. The amount 
of the repayment shall not exceed the amount of the principal used in 
connection with the campaign and interest that has accrued on that 
principal. If the candidate's authorized committee makes a repayment to 
the candidate, the candidate shall repay the original lender the same 
amount of the repayment within thirty (30) days of receipt of the 
repayment from the candidate's authorized committee. Failure to repay 
the lender within thirty (30) days constitutes the personal use of 
campaign funds and is prohibited under 11 CFR 113.2.
    (v) Loans derived from an advance on a candidate's brokerage 
account, credit card, home equity line of credit, or other line of 
credit available to the candidate shall be reported by the candidate's 
principal campaign committee in accordance with 11 CFR part 104.
* * * * *
    3. 11 CFR 100.8 would be amended by revising paragraph (b)(12) and 
adding new paragraph (b)(24) to read as follows:


Sec. 100.8  Expenditures (2 U.S.C. 431(9)).

* * * * *
    (b) * * *
    (12) A loan of money by a State bank, a federally chartered 
depository institution (including a national bank) or a depository 
institution whose deposits and accounts are insured by the Federal 
Deposit Insurance Corporation or the National Credit Union 
Administration is not an expenditure by the lending institution if such 
loan is made in accordance with applicable banking laws and regulations 
and is made in the ordinary course of business. A loan will be deemed 
to be made in the ordinary course of business if it: Bears the usual 
and customary interest rate of the lending institution for the category 
of loan involved; is made on a basis which assures repayment; is 
evidenced by a written instrument; and is subject to a due date or 
amortization schedule. Such loans shall be reported by the political 
committee in accordance with 11 CFR 104.3(a) and (d). Each endorser or 
guarantor shall be deemed to have contributed that portion of the total 
amount of the loan for which he or she agreed to be liable in a written 
agreement, except that, in the event of a signature by the candidate's 
spouse, the provisions of 11 CFR 100.7(a)(1)(i)(D) shall apply. Any 
reduction in the unpaid balance of the loan shall reduce 
proportionately the amount endorsed or guaranteed by each endorser or 
guarantor in such written agreement. In the event that the loan 
agreement does not stipulate the portion of the loan for which each 
endorser or guarantor is liable, the loan shall be considered an 
expenditure by each endorser or guarantor in the same proportion to the 
unpaid balance that each endorser or guarantor bears to the total 
number of endorsers or guarantors. For the purpose of this paragraph, 
an overdraft made on a checking or savings

[[Page 38582]]

account shall be considered an expenditure unless: The overdraft is 
made on an account which is subject to automatic overdraft protection; 
and the overdraft is subject to a definite interest rate and a definite 
repayment schedule. However, this paragraph (b)(12) shall not apply to 
any loan of money derived from an advance on a candidate's brokerage 
account, credit card, home equity line of credit, or other lines of 
credit described in paragraph (b)(24) of this section.
* * * * *
    (24) Any loan of money derived from an advance on a candidate's 
brokerage account, credit card, home equity line of credit, or other 
line of credit available to the candidate, as defined in 11 CFR 
100.7(b)(22).
* * * * *

PART 104--REPORTS BY POLITICAL COMMITTEES (2 U.S.C. 434)

    4. The authority for part 104 would continue to read as follows:

    Authority: 2 U.S.C. 431(1), 431(8), 431(9), 432 (i), 434, 
438(a), 438(b), 439a.

    5. 11 CFR 104.3 would be amended by revising paragraphs 
(a)(3)(vii)(c), (b)(2)(iii)(c), (b)(4)(iii) and (iv), the introductory 
text of paragraphs (d) and (d)(1), and adding paragraphs 
(a)(3)(vii)(D), (b)(2)(iii)(D), and (d)(4) to read as follows:


Sec. 104.3  Contents of reports (2 U.S.C. 434(b), 439(a))

    (a) * * *
    (3) * * *
    (vii) * * *
    (C) Any loan of money derived from an advance on a candidate's 
brokerage account, credit card, home equity line of credit, or other 
lines of credit described in 11 CFR 100.7(b)(22) and 100.8(b)(24); and
    (D) Total loans;
* * * * *
    (b) * * *
    (2) * * *
    (iii) * * *
    (C) Repayment of any loan of money derived from an advance on a 
candidate's brokerage account, credit card, home equity line of credit, 
or other lines of credit described in 11 CFR 100.7(b)(22) and 
100.8(b)(24); and
    (D) Total loans;
* * * * *
    (4) * * *
    (iii) Each person who receives a loan repayment, including a 
repayment of a loan of money derived from an advance on a candidate's 
brokerage account, credit card, home equity line of credit, or other 
lines of credit described in 11 CFR 100.7(b)(22) and 100.8(b)(24), from 
the reporting committee during the reporting period, together with the 
date and amount of such loan repayment;
    (iv) Each person who receives a loan repayment, including a 
repayment of a loan of money derived from an advance on a candidate's 
brokerage account, credit card, home equity line of credit, or other 
lines of credit described in 11 CFR 100.7(b)(22) and 100.8(b)(24), from 
the candidate during the reporting period, if the proceeds of such loan 
were used in connection with the candidate's campaign, together with 
the date and amount of such loan repayment;
* * * * *
    (d) Reporting debts and obligations. Each report filed under 11 CFR 
104.1 shall, on Schedule C or D, as appropriate, disclose the amount 
and nature of outstanding debts and obligations owed by or to the 
reporting committee. Loans, including a loan of money derived from an 
advance on a candidate's brokerage account, credit card, home equity 
line of credit, or other lines of credit described in 11 CFR 
100.7(b)(22), obtained by an individual prior to becoming a candidate 
for use in connection with that individual's campaign shall be reported 
as an outstanding loan owed to the lender by the candidate's principal 
campaign committee, if such loans are outstanding at the time the 
individual becomes a candidate. Where such debts and obligations are 
settled for less than their reported amount or value, each report filed 
under 11 CFR 104.1 shall contain a statement as to the circumstances 
and conditions under which such debts or obligations were extinguished 
and the amount paid. See 11 CFR 116.7.
    (1) In addition, when a candidate or political committee obtains a 
loan from, or when a political committee establishes a line of credit 
at, a lending institution as described in 11 CFR 100.7(b)(11) and 
100.8(b)(12), it shall disclose in the report covering the period when 
the loan or line of credit was obtained, the following information on 
schedule C-1 or C-P-1:
* * * * *
    (4) When a candidate obtains a loan of money derived from an 
advance on the candidate's brokerage account, credit card, home equity 
line of credit, or other line of credit described in 11 CFR 
100.7(b)(22) and 100.8(b)(24), the candidate's principal campaign 
committee shall disclose in the report covering the period when the 
loan or line of credit was obtained, the following information on 
schedule C-2 or C-P-2:
    (i) The date, amount, and interest rate of the loan, advance, or 
line of credit;
    (ii) The name and address of the lending institution;
    (iii) The types and value of collateral or other sources of 
repayment that secure the loan, advance, or line of credit, if any; and
    (iv) Each draw or advance on the credit card or line of credit.
* * * * *
    6. 11 CFR 104.8 would be amended by adding paragraph (g) to read as 
follows:


Sec. 104.8  Uniform reporting of receipts.

* * * * *
    (g) The principal campaign committee of the candidate shall report 
the receipt of any loan of money derived from an advance on a 
candidate's brokerage account, credit card, home equity line of credit, 
or other lines of credit described in 11 CFR 100.7(b)(22) and 
100.8(b)(24) as follows:
    (1) If the loan is paid directly to the candidate's authorized 
committee, the amount of the loan shall be reported as an itemized 
entry on Schedule A;
    (2) If the loan is paid to the candidate and the candidate makes a 
loan or a gift to the candidate's authorized committee, the money paid 
to the candidate shall be reported as a memo entry on Schedule A, and 
the candidate loan or gift to the candidate's authorized committee 
shall be reported as an itemized entry on Schedule A; or
    (3) See 11 CFR 100.7(b)(22)(iii) for special reporting rules 
regarding certain loans used for a candidate's personal living 
expenses.
    7. 11 CFR 104.9 would be amended by adding paragraph (f) to read as 
follows:


Sec. 104.9  Uniform reporting of disbursements.

* * * * *
    (f) The principal campaign committee of the candidate shall report 
repayment of any loan of money derived from an advance on a candidate's 
brokerage account, credit card, home equity line of credit, or other 
lines of credit described in 11 CFR 100.7(b)(22) and 100.8(b)(24) as 
follows:
    (1) If the candidate's authorized committee makes a repayment of 
the loan of money to either the candidate or the lending institution, 
the repayment shall be reported as an itemized entry on Schedule B; or
    (2) If the candidate makes a repayment of the loan of money to the 
lending institution, regardless of whether the candidate has received a 
repayment from the candidate's authorized committee or repayment is 
from the candidate's personal funds, the repayment shall be reported as 
a memo entry on Schedule B.

[[Page 38583]]

    8. The proposed revision of 11 CFR 104.18 published on May 9, 2001 
(66 FR 23632) would be further amended by revising paragraphs (h)(1)(i) 
and (ii) and adding paragraph (h)(i)(iii) to read as follows:


Sec. 104.18  Electronic filing of reports (2 U.S.C. 432 (d) and 434 
(a)(11)).

* * * * *
    (h) (1) * * *
    (i) Schedules C-1 and C-P-1, Loans and Lines of Credit From Lending 
Institutions (see 11 CFR 104.3(d);
    (ii) Form 8, Debt Settlement Plan (see 11 CFR 116.7(e)); and
    (iii) Schedule C-2 and C-P-2, Loans of Money Derived from an 
Advance on a Candidate's Brokerage Account, Credit Card, Home Equity 
Line of Credit, or Other Lines of Credit (see 11 CFR 104.3(d)).
* * * * *

PART 113--EXCESS CAMPAIGN FUNDS AND FUNDS DONATED TO SUPPORT 
FEDERAL OFFICEHOLDER ACTIVITIES (2 U.S.C. 439a)

    9. The authority for part 113 would continue to read as follows:

    Authority: 2 U.S.C. 432(h), 438 (a)(8), 439a, 441a.

    10. 11 CFR 113.1 would be amended by revising the introductory text 
in paragraph (g)(6) to read as follows:


Sec. 113.1  Definitions (2 U.S.C. 439a)

* * * * *
    (g) * * *
    (6) Third party payments. Notwithstanding that the use of funds for 
a particular expense would be a personal use under this section, 
payment of that expense by any person other than the candidate or the 
campaign committee shall be a contribution under 11 CFR 100.7 to the 
candidate unless the payment would have been made irrespective of the 
candidacy. ``Payment'' includes repayment, endorsement, guarantee, or 
co-signature of a loan described in 11 CFR 100.7(b)(22) and used for 
the candidate's personal living expenses. Examples of payments 
considered to be irrespective of the candidacy include, but are not 
limited to, situations where--
* * * * *

    Dated: July 19, 2001.
Danny L. McDonald,
Chairman, Federal Election Commission.
[FR Doc. 01-18439 Filed 7-24-01; 8:45 am]
BILLING CODE 6715-01-U