Peer to Peer Campaign Finance
Posted by Peer-Lend on September 17th, 2008
The new wave of Peer to Peer Lending providers allow ordinary citizens to lend and borrow money with one another, online, in a convenient, secure and legally compliant manner. But is there a way to leverage this new financial service by combining it with a highly networked (and highly internet savvy) political support structure?
We present 2 potential synergistic use cases for “Peer to Peer Campaign Finance” - plus a handy dandy flowchart outlining one example case.
Political campaigns, by ubiquitous necessity, collect the majority of their contributions via credit card. A contribution made via credit card is nothing but a “loan” made to the contributor by the issuer of the credit card, with the proceeds of the loan then being transferred to the campaign (or, if you’re charging lunch, to a restaurant). This type of loan arrangement does not appear to constitute a violation of the federal prohibition on making a contribution in the name of another person or allowing one’s name to be used to effect such a contribution - everybody does it, regardless of political affiliation, and has done so for years, and will continue to do so.
But, as often occurs, new technologies and new paradigms present… new opportunities. The advent of online Peer to Peer Lending makes it possible for individuals (or groups of individuals) to make similar types of loans to one another - without the mediation of a bank or credit card issuer. Given that the interest rates and payment terms on each loan can be set by the individuals involved, rates and terms are often more favorable than those offered by traditional credit providers, and, additionally, affordable credit can be directly extended to those who might not otherwise have access to it at the time.
- Case 1: Peer to Peer Lending as a convenient, fixed-rate, 36-month alternative to Credit Card contributions.
- Potential contributors sign up with a Peer to Peer Lending marketplace and request a loan.
- Individuals (including, potentially, fellow supporters of the borrower’s cause of choice) bid on the loan request.
- A loan is issued to the borrower at an interest rate set by the individual lenders who have bid on the loan.
- The borrower is then able to use the proceeds of their loan to make their chosen contribution.
- Borrowers repay the loan over a fixed schedule (normally 36 months) with a fixed monthly payment at an interest rate which was set by the individuals who bid on the loan, and which is not subject to change.
- Case 2: Peer to Peer Lending as a convenient means for indirect support of a particular cause.
- Individuals sign up with a Peer to Peer Lending marketplace provider to lend.
- Loan requests by borrowers who support a common cause with the lender are identified.
- Individual lenders bid on the loan requests of borrowers with whom they identify.
- A loan is issued to the borrower from the funds of the lender (or a group of lenders).
- The borrower is then able to use the proceeds of their loan to make their contribution.
- The individual lenders are repaid over 36 months according to the terms of the loan.
Flowchart example - one potential P2P Campaign Finance implementation, “The Obama Loan“:
It is important to note that while there are strict federal guidelines about, for example, how much one individual can contribute to a particular political campaign cause in a particular year (for example, during a general presidential election, one may only directly contribute $2300), there are NO limitations on how much one can lend out to other individuals via a Peer to Peer Lending platform.
Think about that for just a minute. Happy 2008 Election!
September 26th, 2008 at 9:03 pm
[…] Peer-to-Peer Lending: • TNL.net presents fast pace look into the History of Currency. P2P Lending is thought to be the ‘uncurrency’ for the lack of a better word. • Sredel.com muses on P2P Lending - Counter to the Sub-Prime Loan Crisis? • Peer to Peer Lending and P2P Loans writes Peer to Peer Campaign Finance. […]
September 27th, 2008 at 9:11 pm
Perhaps I can shed some light on this. I have been working in campaign finance for a few years and as a Finance Director and consultant on a few federal races, I was forced to learn a little bit about election finance law (keep in mind, I wasn’t the treasurer, so not in charge of compliance, just bringing in the loot).
On the surface, there is nothing wrong with the above system…however, there have to be a few caveats.
1. Any amount loaned to a campaign by an individual either directly or through a surrogate is considered against the donation amount (excemtions are loans by the candidate or commercial loans at the fair market rate). (so no loaning through prosper once you’ve maxed out)
2. Any funds given to another individual, PAC or bundler that the donor knows or should reasonably know is going to a particular campaign is counted against the donation limit (so again, no lending through prosper when maxed)
Then again, if some really wanted to donate an amount of cash larger than they had liquid and they took out a prosper loan to do so….who would ever know? (and keeping in mind that the FEC almost never goes after individuals for campaign finance debauchery and currently doesn’t even have a quorum….just saying.
September 28th, 2008 at 3:23 am
@ Nate:
On 1: You’re talking about a loan made to a campaign. That is, fundamantally, NOT what occurs in this model. A loan is being made to an individual - not to a campaign - and so the statutes which you obviously have some familiarity with (which apply to campaigns) do not apply in this instance.
On 2: You are correct in what you state, but, again, it’s irrelevant to the model above. The operative word in what you write is “gives”. If you look into the actual statutory definition regarding what is and is not a “contribution”, you should find that since this is not “giving” - but is, instead, a “loan”, the statutes specifically exclude it as being a “contribution” when certain criteria (amortization, interest, and extension by an FDIC insured entity) are all met. (Note that each of the currently extant P2P lending platforms use an FDIC regulated entity at the end of their process flows to originate the actual loans.)
So, while agency (handwavy arguments re: “foreknowledge” or “intent”) certainly is an issue in cases where one is -giving- funds to another individual (which may find their way into a campaign), when one loans funds to another individual (just as VISA or MC may do), it’s irrelevant - the end borrower is free to spend the funds as they wish. Any conceivable argument to intent would implicate the CC processors, who themselves know full well when they auth a transaction to a campaign that they’re making you a fully qualified loan whose proceeds you will be using as a contribution. In fact, the CC’s are -more- involved, since they act directly as your agent and transfer the funds to the campaign on your behalf - while, under the model above, the borrower has to do that manually. :)
Naturally, none of the above is legal advice.