John McCain has come into some trouble this week with the Federal Election Commission.  The FEC released a letter to Senator McCain this week, questioning his ability to withdraw from the presidential public financing system, which would allow him to bypass spending limits.  By signing up under the financing system, McCain had to agree to a $54 million spending cap in the primaries, a cap that he has almost reached (he has reportedly spent almost $49 million in the primaries).  McCain originally opted into the public financing system for the primaries in the summer when his campaign was faltering.  But then McCain's campaign recovered and he sent a letter to the FEC withdrawing his decision to opt in, relying on the precedent of a 2003 FEC decision allowing Richard Gephardt to withdraw from the system, given that he had not received any federal funds yet.

The tricky question comes now over a couple loans McCain has taken out since beginning his bid for presidency, and these are now coming under the scrutiny of the FEC.  McCain originally secured a loan in November for $3 million, promising to use a list of contributors and to take out a life insurance policy to pay off the loan.

He then took out an additional $1 million in a loan from a Bethesda bank in January.  The bank was worried about McCain's ability to repay the loan if he exited the public financing program and started to lose the race, which would hinder his ability to raise money for repayment.  McCain promised the bank that, if that happened, he would reapply for matching funds and use those funds as collateral for the loan.  Basically this means that rather than pledge his existing matching funds as collateral for the loan, McCain carefully pledged to re-enter the system later, thereby using a non-existent future certification (of public funds) as collateral.

So McCain puts forth that he is no longer in the public financing system, because he only pledged to re-enter if his campaign was faltering and he needed to use the federal funds to pay off the $1 million bank loan.  But David Mason, the FEC chairman, appeared skeptical in his Tuesday letter to McCain.  "[I]n your letter, you state that neither you nor your [campaign] has pledged the certification of [public] funds as security for private financing ... we invite you to expand on the rationale for that conclusion," Mason wrote.

The big problem complicating the issue is the lack of a quorum at the FEC right now, where only two out of six seats are occupied because of a Senate deadlock over President Bush's nominations; therefore, no campaign finance matters can be officially considered by the commission.  So until the commission can vote on the issue (which it can't without a quorum), the FEC says McCain must stay in the system and therefore abide by the set spending limits.

McCain's lawyer, Trevor Potter, said that McCain has withdrawn from the system and the FEC can't stop him.  Potter said that the campaign did not encumber the public funds in any way.  "We think it's perfectly legal. One of our advisers is a former chairman of the FEC, and we are confident that it was an appropriate thing to do," McCain said.

Various lawyers and former FEC commissioners have been trying to figure out if McCain's actions are legal, as there is no precedent for a candidate using the public financing system in this manner.  This all comes at an awkward time for McCain, as he aggressively attacked Senator Obama last week, accusing him of reneging on his promise to use public financing in the general election of the presidential race if nominated, blaming him for using "Washington doublespeak" and telling reporters that Obama should "keep his promise to the American people."