Question

Congress passed the Commercial Fraud Act and used it to reach and arrest Smith for loan sharking activities (collecting high interest loan payments). Smith claims his criminal activity was purely local and as such subject only to local and state criminal laws and penalties. The U.S. claims Smith is subject to the harsher Federal laws and penalties enacted under the power of the commerce clause. Is Congress’ use of the commerce clause to pass the Commercial Fraud Act , and to reach Smith, a lawful use of the commerce clause power? Cite any case(s) that may support your position.

Answer 1

Yes, Congress’ use of the commerce clause to pass the Commercial Fraud Act and to reach Smith will be a lawful use of the commerce clause power. This is because the commerce clause gives Congress the powers to regulate local activities as well as intrastate activities as well and hence Congress’ power is not limited and constrained to commerce with foreign nations and among several states.

Cases that support my positons are discussed below:

Gibbons v. Ogden – In this case the Supreme Court held that intrastate activity could be regulated under the Commerce Clause, provided that the activity is part of a larger interstate commercial scheme. In this case (i.e. of Smith) Smith’s loansharking scheme had the potential to spread to other states as well and could have affected loan activities at the interstate level as well.

Swift and Company v. United States – In this case the Supreme Court held that Congress had the authority to regulate local commerce, as long as that activity could become part of a continuous “current” of commerce that involved the interstate movement of goods and services.

Both the above cases point out that Congress can regulate local activities and intra-state activities if it affects interstate activities. It can be pointed out those loan sharking activities of Smith, though local in scale, would have affected disbursal of loans on an inter-state level as well.