The U.S. Court of Appeals for the 4th Circuit on Wednesday affirmed a lower court’s decision that bundling Guaranteed Asset Protection coverage does not make an auto loan subject to the Military Lending Act, or MLA.
Two of the three appellate judges at the Richmond, Va., court ruled that based on the MLA’s language, a retail installment contract that finances the vehicle purchase and GAP coverage “is for the express purpose of financing the car purchase” and therefore does not fall within the definition of consumer credit covered by the MLA.
Lawyers for defendant United Auto of Fort Worth, Texas, had argued the lower court correctly ruled under the “plain language” of the statute. The guaranteed asset protection loan was secured by the car and was for the purpose of financing it.
The U.S. Department of Justice and Department of Defense had argued a car loan that includes GAP financing would not receive the exemption Military Lending Act regulations allow.
The appellate opinion reaffirms a district court’s June 2021 decision in the class-action lawsuit Davidson v. United Auto Credit Corp.
Plaintiff Jerry Davidson, a member of the U.S. Army, filed in April 2020 a lawsuit against United Auto alleging the lender did not provide proper MLA disclosures and credit-related costs when the loan for his used GMC Acadia was originated in 2018.
Dealership finance and insurance staff commonly offer consumers the option to purchase GAP at the time of financing, which covers the balance between an insurance company’s estimated value of a damaged vehicle vs. the amount originally financed.
In response to Davidson’s appeal, attorneys Marci Kawski and Lisa Lawless of the firm Husch Blackwell filed an amicus curiae brief on behalf of the American Financial Services Association, National Automobile Dealers Association, Guaranteed Asset Protection Association, Consumer Credit Industry Association and the U.S. Chamber of Commerce. Their brief argued the MLA’s language does not extend to the type of transactions between United Auto and the plaintiff. Husch Blackwell’s brief said the MLA’s original purpose did not apply to retail installment contracts that finance items such as GAP and the ability of a service member to purchase and finance a vehicle, and items like GAP strongly benefit members of the military and support military readiness.
In the initial case, Davidson sought statutory damages of $500 per violation for himself and others affected in the class-action suit. He also asked that his GAP contract and the contracts of the other class members be voided. U.S. District Judge Leonie Brinkema on May 19, 2021, granted United Auto’s motion to dismiss the lawsuit. Based on the MLA’s language, the other costs financed in the car deal were exempt, Brinkema ruled.
“None of the three charges at issue in this action provide additional financing that is unrelated to the purchase of the motor vehicle; rather, they are inextricably tied to plaintiff’s purchase of the vehicle,” said Brinkema in 2021 court filings.
If the appeal had been successful, Kawski said in a written statement, “it would have overturned the long-held interpretation of the MLA, adversely affected members of the military, disrupted current business practices and impacted the secondary market. We are pleased with the Court’s decision.”
Davidson could appeal and ask the entire 4th Circuit to review the panel’s decision or take the case to the U.S. Supreme Court. In both cases, such requests are rarely granted.