Court Sides With UACC
Service members, their families, the vehicle finance industry, and enthusiasts for statutory interpretation won in the 4th Circuit today. A panel of judges voted 2-1 to affirm a district court opinion in Davidson v. United Auto Credit Corporation.
The question in this case is whether the Military Lending Act (MLA) applies to auto loans. The court ruled that it does not. Had the court ruled the other way, thousands of vehicles owned by servicemembers and their families would have been in jeopardy, possibly subject to repossession by lenders.
More specifically, the MLA regulates lenders when they extend “consumer credit” to members of the military and their dependents. But, the MLA includes an exemption for loans that are “procured in the course of purchasing a car … when that loan is offered for the express purpose of financing the purchase and is secured by the car.”
The Davidson opinion explains: “So if a member of the military takes out a secured loan to purchase a car, then the exception is satisfied and the Act does not apply. But what happens when the loan finances both the car and some related costs? Is the statute’s exception contingent on the loan financing solely the purchase of the car—i.e., is the dual-purpose loan no longer offered for the express purpose of financing the car? The district court said no and we agree. If a loan finances a car and related costs, then it is for the express purpose of financing the car purchase and the exception can apply.”
If the exception had not applied, all auto loans that financed related costs, such as GAP, would have been in violation of the MLA. Loans made in violation of the MLA are declared to be void from inception. Vehicles bought by servicemembers and their families and secured by financing with a GAP waiver, would be suddenly declared void, introducing a tremendous amount of uncertainty that would be sure to harm service members and their families.
AFSA and other trade associations submitted an amicus brief explaining that an adverse decision would “upend years of settled expectations,” “contradict the plain language of the statute,” and “run contrary to the MLA’s goal to ensure military readiness and its component, financial readiness.”
AFSA also worked with members of Congress to submit their brief. The members of Congress wrote, “When Congress passed the MLA, it did not intend for it to apply to vehicle loans such as the retail installment contract at issue in this appeal.”
The Consumer Financial Protection Bureau, Justice Department, and Defense Department submitted an amicus brief supporting Davidson.
Davidson could appeal the decision and ask the entirety of the 4th Circuit to review the panel’s decision. Such requests, though, are rarely granted.
April 12th, 2023
