United Auto attorney Stacy Blank told appeals judges that Brinkema properly dismissed Davidson’s case under the “plain language” of the law. The asset protection secured loan was secured by the car and was intended to finance it, Blank said.
“This [GAP] is a core function of auto lending,” Blank said.
Congress didn’t say the car loan exemption only applied to the vehicle, she added.
Guaranteed asset protection coverage protects a borrower who suffers a total loss from having to repay any loan balance beyond the value of the vehicle, which is all a traditional auto insurer is obligated to repay. Traditionally, finance and insurance managers typically sell guaranteed asset protection and other F&I coverage at the time of a vehicle purchase, and auto lenders are willing to finance these additional products with the vehicle as part of one car loan.
Both Mohan and Jennifer Bennett, a lawyer for Davidson, argued that the MP’s phrase “explicit purpose” limited the scope of the exemption to financing the vehicle itself.
GAP was “a financial product, not an automotive product,” Bennett said.
In 2016, the Department of Defense determined that a personal product loan containing “cash” financing in addition to financing to purchase the product would not qualify for the exemption. Mohan told the judges that the government believes the same logic “also applies here” to car loans.
“Just as a lender could not circumvent MLA member protections by bundling a stand-alone financial product such as a cash advance with an auto loan, so too can GAP coverage,” the Departments of Health wrote. Defense and Justice and the Consumer Financial Protection Bureau in their January Amicus Brief to the Court of Appeals.
Ahead of the January briefing, the Department of Defense flip-flopped on the issue. In 2017, it determined that a “credit-related product or service” like secured asset protection included in auto loan financing would not merit an exemption from the Military Loans Act – leading some dealerships to suspend GAP sales to service members. In 2020, the department retired the 2017 language and reverted to its 2016 guidelines, which do not specifically mention GAP at all.
Judge Julius Richardson pressed Bennett to prove that Congress defined “the express purpose of funding the [car] purchase” as limited only to the vehicle itself.
Richardson said it seemed like “explicit purpose” could mean not just “unique and unique” but also “specific and identified.” He said he could find examples of the latter.
“I haven’t been able to find one where it means ‘alone’ or ‘only’,” Richardson said.
When the Supreme Court used the term “explicit purpose,” it did not mean a single purpose, he added.
But Judge J. Harvie Wilkinson III said a principle of narrow statutory interpretation would not support the idea of exempt product lots simply because the lender declared them for the purpose of financing a vehicle.
“It’s clever labeling,” he said.
Wilkinson said the meaning of “express purpose” is clear from the statute.
“It’s a laser beam statement on purpose,” Wilkinson said. “That means car loans.”
He said the Brinkema lower court opinion allowed items “related” to the purchase of the vehicle, which he said “wrote a gloss on the law.”
He called it a “classic loophole” that could allow many items to benefit from the exemption.
“Then we enter this fantasy land,” Wilkinson said. Lenders and service members would have no guidance on what would count, he added.