The U.S. Court of Appeals for the 4th Circuit affirmed a lower court's decision that bundling Guaranteed Asset Protection, or GAP, coverage in financing doesn't make an auto loan subject to the Military Lending Act.

The court determined that, based on MLA’s wording, the retail installment contract that finances the vehicle purchase and GAP coverage, is for the explicit goal of financing the vehicle purchase. The ruling indicates that the installment contract doesn't fit within the definition of consumer credit regulated by the MLA.

Attorneys representing United Auto of Fort Worth, Texas, maintained that the lower court had correctly interpreted the "plain language" of the statute. They asserted that the GAP loan is secured by the car and is for financing it.

The appellate court decision affirms the district court's June 2021 ruling in the Davidson v. United Auto Corp. class-action lawsuit, plaintiff Jerry Davidson of the U.S. Army sued United Auto in April 2020, accusing the company of not offering the necessary MLA disclosures and credit-related expenses when it originated the loan for his used GMC Acadia in 2018.

In the original case, Davidson sought:

$500 per violation in statutory damages for himself and others in the suit

Voiding of his GAP contract and the contracts of the other class members

Attorneys Marci Kawski and Lisa Lawless of 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. The brief asserted that the MLA:

Does not extend to the type of transactions between United Auto and the plaintiff

Did not apply to retail installment contracts and the ability of a service member to purchase and finance a vehicle

Items like GAP strongly benefit members of the military and support military readiness.

In May 2021, U.S. District Judge Leonie Brinkema dismissed the lawsuit ruling that the other costs financed in the car deal were exempt based on MLA's language. The charges are “inextricably tied to plaintiff's purchase of the vehicle," said Brinkema in court filings.

Davidson can appeal the decision and ask the entire 4th Circuit to review the panel's decision. He also could take the case to the U.S. Supreme Court. Rarely are such requests granted.