Mid-Atlantic dealers: You Don’t Know How Close You Came to Your F&I World Changing.

And other dealers would not have been far behind


May 16, 2023

By Michael G. Charapp
Charapp & Weiss LLP

For years, controversy surrounded the purchase money exclusion to the Military Lending Act. The expansiveness of the purchase money exclusion depended on the occupant of the White House, and his nominees to the regulatory agencies with either direct jurisdiction of the MLA or an interest in pushing the “benefits” of the MLA on the public at large.

The MLA was enacted to strengthen the bargaining power of active military, their spouses, and their direct family in many types of transactions. The intent of the purchase money exclusion was to remove from the jurisdiction of the Act credit offered for the express purpose of financing the purchase of a vehicle and secured by the purchased vehicle.

The question in recent years became whether ancillary products, particularly those that are finance-related like gap, excluded the sale of the vehicle and the gap from the purchase money exclusion. The view was championed by consumer zealots who wanted to expand the rights under the MLA — limited APR that was “all in,” meaning the prices of certain VPPs were included, particularly those credit-related such as gap, arbitration limitations, and other service member rights enhancements.

On April 12, 2023, a split decision of a panel of the Fourth Circuit Court of Appeals ruled in Davidson v. United Auto Credit Corporation, 2023 U.S. App. LEXIS 8747 (4th Cir. (E.D. Va.) April 12, 2023) in favor of the defendant that inclusion of gap in a vehicle purchase transaction did not bring the matter within the scope of the Military Lending Act. In its analysis, the court concentrated on the language of the purchase money exclusion since it applies to financing for the express purpose of financing the purchase of a motor vehicle where the financed vehicle secures the purchase. The plaintiff, along with his supporters, argued that express purpose should be read as the “only purpose.” Thus, when one adds gap to the vehicle purchase, they argued, the vehicle purchase transaction is excluded from the MLA. Fortunately for dealers, the court disagreed.

Plaintiffs in other cases will argue that this case establishes precedent only for the Fourth Circuit which covers Virginia, Maryland, North Carolina, South Carolina, and West Virginia. They will argue that in other circuits, the courts are free to reach their own decisions. However, the Davidson case is extremely well analyzed, and it will have impact throughout the federal circuits with respect to beneficiaries of the MLA. And because proponents of the MLA view that the purchase money exclusion should be expanded to protect the public at large, a position argued by proponents when they have regulatory authority, including the present regulators in charge, there will be attempts to undermine the Davidson decision.

We will keep you advised of any further developments in this area.