Davidson v. United Auto Credit Corp.
The Military Lending Act (MLA) provides American servicemembers and their families with certain protections in consumer credit markets. Among other requirements, the MLA requires lenders, when offering a consumer loan to servicemembers or their dependents, to disclose an interest rate that accounts for all fees and charges the borrower will incur and to clearly describe the borrower’s payment obligations under the loan. The MLA also makes it illegal for the lender to require the borrower to waive certain legal rights or to agree to mandatory arbitration. Some car loans, however, are exempt from the MLA. In this case, the government filed a brief arguing that the MLA’s exemption for car loans does not apply to “hybrid loans” that are used to finance both the purchase of a car and also the purchase of a Guaranteed Asset Protection (GAP) insurance policy. Such an interpretation is not only the best reading of the statute but is necessary to ensure that lenders are not able to evade the MLA by packaging MLA-exempt loans with otherwise non-exempt loans.