Federal court dismisses MLA class action lawsuit

Earlier this year, we blogged about a class action lawsuit pending in Virginia which alleged a lender violated the Military Lending Act (MLA) in offering vehicle purchase loans. Last week, that court issued a favorable decision, dismissing the case.

As background, the MLA rule has an exception for loans that are “expressly intended to finance the purchase of” a motor vehicle, where the loan is secured by the vehicle being purchased. There is a similar exception for certain loans financing the purchase of personal property. Some past interpretative rules created some confusion about the scope of this exception and what it means for a loan to be “expressly intended” to finance a vehicle purchase. The Department of Defense (DoD) did not address this issue in the original 2015 rulemaking, then issued guidance in 2017 indicating that loans which financed credit-related products like Guaranteed Auto Protection (GAP) would not fit into the rule’s exemption and therefore would be subject to the MLA.

In early 2020, the DoD rescinded that guidance, citing that creditors may be “unable to technically comply” if a vehicle purchase “included products not expressly related” to the purchase. This reverted the guidance to its 2016 state, where “question 2” only references the MLA’s exception for loans expressly intended to finance the purchase of personal property when secured by the property being purchased. More information about the guidance changes can be found in this NAFCU Compliance Blog post.

This lawsuit hinges in part on the meaning of this language in the exception as the plaintiff had purchased a motor vehicle in 2018 and the loan agreement did not contain MLA disclosures. While acknowledging the exception for vehicle purchase loans, the plaintiff was asserting that if a loan “also includes a credit-related product or service such as GAP removes the loan from the exclusion.” This is similar to the position that the Department of Defense (DoD) took in late 2017 but then rescinded. The defendant asserts that the MLA exception applies to these loans and filed a motion asking the court to dismiss the case.


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