Lawsuit focuses on Navy Lending Act exemption for automobile loans with GAP

Federal officers have once more argued that bundled Assured Asset Safety protection renders an auto mortgage topic to the Navy Lending Act, elevating a possible concern for dealerships and the auto finance business.

American Monetary Providers Affiliation Senior Vice President Celia Winslow warned the group’s Car Finance Convention & Expo on March 9 in regards to the amicus temporary filed by three federal companies in January.

GAP protection pays any mortgage stability not reimbursed by conventional auto insurers — that are obligated to cowl solely the precise worth of the car — after a complete loss. Winslow stated the federal government has reopened a marketing campaign to make GAP topic to the Navy Lending Act regardless of Congress excluding car loans to service members from the regulation.

“This can be a large downside,” she stated.

The Shopper Monetary Safety Bureau and Departments of Protection and Justice argued in a Jan. 6 amicus brief for the GAP class-action lawsuit Davidson v. United Auto Credit score that “hybrid loans” containing a car and “a definite nonexempt product” equivalent to elective GAP would not be exempt.

“The lender’s place is, in impact, that it will possibly evade the MLA by creatively packaging an in any other case lined mortgage with an exempt mortgage,” the bureau’s General Counsel Seth Frotman and Office of Servicemember Affairs Assistant Director Jim Rice wrote in a Jan. 7 blog post. “The lender’s studying of the statute permits the slender exception to swallow the rule and renders the MLA’s necessary protections hole.”

Eastern District of Virginia Judge Leonie Brinkema agreed with lender United Auto Credit in a May 19, 2021, opinion. The plaintiff, Jerry Davidson, has appealed to the Fourth Circuit.

“If this case will get determined the fallacious manner, litigation goes to blow up,” Winslow stated March 9.

Nonetheless, she stated the affiliation is “comparatively optimistic” in regards to the final result of the case.

She stated the American Monetary Providers Affiliation is getting ready its personal amicus temporary and is working with the Nationwide Vehicle Sellers Affiliation and different commerce teams on the problem. “The complete business is united” on the stance that car finance is excluded from the regulation, she stated.