Military Lending Act: ‘Express purpose’ not ‘sole purpose’  

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By Nick Hurston 

The 4th U.S. Circuit Court of Appeals has upheld the dismissal of a military servicemember’s claim that the financing of additional insurance as part of his car loan wasn’t for “the express purpose” of purchasing the car and, thus, was subject to the Military Lending Act, or MLA. 

On appeal, the servicemember argued that the MLA’s car-loan exception applied only if “the express purpose,” rather than “an express purpose,” of the loan was to finance the purchase of a car.  

Fourth Circuit Judge Julius N. Richardson disagreed. 

“Is the statute’s exception contingent on the loan financing solely the purchase of the car — i.e., is the dual-purpose loan no longer offered for the express purpose of financing the car? The district court said no and we agree,” Richardson wrote. “If a loan finances a car and related costs, then it is for the express purpose of financing the car purchase and the exception can apply.” 

Judge Stephanie D. Thacker joined Richardson’s decision in Davidson v. United Auto Credit Corporation (VLW 023-2-102). 

Judge J. Harvie Wilkinson III dissented. 

“It is a form of stealth financing for lenders to impose higher prices on service members — who just need a car — through add-ons on top of add-ons,” he noted. “The MLA was supposed to forestall this practice. But the majority gives it new life.” 

Car loan 

While on active duty with the U.S. Army, Jerry Davidson financed the purchase of a car with a loan from United Auto Credit Corporation. The loan included the cost of Guaranteed Asset Protection, which is extra insurance to cover the unpaid loan if the car is totaled or stolen. 

Davidson sued United Auto in the Eastern District of Virginia, alleging that the lender violated the Military Lending Act because the loan agreement mandated arbitration and failed to disclose certain information.  

U.S. District Judge Leonie M. Brinkema dismissed the case, saying the loan wasn’t covered by the MLA. The act only applies to “consumer credit” loans; Davidson’s loan wasn’t “consumer credit” because it satisfied the MLA’s car-loan exception, the judge reasoned.  

Davidson appealed. 

‘Express purpose’ 

The MLA regulates lenders when they extend “consumer credit” to members of the military. However, an exception applies for car loans. 

Under § 987(i)(6) of the MLA, a loan isn’t “consumer credit” if it was “procured in the course of purchasing a car … when that loan is offered for the express purpose of financing the purchase and is secured by the car.”  

Here, Davidson’s appeal depends on whether United Auto’s loan was “offered for the express purpose of financing the purchase” of his car.  

“So we must interpret the phrase ‘for the express purpose,’” Richardson said. “If that phrase, as used in the Act, means merely ‘for the specific purpose,’ United Auto wins. If it means ‘for the sole purpose,’ Davidson wins.”  

Conditional statement 

Richardson first examined dictionaries published close in time to the MLA’s enactment; support for both positions was found.  

However, when read in context, the judge held that “Section 987(i)(6) uses ‘for the express purpose’ to set a condition. This context informs what we, the reviewing court, ask when applying the exception.”  

Richardson said conditional statements have a condition and a conclusion. 

“If you do this (the condition), then you get that (the conclusion),” he explained. “When the condition is met — for our purposes — the conclusion must follow.” 

The judge said that the “this” in § 987(i)(6) was three separate items on a tick list to be checked off when evidence shows they were done.  

“When we hit three marks, you get ‘that.’ No matter what else you may have done,” Richardson said. 

Here, for the court’s purposes, the relevant conditional statement was: “If a loan is given for the express purpose of financing the purchase of a car, then it is not covered by the Act.’” 

Not a directive 

Two U.S. Supreme Court opinions showed “for the express purpose” meant for the specific —not the sole — purpose when used as part of a condition, the judge wrote. When used as a directive, on the other hand, the phrase typically means for the sole purpose. 

Richardson said the provision here is not a directive. 

“Our provision doesn’t order anyone to do anything” he wrote. “It lays out definitional elements to be checked rather than commands to be followed. Thus, we read ‘for the express purpose’ to mean ‘for the specific purpose’ rather than ‘for the sole purpose.’”  

Davidson contended that the provision used “the express purpose,” not “an express purpose,” meaning that to qualify for the car-loan exception, a loan must have a single purpose: financing the purchase of a car.  

Richardson disagreed. 

“Congress has specifically instructed that, when we are performing statutory interpretation, courts should assume that ‘words importing the singular include and apply to several … things,’ ‘unless context indicates otherwise,’” he explained. “So we must assume that, when § 987(i)(6) asks whether a loan is offered ‘for the express purpose’ of financing a car purchase, it allows the loan to be made for multiple purposes unless context dictates otherwise. And as already explained, here it does not.” 

Even if Davidson were correct that the “the” in § 987(i)(6) was an affirmatively singular modifier, the judge said the conclusion wouldn’t change. 

“‘The’ express purpose the exception cares about is financing the purchase of a car,” Richardson wrote. “It says nothing about other express purposes the loan might have. So Davidson’s argument fails.” 

Finding that the United Auto loan satisfied all three conditions under § 987(i)(6), Richardson said it was irrelevant that it also financed GAP protection.  

“The loan is exempted from the Act,” Richardson concluded, “no matter what else it financed.”  

Dissent 

Wilkinson penned a lengthy dissent, saying the majority “undermines the Act by blessing hybrid loans and product bundles as exempt.”  

These “are financings in which the lender packages non-exempt financial products with a vehicle or personal-property loan,” the judge noted. 

 “By carving out such amalgamations from the MLA, the majority invites lenders to market financial products — that would otherwise be subject to the Act — through an unregulated back door,” Wilkinson wrote. “The end result is to ‘open a loophole allowing easy evasion of the statutory provision’s basic purposes.’” 

Rather than engage in “purposive inquiry,” Wilkinson maintained that the text of the MLA speaks plainly enough: “exempt loans must be made for ‘the express purpose’ of financing a car.”  

“This language, read in the context of the Act, does not refer to an ‘explicitly stated’ or ‘related’ purpose, as the majority lets on,” he wrote. “Rather, it refers to a purpose that is specific, precise, and exact — in short, ‘the express purpose.’”