It sounds like you figured out the problem before you got a correct response. You are right in that you should not ever be “on a loose rein.” That is a misconception. The directive in the test is very clear…“allowing the horse to take the reins forward and downward.” The idea behind the movement is to test the horse’s balance as he stretches into the CONTACT. You should never be on a loose rein or “down to the buckle.” This goes for free walk too which is often done incorrectly - people drop the horse like a hot potato. You help him maintain his balance as he stretches forward and down. If your horse is running it’s because he’s lost his balance as you surmised.
If anyone else posted that, I’m sorry for repeating. I didn’t read all the replies after your second post.