New Interpretation of Military Lending Act Impacts Sale of
GAP to Active Duty Military Members & Their Dependents
On October 3, 2016, new Military Lending Act (MLA) protections went into effect. The updates to the MLA included a wide range of credit products that were not previously covered under the Act, providing new protections to active-duty personnel and their spouse and dependents. These protections include:
- Limiting APR to 36 percent
- Military-specific disclosures
- A prohibition against required arbitration for disputes
Generally, the financing of vehicles was previously considered exempt from the MLA requirement. However, on December 14 2017, the Department of Defense (DoD) issued an amended interpretive rule that states:
[A] credit transaction that finances the purchase of a motor vehicle (and is secured by that vehicle), and also finances optional leather seats within that vehicle and an extended warranty for service of that vehicle is eligible for the [exemption]. (Federal Register, Vol. 82, No. 239, page 58740, December 14, 2017.)
That was the good news. The bad (and shocking) news was what followed:
[A] credit transaction that includes financing for Guaranteed Auto Protection insurance or a credit insurance premium would not qualify for the [exemption]. (Federal Register, Vol. 82, No. 239, page 58740, December 14, 2017; emphasis added.)
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