2018 GNYADA Membership Directory

NEW MILITARY LENDING ACT INTERPRETATION

The Department of Defense (DoD) issued an interpretation of its Military Lending Act (MLA) regulation that triggers duties and restrictions when creditors include Guaranteed Automobile Protection (GAP) coverage or other credit-related products in a motor vehicle financing contract with covered borrowers. What is MLA and who does it apply to? The MLA is a 2006 law which restricts the terms of certain consumer loans made to certain military personnel, their spouses, and dependents. These individuals are “covered borrowers”. How do I know if someone is a covered borrower? As part of the sale, your dealership must check the status of prospective borrowers at https://mla.dmdc.osd.mil/ mla/#/home. What if someone is a covered borrower? Motor vehicle finance contracts that also finance products related to credit, such as GAP or credit insurance, are regulated by the MLA. If a credit related product is included in a vehicle financing contract with an active duty service member or family member, the dealer likely cannot take a security interest in the financed vehicle. The DoD clarified that motor vehicle finance contracts that also finance costs expressly related to the product, such as a service contract, or negative trade equity, remain exempt. New York also has a law prohibiting discrimination against service members in the context of credit decisions so don’t reject a service member’s credit application to avoid dealing with the MLA. What should dealers do now? • Talk to your financing institutions to find out their MLA policies. It is likely that they will report not offering anything that triggers the MLA. • Since New York requires GAP be offered in certain circumstances,

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it is likely the financing company will just tell consumers they are not responsible for the GAP if there is a loss to avoid triggering the statute. The contents of this article are not legal advice but given for informational purposes only. Talk to your dealership attorney about next steps.