“Navigating the Impact of DOD Guidance on GAP Coverage for Active Duty Service Members at Dealerships”
Guidance issued by the Department of Defense (DOD) over 18 months ago has significantly impacted a dealer’s ability to offer GAP coverage to their customers. As a result, many dealers have been struggling to develop policies that are compliant with the Military Lending Act (MLA). In this article, we will provide an overview of the DOD guidance and offer a step-by-step procedure for dealers to follow in order to comply with the new regulations while minimizing the impact on their business.
The Military Lending Act, which was enacted in 2006, was designed to protect active duty service members and their dependents from predatory lending practices. The act applies to certain types of consumer credit, including vehicle loans, and places a 36% cap on the annual percentage rate (APR) for these types of loans. In 2017, the DOD issued an amendment to the MLA regulations which included a prohibition on the inclusion of credit insurance, such as GAP coverage, in the finance charges for loans to covered borrowers.
In simple words, the DOD guidance makes it very difficult for dealers to develop a policy that is MLA compliant. As a result, the easiest way to comply with the DOD guidance is for dealers to not offer GAP to active duty service members or their dependents, therefore not triggering the MLA.
One way to comply with the DOD’s new guidance may be to adopt some variation of the following procedure at your dealership:
Step 1 – Identify whether a customer is a “covered borrower” under the MLA. This can be done through a credit bureau check or by accessing the DOD’s website at https://mla.dmdc.osd.mil/.
Step 2 – Don’t offer GAP to customers that are “covered borrowers.”
It is important to note that this is not the only way to comply with the DOD guidance, but it is a simple and effective method to minimize the impact on your dealership. Additionally, it’s advisable to seek legal advise and consult with trade associations or professional groups to ensure full compliance with the MLA.
In conclusion, the DOD guidance on the Military Lending Act has created challenges for dealers when it comes to offering GAP coverage to their customers. However, by following the simple procedure outlined in this article, dealers can comply with the new regulations and continue to provide quality service to all of their customers.
