Skip to content

Menu

ChannelsPublishersSubscribe
LexBlog, Inc. logo
LexBlog, Inc. logo
ProductsSub-MenuBlogsPortalsTwentySyndicationMicrositesResource Center
Join
Search
Close
Join the Movement. Blog 4 Good

Department of Defense Withdraws Troublesome Military Lending Act Guidance

happy-military-officer-having-fun-with-his-baby-son-at-home-picture-id1182660420
By Andrew J. Narod, J. Riley Key & Christopher K. Friedman on March 3, 2020
EmailTweetLikeLinkedIn

In a significant victory for servicemembers and their families, who will again have access to products designed to protect them in the event of a total vehicle loss, the Department of Defense has revised its guidance that previously prevented auto lenders from offering service members Guaranteed Asset Protection (GAP) waivers in connection with a vehicle purchase. The repeal is also a victory for the auto vehicle finance industry itself, which will benefit from clearer and more predictable guidance related to the Military Lending Act (MLA). This change is the result of a joint effort by the American Financial Services Association (AFSA) and the National Automobile Dealers Association (NADA).

On February 27, 2020, the Department of Defense amended its interpretive rule for the MLA to repeal previous guidance from 2017 that held vehicle GAP waiver plans, along with other credit-related products, were not exempt from the MLA, denying servicemembers and their families access to those products.

The previous guidance took the form of an amendment to the Department of Defense’s interpretation of the MLA related to, among other things, vehicle extended warranty plans in guidance termed as Question and Answer 2 (QA2). Specifically, QA2 asked whether credit that a creditor extends for the purpose of purchasing a motor vehicle or personal property, which secures the credit, falls within the exception to “consumer credit” under 32 CFR 232.3(f)(2)(ii) or (iii) where the creditor simultaneously extends credit in an amount greater than the purchase price of the motor vehicle. The Department of Defense, in its 2017 guidance, stated that the answer “depend[s] on what the credit beyond the purchase price of the motor vehicle or personal property is used to finance.” Under this guidance, “financing costs related to the object securing the credit” will fall within an MLA exception. However, financing for “credit related costs” would not be excepted. And per QA2, “credit related costs” include “a credit transaction that includes financing for [GAP] insurance or a credit insurance premium would not qualify for the exception under §232.3(f)(2)(ii) or (iii).”

The practical effect of QA2 was to deny servicemembers the opportunity to purchase GAP waiver policies, leaving them and their families exposed to unnecessary financial risk in the event their automobile suffered a total loss. Recognizing that QA2 would ultimately harm the very people it sought to protect, AFSA and NADA engaged in a joint effort to persuade the Department of Defense to remove this interpretation.

In January 2018, AFSA and NADA issued a joint letter to the Department of Defense requesting an immediate withdrawal of QA2. The letter informed the Department of Defense that its 2017 interpretation impermissibly narrowed the scope of the statutory motor vehicle financing exclusion, and significantly undermined servicemember readiness by effectively foreclosing active duty servicemembers and dependents access to the full range of protections provided by GAP waiver coverage and other credit-related products.

The letter also illustrated the damaging effects the new interpretive guidance caused to this market segment by drawing special attention to the fact that the guidance was making automobile lending to servicemembers particularly difficult. According to AFSA and NADA, QA2 was “drying up the availability of these products to covered members (and in some cases all consumers) overnight” and “creat[ing] . . . massive turmoil in the marketplace among companies that provide, retail, and finance these products.”

AFSA and NADA’s efforts paid off. In issuing its revised guidance the Department of Defense suggested that it is open to hearing from all stakeholders, noting that its decision to withdraw QA2 was driven by the fact that it “[found] merit in [the] concern [raised by ASFA and NADA]” that “creditors would be unable to technically comply with the MLA if the purchase included products not expressly related to the purchase of the vehicle[,]” such as GAP waivers.

As mentioned above, the elimination of QA2 is an unambiguous victory for both borrowers and lenders. However, the Department of Defense’s reversal also illustrates that a concerted effort by stakeholders to inform agencies of the unintended harms posed by certain regulations, and to persuade agencies to make helpful policy changes, often pays off. This is especially true where, as here, the agency demonstrates a willingness to approach problems with an open mind.

Photo of Andrew J. Narod Andrew J. Narod

Andrew Narod represents financial services institutions in civil litigation and compliance matters across the country as part of his litigation and financial services practice. His litigation experience includes a diverse range of issues facing financial institutions and mortgage servicers, including lender liability lawsuits…

Andrew Narod represents financial services institutions in civil litigation and compliance matters across the country as part of his litigation and financial services practice. His litigation experience includes a diverse range of issues facing financial institutions and mortgage servicers, including lender liability lawsuits and representation of clients in consumer litigation. Andrew routinely defends his clients in a wide array of claims arising under state and federal regulations, including the Fair Debt Collection Practices Act (FDCPA), Fair Credit Reporting Act (FCRA), the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and the Telephone Consumer Protection Act (TCPA), as well as claims regarding unfair and deceptive trade practices and fraud. Andrew has also defended mortgage originators in residential mortgage backed securities repurchase litigation. He has additional experience in advising automobile lenders in an array of regulatory and compliance matters and defending related class-action lawsuits arising under state and federal regulations. He also assists financial services clients facing investigations and enforcement actions by the CFPB and other regulators. View articles by Andrew.

Read more about Andrew J. NarodEmail
Show more Show less
Photo of J. Riley Key J. Riley Key

Riley Key works with financial services clients across the country facing regulatory and enforcement challenges related to obligations imposed by the CFPB, as well as various other federal and state laws. Specifically, Riley helps clients navigate compliance with the Mortgage Servicing Final Rules…

Riley Key works with financial services clients across the country facing regulatory and enforcement challenges related to obligations imposed by the CFPB, as well as various other federal and state laws. Specifically, Riley helps clients navigate compliance with the Mortgage Servicing Final Rules in Regulations X and Z and the TILA-RESPA Integrated Disclosure Rule, as well as a host of federal and state regulations, including TILA, RESPA, FDCPA, FCRA, and ECOA. View articles by Riley.

Read more about J. Riley KeyEmail J. Riley's Linkedin Profile
Show more Show less
Photo of Christopher K. Friedman Christopher K. Friedman

Chris Friedman is a regulatory compliance attorney and litigator who focuses on helping consumer finance companies and small business lenders, as well as banks, fintech companies, and other participants in the financial services industry, address the challenges of operating in a highly regulated…

Chris Friedman is a regulatory compliance attorney and litigator who focuses on helping consumer finance companies and small business lenders, as well as banks, fintech companies, and other participants in the financial services industry, address the challenges of operating in a highly regulated sector. Chris focuses on both small business lenders and alternative business finance products and has helped merchant cash advance companies, non-bank small business lenders, banks who make small business loans, commercial credit counselors, lead generators, and others in the industry. He helps clients launch new products, conduct due diligence, engage in compliance reviews, evaluate litigation risk, and solve some of the unique legal problems faced by companies who work with small businesses. In that vein, Chris has written extensively about the upcoming rulemaking related to Dodd-Frank 1071, which will require data collection and reporting by companies making loans to certain small businesses. View articles by Chris.

Read more about Christopher K. FriedmanEmail Chris's Linkedin Profile
Show more Show less
  • Posted in:
    Featured Posts, Financial
  • Blog:
    Financial Services Perspectives
  • Organization:
    Bradley Arant Boult Cummings LLP
  • Article: View Original Source

Stay Connected

Facebook LinkedIn Twitter RSS
Real Lawyers

Company

  • About LexBlog
  • Careers
  • Press
  • Contact LexBlog
  • Privacy Policy
  • Editorial Policy
  • Disclaimer
  • Terms of Service
  • RSS Terms of Service

Products

  • Products
  • Blogs
  • Portals
  • Twenty
  • Syndication
  • Microsites

Support

  • 1-800-913-0988
  • Submit a Request
  • Support Center
  • System Status
  • Resource Center

New to the Network

  • Tax Controversy & Financial Crimes Report
  • Roberts Disability Law Blog
  • Animal Law Update
  • International Labor and Employment Law
  • Wills, Trusts & Estates Prof Blog
Copyright © 2021, LexBlog, Inc. All Rights Reserved.
Powered By LexBlog