UPDATED: NADA, NIADA & AFSA cheer DOD’s decision involving Military Lending Act and GAP
Dealerships and finance companies now again can cater to servicemembers and their families just like any other civilian customers who finance a vehicle purchase.
According to a news release distributed on Thursday afternoon, the U.S. Department of Defense has granted a joint petition filed by the National Automobile Dealers Association (NADA) and the American Financial Services Association (AFSA) to withdraw Question and Answer (Q&A) 2 from a December 2017 Interpretive Rule that sought to define the scope of the vehicle financing exclusion to the Military Lending Act (MLA).
The development also came as welcomed news to the National Independent Automobile Dealers Association (NIADA).
The associations explained that Q&A 2 interpreted the MLA in a way that effectively prevented dealers from making Guaranteed Asset Protection (GAP) Waiver coverage available to servicemembers, who previously were able to voluntarily purchase GAP waiver to protect against the personal financial risk that arises when a vehicle is declared a total loss.
As a result, the associations pointed out the Defense Department’s issuance of Q&A 2 “unnecessarily” exposed servicemembers to significant liability by effectively eliminating their ability to adequately protect themselves from incurring financial losses in the event of the total loss of a vehicle.
In January 2018, NADA and AFSA jointly petitioned the Defense Department to withdraw Q&A 2. During the next 25 months, NADA and AFSA worked to demonstrate to the Defense Department that this interpretation created a trio of consequences, including
— Impermissibly narrowed the scope of the motor vehicle financing exclusion that Congress created when it enacted the MLA
— Was issued in an uninformed and procedurally-deficient manner
— Was harming service members and undermining military readiness
NADA and AFSA recapped that they also explained that attempting to comply with the MLA as it relates to credit-related products was not economically feasible because one of the restrictions that applies to non-depository institutions like dealers was their inability to take a security interest in the vehicle collateral.
In explaining its decision to withdraw Q&A 2, the Defense Department stated that it “finds merit in (the security interest) concern and agrees additional analysis is warranted.”
NADA president and chief executive officer Peter Welch and AFSA president and chief executive Bill Himpler issued ajoint statement in response to Defense Department’s action.
“This is a great victory for military service members and their families. It is critically important for members of the military to have the ability to purchase valuable credit-related products such as optional GAP waiver protection when they finance the purchase of a new vehicle,” Welch and Himpler said.
Hudson Cook chairman Michael Benoit elaborated about Thursday’s development.
“Because the effect of the DOD withdrawal is a recognition that auto financing contracts that include credit-related products like GAP waiver are within the scope of the motor vehicle financing exclusion, I expect that auto-finance companies will again feel comfortable purchasing contracts from dealers that include GAP waiver,” Benoit said.
“Because the effect of the DOD withdrawal is a recognition that auto financing contracts that include credit-related products like GAP waiver are within the scope of the motor vehicle financing exclusion, I expect that auto finance companies will again feel comfortable purchasing contracts from dealers that include GAP waiver,” Benoit said.
The National Independent Automobile Dealers Association applauded the Defense Department’s decision, too.
“The removal of this rule is a huge win for the military community and the auto dealers who serve their transportation and automotive finance needs,” NIADA chief executive officer Steve Jordan said in a separate statement. “Further, NIADA is thrilled that revoking Q&A No. 2 signals a continued interest in disavowing inherited bad policy in favor of reasonability and fair thought by the agencies that have operational oversight of the automotive industry.
“It’s a great day when common sense prevails for the driving public, especially those serving our nation in the military,” Jordan added.
In its interpretive rule withdrawing Q&A No. 2, NIADA pointed out the Defense Department said it “finds merit” in creditors’ concerns that they would be “unable to technically comply with the MLA” on such purchases because “the regulation would prohibit creditors from taking a security interest in the vehicle in those circumstances and creditors might not extend credit if they could not take a security interest in the vehicle being purchased.”
While the department did not take a position on that issue, the Defense Department did agree “additional analysis” is needed.
NIADA, which also has been advocating for the withdrawal of Q&A No. 2 for more than two years, looks forward to working with the department as it conducts future analysis.
“NIADA worked tirelessly along with other industry organizations to impress on DoD the importance of removing this unnecessary restriction,” NIADA senior vice president of legal and government affairs Shaun Petersen said. “The withdrawal allows military servicemembers and their families to have access to these much-needed credit-related products.”