Page 37 - GIADA-Jan-2018-Final

LEGISLATIVE DEVELOPMENT

New Rule for Sales to Military

Servicemembers

By Shaun Petersen, NIADA Senior Vice President of Legal and Government Affairs

In mid-December, the Department of Defense reads, “but financing credit-related costs disclosures must be provided in writing and
issued a new interpretation of the Military will disqualify the transaction from the orally. In addition, the transaction is subject
Lending Act, impacting sales to members of exceptions.” to the military APR rate cap of 36 percent and
the military and their dependents. other contractual limitations will be imposed,
So what are “costs related to the object including a ban on arbitration provisions.
When Congress passed the Military Lending securing the credit”?
Act, it imposed a series of requirements for One of the options many are considering
extending credit to members of the military DoD provided some examples of costs that to ensure compliance is simply not offering
and their dependents. fit firmly within the exemption. Items such as credit-related products to those covered by
negative trade equity, extended warranties or the rule. Many dealers, once they determine a
However, Congress also created several service contracts, and “optional leather seats consumer is covered by the MLA, are simply
exemptions to those limitations, including within that vehicle.” informing the covered customers that credit-
one for the extension of credit that is expressly related products are not offered for sale.
intended to finance the purchase of a motor What about “financing credit-related costs”?
vehicle when the credit is secured by the Regardless of which compliance option they
motor vehicle purchased. DoD said financing items such as GAP, credit choose, dealers should consult with their
insurance and “additional ‘cashout’ financing” attorneys to determine which products are
Congress included a similar exemption are not included within the exemption. “credit-related” and thus potentially subject
related to credit extended for the purchase of to the rule.
personal property. According to DoD, any dealer who finances
those credit-related costs is subject to the Your individual lawyer can provide you with
The new interpretation drastically alters Military Lending Act regarding transactions specific legal advice tailored to your business.
the scope of what the industry previously as far back as Oct. 3, 2016 – even though the
understood the motor vehicle exemption to new interpretation is just weeks old. In the meantime, rest assured NIADA is
include. working with other interested industry
So what should you do? partners, members of Congress and federal
Before, dealers and finance companies regulators to express our concerns with the
understood the motor vehicle exemption to Dealers selling and financing credit-related new rule and the lack of process involved in
include the extension of credit for all things products such as GAP and credit insurance issuing it.
included in a motor vehicle transaction, such should determine whether customers are
as the purchase price of the car, taxes and members of the military or dependents of DoD did not provide notice of the
other state fees, negative equity and voluntary military servicemembers prior to offering interpretation nor an opportunity for
protection products like service contracts, F&I products for sale. interested parties to comment before it
GAP, etc. was issued, precluding NIADA and other
Dealers can check by entering the customer’s stakeholders from pointing out the harm that
Now, DoD has turned that on its head. social security number and birthdate into will come to both the military servicemembers
DoD’s MLA website at https://mla.dmdc.osd. and the industry.
At issue is whether financing above and mil/mla/#/single-record.
beyond the actual purchase price of the One of our strategies in explaining our
vehicle takes the transaction out of the safety While other services might be available to position is to illustrate the value of those
net of the exemption. provide that information, checking that credit-related products.
website or subscribing to an MLA offering
DoD’s interpretation says it depends on what notated on a credit report from a credit So if you as dealers are aware of any of
is being financed. reporting agency provides a safe harbor for your military customers who have directly
determining covered persons. benefited from GAP, credit insurance or other
“Generally, financing costs related to the similar products, please contact me at (817)
object securing the credit will not disqualify If customers are covered by the rule and you 640-3838 or shaun@niada.com. n
the transaction from the exceptions,” it decide to sell credit-related products, specific

GIADA Independent Auto Dealer JANUARY 2018 | 35