Page 47 - GIADA-Feb-2018-Final

COMPLIANCE

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 will disqualify the transaction from the specific disclosures must be provided
issued a new interpretation of the Military exceptions.” in writing and orally. In addition, the
Lending Act, impacting sales to members of transaction is subject to the military APR
the military and their dependents. So what are “costs related to the object rate cap of 36 percent and other contractual
securing the credit”? limitations will be imposed, including a
When Congress passed the Military Lending ban on arbitration provisions.
Act, it imposed a series of requirements for DoD provided some examples of costs
extending credit to members of the military that fit firmly within the exemption. Items One of the options many are considering
and their dependents. such as negative trade equity, extended to ensure compliance is simply not offering
warranties or service contracts, and credit-related products to those covered by
However, Congress also created several “optional leather seats within that vehicle.” the rule. Many dealers, once they determine a
exemptions to those limitations, including consumer is covered by the MLA, are simply
one for the extension of credit that is What about “financing credit-related costs”? informing the covered customers that credit-
expressly intended to finance the purchase related products are not offered for sale.
of a motor vehicle when the credit is secured DoD said financing items such as GAP,
by the motor vehicle purchased. credit insurance and “additional ‘cashout’ Regardless of which compliance option they
financing” are not included within the choose, dealers should consult with their
Congress included a similar exemption exemption. attorneys to determine which products are
related to credit extended for the purchase “credit-related” and thus potentially subject
of personal property. According to DoD, any dealer who finances to the rule.
those credit-related costs is subject to
The new interpretation drastically alters the Military Lending Act regarding Your individual lawyer can provide you
the scope of what the industry previously transactions as far back as Oct. 3, 2016 – with specific legal advice tailored to your
understood the motor vehicle exemption to even though the new interpretation is just business.
include. weeks old.
In the meantime, rest assured NIADA is
Before, dealers and finance companies So what should you do? working with other interested industry
understood the motor vehicle exemption to partners, members of Congress and federal
include the extension of credit for all things Dealers selling and financing credit-related regulators to express our concerns with the
included in a motor vehicle transaction, products such as GAP and credit insurance new rule and the lack of process involved
such as the purchase price of the car, taxes should determine whether customers are in issuing it.
and other state fees, negative equity and members of the military or dependents of
voluntary protection products like service military servicemembers prior to offering DoD did not provide notice of the
contracts, GAP, etc. F&I products for sale. interpretation nor an opportunity for
interested parties to comment before
Now, DoD has turned that on its head. Dealers can check by entering the customer’s it was issued, precluding NIADA and
social security number and birthdate into other stakeholders from pointing out the
At issue is whether financing above and DoD’s MLA website at https://mla.dmdc. harm that will come to both the military
beyond the actual purchase price of the osd.mil/mla/#/single-record. servicemembers and the industry.
vehicle takes the transaction out of the
safety net of the exemption. While other services might be available to One of our strategies in explaining our
provide that information, checking that position is to illustrate the value of those
DoD’s interpretation says it depends on website or subscribing to an MLA offering credit-related products.
what is being financed. notated on a credit report from a credit
reporting agency provides a safe harbor for So if you as dealers are aware of any of
“Generally, financing costs related to the determining covered persons. your military customers who have directly
object securing the credit will not disqualify benefited from GAP, credit insurance or
the transaction from the exceptions,” it If customers are covered by the rule and other similar products, please contact me
reads, “but financing credit-related costs you decide to sell credit-related products, at (817) 640-3838 or shaun@niada.com. n
GIADA Independent Auto Dealer FEBRUARY 2018 | 45