Military Lending Act: May Covered Borrowers Still Purchase GAP Insurance?

by Manatt, Phelps & Phillips, LLP
Contact

Manatt, Phelps & Phillips, LLP

Lenders that make loans to service members should pay careful attention to the latest developments in this area.

What happened

Back in 2007, Congress first passed the federal Military Lending Act (MLA) to address alleged predatory lending practices directed toward members of the military and their families. The original law was largely limited to certain types of short-term lending. But as a result of legislation in 2013, the Department of Defense (DoD), in July 2015, promulgated rules that greatly expanded the MLA to include myriad forms of consumer credit, including (for the first time) credit cards. Noncompliance with the MLA regulations could result in draconian remedies. (For a closer look at the MLA and a related statute, the Servicemembers Civil Relief Act, see the Military Lending Act chapter in PLI’s Consumer Financial Services Answer Book, edited by the author of this update.)

In the MLA interpretative rules, as amended in December 2017, the DoD addressed the MLA rule’s exemptions for credit transactions where intended to finance motor vehicle or personal property purchases when such purchases are used as collateral. The question posed was whether credit in such circumstances “fall[s] 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 or personal property.” DoD answered that the “answer will depend on what the credit beyond the purchase price of the motor vehicle or personal property is used to finance. Generally, financing costs related to the object securing the credit will not disqualify the transaction from the exceptions, but financing credit-related costs will disqualify the transaction from the exceptions.” As an example, DoD cited specifically to gap insurance, a form of auto insurance that protects against further liabilities where the recovery received for the total loss of a vehicle is insufficient to cover amounts owed under a lease or financing.

In response to this guidance, several trade groups (including the American Bankers Assn., the American Financial Services Assn., the National Automotive Dealers Assn. and three groups that represent military-focused credit unions) have written to the DoD, asking it to rescind or withdraw that guidance. These groups argue that failing to exempt such transactions would prevent MLA-covered borrowers from access to this important form of insurance. In the meantime, auto dealers have largely halted gap insurance sales to covered MLA borrowers, leaving these groups largely unprotected from total collision liabilities early in the lease or finance term.

Now, a prominent auto blog suggests that the DoD may be changing its tune. In a March 28, 2018, post, Finance & Insurance beat writer Hannah Lutz suggests that the DoD is reconsidering the interpretive guidance. Lutz reports that “word has spread across the finance industry that the Defense Department will withdraw the interpretation in May.” This would be an important development for covered lenders and their affected borrowers.

Why it matters

If your company or MLA-covered clients have stopped selling gap insurance to borrowers subject to the MLA, stay tuned. If these same entities are selling it now, DoD current guidance makes those sales highly problematic. Manatt’s consumer finance team is advising clients in this area and is available to assist.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Manatt, Phelps & Phillips, LLP | Attorney Advertising

Written by:

Manatt, Phelps & Phillips, LLP
Contact
more
less

Manatt, Phelps & Phillips, LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.