LAS VEGAS -- Chatter about the Military Lending Act buzzed at both the American Financial Services Association Vehicle Finance Conference and the NADA Show here last week.
What's next for the U.S. Defense Department's latest, befuddling interpretation of the act that could put auto lenders and dealers in regulatory danger? A quick resolution, sources said.
In December, the DOD published questions and answers that represent official interpretations of the department. A handful of insiders have heard that the DOD will withdraw the interpretation of the Military Lending Act that affects vehicle finance agreements.
The act was designed to protect active duty service members and their dependents in credit transactions. The protections include certain disclosures, arbitration provisions and a 36 percent interest rate cap on finance agreements that attach ancillary and credit products.
Motor vehicle finance transactions long were believed to be exempt from the act. Only auto title loans had to comply.
Under the DOD's latest interpretation, though, if a vehicle finance contract for active military members or their dependents includes financing for credit-related products or services, such as guaranteed asset protection or other types of credit insurance, the lender and dealer must comply with the act.
In light of that interpretation, some dealerships have stopped selling GAP completely. Others have stopped selling it to military members.
Shortly after the interpretation came out, AFSA met with the Defense Department, Bill Himpler, executive vice president of AFSA, told an audience of lenders here. AFSA, as well as other industry leaders, asked the DOD to withdraw from the act Question and Answer No. 2, which said dealers and lenders must comply with the act when financing GAP or other types of credit insurance.
Since then, word has spread across the auto finance industry that the Defense Department will withdraw the interpretation in May.
A resolution is exactly what the industry has been waiting for. Hopefully, it will come as soon as the insiders say.