The Department of Defense reversed its guidance on the Military Lending Act last month, removing a complex process that had been a barrier for automotive dealers to sell guaranteed asset protection, or GAP, to military members and covered relatives. Yet some confusion remains as the auto finance industry catches up with the latest interpretation.
Uncertainty over how to sell F&I products without running afoul of the law had previously blocked military members from buying GAP from dealerships, which could save them from owing thousands of dollars if their vehicle is totaled. Some auto lenders refused to work with the military in the years following the Defense Department's interpretation, and according to F&I managers and trainers, many still haven't caught up with the program.
F&I managers should stay on top of which lenders are now ready to fund GAP contracts, finance experts say, and be cognizant that while the Pentagon's view on GAP has changed, other stipulations of the Military Lending Act remain in force.
Ritch Wheeler, a vice president at F&I product and training company American Financial & Automotive Services Inc., said lenders were hesitant to fund GAP deals — which could still be sold under the MLA — because of the complicated process required. F&I managers and directors had to fill out documentation on a paid website to prove GAP was sold in compliance with the rule. Even then, Wheeler said, not all lenders wanted to assume the risk that the GAP sale had been vetted properly and rejected deals that included GAP waivers.
Justin Gasman, financial service director at McCaddon Cadillac-Buick-GMC in Boulder, Colo., said that after the Pentagon's latest ruling his stores' attorney advised him to contact all of the lenders he works with to ensure they will fund deals with GAP. Gasman said almost all the lenders he works with have signed off on funding GAP contracts.
In addition to the lender confusion, there's been some misinformation online that MLA itself has been overturned.
"The MLA didn't go away. There's still other factors we need to be aware of," Wheeler said. "The only thing that changed was the Defense Department interpretation of how GAP fits into the MLA."
While many still need to catch up their processes, for dealers nationwide — especially those that operate near a military base — the change has been a huge weight off their shoulders.
"We have an Air Force base in our county and it has been less than comfortable explaining why airmen can't be offered GAP on their purchases," said Marv Eleazer, F&I manager at Langdale Ford in Valdosta, Ga.
Employees at his store are all breathing a sigh of relief, he said, and will no longer cringe every time they pull a credit report and see an affirmative MLA Covered Borrower status.
Though complications remain, dealers are relieved the rule pertaining to GAP sales has been reconsidered. Still, F&I managers must comply with the remainder of the MLA and work with their lenders to make sure everyone is on the same page.