Two years after the Department of Defense revised its stance on how auto lenders and dealers comply with the Military Lending Act, the auto finance industry is still waiting for the smoke to clear. Industry leaders say little progress has been made with the federal government on resolving the confusion on how to sell and fund protection products to military members under the revised rule without breaking the law.
Charlie Gilchrist, the outgoing chairman of the National Automobile Dealers Association, said the group held a meeting last year with Vice President Mike Pence on multiple topics such as trade, fuel economy and lending, as well as multiple meetings with the Defense Department on lending rules.
Gilchrist said the lending talks with Pence yielded little progress so far, but were a step in the right direction. The revisions to the Military Lending Act, he said, are complex. The association and the Pentagon continue to work on it, but appear to be at a standstill, Gilchrist said.
"The Pentagon has not been very responsive," Gilchrist said. "I know they have a lot of other issues going on right now. But this is a huge, huge issue for our war fighters."
The Military Lending Act, a 2006 federal law designed to protect the assets of active-duty military members and their dependents from predatory lending practices, historically has covered title loans. The latest interpretation, published in December 2017, clarified that 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.
Confusion on how to sell F&I products without running afoul of the law has blocked military members from buying guaranteed asset protection from dealerships, which could save them from owing thousands of dollars if their vehicle is totaled. Some auto dealers and lenders are refusing to work with the military until the Defense Department clarifies its interpretation.
The DOD, however, does not share the concerns of the auto finance industry. In a recent letter to members of Congress, it wrote that the revised rule did not create a new industry standard and "does not provide an unlimited exception for financing additional credit for purposes not expressly related to the item being purchased."
The American Financial Services Association responded in a blog post last week that the implication that GAP protection is not related to a vehicle purchase is "disingenuous."
"It is, in fact, directly related to the purchase and protection of the value of the vehicle being purchased," the post read.
AFSA also noted in the post that in 2018, an estimated 5,000 service members incurred about $15 million in losses as a result of the revision to the act.
"We haven't gotten the job done yet, but we're on it," Gilchrist said.
Hannah Lutz contributed to this report.