DoD’s MLA Rulemaking Should be Fact-based

Recently, the Department of Defense (DoD) sent a response to 23 Members of Congress who sent a bipartisan letter urging the repeal of Question and Answer #2 of the December 2017 Military Lending Act (MLA) interpretive guidance. In its letter, the DoD writes that Q&A #2 “does not provide an unlimited exception for financing additional credit for purposes not expressly related to the item being purchased.”

As a reminder, in Q&A #2 the DoD stated that vehicle finance contracts that included Guaranteed Asset Protection (sometimes called a GAP Waiver) or credit insurance, are MLA-covered transactions. The bipartisan Congressional letter stated that Q&A #2 was “… contrary to the statute and the 2015 Implementing Regulations.”

The DoD’s dismissal of legitimate Congressional concerns is, if nothing else, troubling, because as we’ve detailed before, the DoD’s policy on the GAP waiver is based on no data, though there is very clear anecdotal information out there that shows servicemembers and their families continue to struggle financially.  This is simply unacceptable. 

We agree that our military servicemembers, particularly those recently enlisted out of high school or college, as well as military families, require expanded access to financial education opportunities or financial protections from predatory lenders.  But the MLA should also ensure its policies do not have the unintended consequences of placing servicemembers and their families in greater financial jeopardy.

For example, it is disingenuous to suggest, as the DoD’s letter does, that GAP insurance is “not expressly related to the item being purchased.”  It is, in fact, directly related to the purchase and protection of the value of the vehicle being purchased.  Some service members have faced severe hardship in the past several years have dealt with the fiscal fallout from weather-related destruction. Particularly along the North Carolina coast and Florida Panhandle thousands of vehicles were destroyed, many owned by military personnel and their families.  In 2017 Hurricanes Irma and Harvey damaged some one million vehicles, many in areas of heavy military presence. 

The DoD’s letter says it “did not create a new rule” and that its interpretive ruling “does not prohibit a creditor from selling, or a covered borrower from purchasing GAP waiver, credit insurance, debt cancellation, or similar products.” But experience shows that servicemembers think otherwise, and did not purchase GAP waivers on their vehicles, which would have covered the difference between the loan amount of the vehicle at purchase and the vehicle value when lost. In 2018 and estimated 5,000 servicemembers incurred about $15 million in losses as a result of DoD’s GAP waiver policy. 

AFSA continues to urge the DoD to rescind this interpretative rule, or, at the very least, formally get public comment on its effects so that we can fairly and objectively have a fact-based assessment of the impact of this policy.