Auto Dealers, Financing Companies Should Be Barred from Evading Military Lending Act Protections

For Immediate Release: April 2, 2020

Auto Dealers and Financing Companies Should Be Barred from Evading Critical Finance Protections for Military Members

NACA Disappointed with DoD Edited Rule Analysis That Would Allow Peddling of Risky, Expensive Finance Products to Servicemembers Without Protections they Deserve

WASHINGTON, D.C. – The U.S. Department of Defense’s recent edits to its rule interpretation on auto financing under the Military Lending Act (MLA) will only increase the likelihood of harm and additional financial distress on military consumers, the National Association of Consumer Advocates (NACA) said today.

In a letter to the Department of Defense, NACA called on DoD to reassert its December 2017 rule interpretation to ensure that certain auto financing products such as GAP insurance are included in a contract, the military borrower is entitled to the protections provided by the MLA and its interest rate cap. The DoD re-interpretation released in February prompted an unfounded argument by auto dealers and finance companies that certain costly, predatory products are not subject to the MLA’s strict 36% interest rate cap.

“A large percentage of consumer complaints and concerns that consumer advocates hear from U.S. servicemembers relate to the purchase and financing of motor vehicles,” the letter said. “These issues include inappropriately priced and exorbitant interest rates on loans with misleading cost-of-credit disclosures and the financing of high-cost and unnecessary add-on products such as the ubiquitous and unnecessary GAP insurance.”

According to the letter, GAP insurance raises the cost of a car loan, creating greater risk for military borrowers. The product is completely unnecessary for consumers who make a 20% down payment on their car purchase, and only covers factory-installed parts while failing to cover the depreciated value of the car, leaving the military car buyer with little protection.

Despite their claims, dealers and finance companies were never prohibited from selling GAP insurance to servicemembers as long as the loan complied with MLA’s interest rate cap and other protections for servicemembers and their families, the letter said.

“Servicemembers should and do have access to the fairly priced auto finance market,” said Ira Rheingold, NACA’s executive director. “The DoD’s rule re-interpretation unwittingly invited car dealers and auto finance companies to evade the MLA and its critical lending protections for the country’s military members.”