So I have good news and bad news made worse by an article published last month. The good news is the National Automobile Dealers Association (NADA), along with several other trade groups, were a step away from getting that guidance impacting the sale of GAP to military servicemembers and their families withdrawn.
The bad news is the Pentagon official who agreed it needed to be pulled back, former Undersecretary of Personnel and Readiness Robert Wilkie, was sworn in as secretary of Veterans Affairs before the White House’s Office of Management and Budget (OMB) could review the proposal. That precluded it from being published in the Federal Registrar. And from what I’m told, the resolution has been sitting in the OMB’s office for months, with no one to champion it through.
"And this is what industry representatives attempted to convey to NPR’s Arnold. Unfortunately, his reporting could bolster support for legislation introduced on Aug. 1 that aims to expand the DOD’s guidance regarding credit-protection products to other F&I protections like vehicle service contracts."
Confirming this was an article published on Aug. 13 by NPR: “White House Takes Aim at Financial Protection for Military.” The story centered on documents the media outlet claimed to possess that showed the White House was preparing to propose changes “critics say would leave servicemembers vulnerable to getting ripped off when they buy cars.”
Quoted was Christopher Peterson, a law professor at the University of Utah who reviewed those documents. “If the White House does this,” he told the media outlet, “it will be manipulating the Military Lending Act (MLA) regulations at the behest of auto dealers and banks to try and make it easier to sell overpriced rip-off products to military servicemembers.”
The article then quotes NADA Vice President of Regulatory Affairs Paul Metrey as saying “Servicemembers certainly should have the same access to credit protection that their civilian counterparts have” and “… This ‘valuable’ GAP insurance product is effectively not available to them.” NPR then has Peterson saying that if servicemembers want to have GAP, the could buy it from insurance companies. Wait, there’s more.
See, the article then groups the GAP issue with reports that Mick Mulvaney, acting director of the Bureau of Consumer Financial Protection, plans to suspend examinations of lenders, specifically payday lenders, for compliance with the MLA. There’s so much wrong with the way this GAP issue is presented, and it has nothing to do with Peterson’s criticisms of the product offered by dealers.
But since he went there, here’s what the professor missed: Insurance companies offer limited-time GAP coverage, which often covers a specific amount toward the deficiency. Dealer GAP will pay up to 150% of MSRP or NADA retail. And let’s not forget that dealer GAP often reimburses the customer’s insurance deductible up to $1,000.
Unfortunately, Peterson is given six paragraphs to bash dealer GAP, while Metrey was given a single paragraph to make the industry’s case. That’s despite NPR reporter Chris Arnold spending more than an hour interviewing the NADA official along with two other officials with a second industry association, according to my sources. And I’m told they laid out the real problem with the Department of Defense’s guidance.
To recap, the DOD’s guidance, issued on Dec. 14, states that including credit-protection products like GAP in a credit transaction involving active-duty servicemembers or their dependents would take it outside the scope of the motor vehicle finance statutory exclusion and subject the deal to the MLA’s many requirements and restrictions.
The one causing some dealers to pull GAP from F&I menus altogether is the MLA’s prohibition against creditors making a covered loan from using a vehicle title as security — a ban designed to keep servicemembers out of “payday debt traps.” Now, the DOD did carve out an exception for federally chartered banks, savings and loans associations, and credit unions so servicemembers could take advantage of favorable auto refinancing offers. Left out, however, were dealers, who are the original creditors in a typical vehicle finance transaction.
According to a legal analysis conducted by Hudson Cook attorney Thomas Buiteweg on behalf of the NADA, that means dealers could no longer engage in conventional vehicle financing if servicemembers and their families wanted GAP. The NADA then shared that interpretation with lawyers representing dealers, urging them to consider the issues raised.
“There are many dealers who are refusing to sell GAP altogether for fear of not being compliant should a military servicemember or family member fall through the cracks,” said Rob Berger, president of the Guaranteed Asset Protection Alliance’s advisory board and an executive with Wise F&I. “And because there is no good way to monitor all of that, it’s really led to a lot of turmoil in the marketplace.”
And this is what industry representatives attempted to convey to NPR’s Arnold. Unfortunately, his reporting could bolster support for legislation introduced on Aug. 1 that aims to expand the DOD’s guidance regarding credit-protection products to other F&I protections like vehicle service contracts.
