By Ray Birch
WASHINGTON—While new Military Lending Act (MLA) guidance no longer discriminates against servicemembers and makes it easier to obtain GAP insurance, it won’t make up for the harm previous MLA guidance caused over the last 2.5 years, according to the Defense Credit Union Council (DCUC).
That's a key point DCUC President and CEO Anthony Hernandez is making in the hope Congress and the Department of Defense (DoD)—which implements and revises the MLA—will understand.
Hernandez is counting on continuing dialogue with the DoD, along with strong credit union backing, will prevent the DoD from “making the same mistake again.”
Over the past year DCUC and other trade associations have sought the attention of the Defense Department over their concerns with language in the MLA restricting gap availability for servicemembers. They cited concerns from borrowers—especially young military members just starting out in their lives—not offered any Guaranteed Asset Protection (GAP) protection in case their car is totaled, as well as concerns from many indirect lenders facing collateral losses.
As a result, as CUToday.info reported earlier, on Feb. 28 the DoD amended an interpretive rule for lending to members of the military that reverted back to language in the rule from 2016. Among the changes, the DoD removed language that severely restricted lenders from including GAP insurance on car loans to military members. The original language in the interpretive rule prohibited the sale of products not expressly related to the purchase of the vehicle.
“The Department of Defense found merit in our concerns and agreed that additional analysis is warranted,” Hernandez told CUToday.info.
The Big Concern
But Hernandez is concerned the DoD, following its latest analysis, might revert back to the original language in the MLA that restricted GAP coverage in a car loan.
“Could they revert back to the original language? That’s entirely possible given how they made their initial decision more than two years ago,” stated Hernandez. “I’d like to know what questions they originally asked, what data did they look at? Did they use anecdotal data from just a few borrowers to make their decision, or rely on a few anonymous complaints? We don’t know and I would like to get answers to those questions.”
Hernandez learned about the need for GAP coverage early in his own Air Force career. At the time, he had not purchased GAP coverage and then got into an accident with his new vehicle.
Anthony Hernandez
“I didn’t have the money to pay off my loan if it was totaled,” recalled Hernandez. “Instead, I drove a damaged car for the next several years. I have been a big believer in GAP insurance since.”
Unscrupulous Dealers
Unlike his own case, Hernandez believes what likely brought on the DoD’s original decision to restrict GAP insurance were some isolated cases where servicemembers were victimized.
“There were some unscrupulous auto dealers charging servicemembers $1,200 to $1,800 for GAP,” said Hernandez. “It was right for the DoD to take a look at this. However, DoD never consulted with credit unions, which offer reasonable GAP coverage for about $300 to $400.”
Hernandez would also like to know what data the DoD will look at in the future before making other decisions that restrict servicemembers’ access to safe financial product and services, like GAP.
“We would like to work with the DoD to provide better information that benefits military families,” Hernandez said. “This is the key in re-evaluating any new proposal versus the DoD simply looking at more anecdotal data.”
‘Problem Getting Worse’
Hernandez believes credit unions should rally behind this issue and seek to learn not only how the DoD has and will make decisions regarding future MLA interpretations, but also what recourse CUs have in light of the losses incurred during the 2.5 years GAP coverage for servicemembers was restricted.
“Many credit unions were forced to write-off entire loans when DoD made their ruling retroactive,” said Hernandez. “And what about military families who were not offered a GAP product and suffered financial losses due to hurricanes, wildfires, theft or accidents during this period?”
A lot of harm was done, asserted Hernandez.
“And this problem is getting even worse with all of the negative equity that has built up in trade-ins,” he added.