Pub. 2018 Issue 1

14 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com L ast month, the Department of Defense suddenly revised its inter- pretation of the Military Lending Act as it relates to motor vehicle financing. In the past, motor ve- hicle financing transactions were exempt from theMilitary Lending Act (MLA), but now if you extend credit to a customer who is a covered borrower under the Military Lending Act in an amount that is greater than the purchase price of the vehicle, the new DOD guidance imposes 2 new MLA obstacles. If you extend credit for a "credit-related product or service" such as Guaranteed Auto Protection products (GAP), credit insurance premiums, or cash-out financing then you have extended credit in an amount that is greater than the purchase price of the vehicle and the transaction is no longer exempt from the MLA. However, an extension of credit to finance "optional leather seats, extended warranty for service of that vehicle, and negative trade equity" will not destroy the MLA exemption. Unless your strategy to comply with the MLA is to quit selling credit-related products and services altogether, the first step for any finance transaction is to determine whether your customer is a "covered borrower" under the MLA. A covered borrower is a covered member under the MLA or a dependent of a covered member. The MLA defines a covered member as a member of the armed forces on active duty or on active guard and reserve duty. The determination of dependent is convoluted, but, fortunately, the MLA provides 2 different safe harbors to determine whether a customer is a covered member or dependent. IADA recommends that you use one of the followingmethods on all credit transactions to determine whether your customer is a covered borrower and keep documentation in the deal file. 1. You can enter the customer's name, date of birth, and social security number at the following website: https://mla.dmdc.osd.mil/mla/#/ home; or 2. Verify whether the credit report from a consumer reporting agency contains a "statement, code, or similar indicator" showing that the customer is a covered borrower. If your customer is not a covered borrower, you may proceed with the transaction without regard to the MLA. If Military Lending Act (IADA Legal Bulletin)