December 22, 2017
Recently the Department of Defense (“DOD”) issued new guidance as to what sorts of transactions are covered by the Military Lending Act (“MLA”) stating that any credit transaction that finances the vehicle along with “any credit-related product or service” such as GAP, credit life insurance, credit accident and health insurance, or other similar credit products is covered by the MLA.
Because these transactions are subject to MLA obligations, FADA is recommending that you immediately take steps to ensure that you do not sell these products to any “covered borrowers” (generally active duty military and their dependents).
The DOD has created a database that will allow you to check to see if a customer is a covered borrower under the MLA. The website hosting the database can be found here, and the user guide for that database is here.
The MLA allows you to rely on the database to establish that your customer is not a covered borrower so long as your inquiry was performed at the time of the transaction or within 30 days prior to the transaction and you keep a copy of the certificate generated by your inquiry (note that you may not use the database to look back at previous transactions).
We recommend that you run the database inquiry on every customer that you sell to and that you not sell GAP, credit life insurance, credit accident and health insurance, or other similar credit products to any customer unless the database provides you a certificate stating “Based on the information you provided, DMDC does not possess information indicating that the individual is either on active duty for more than 30 days or a family member of a service member on active duty for more than 30 days based on the Status Inquiry Date.”
If you do sell these products to a covered borrower, then you could face significant penalties including: the customer unwinding the deal, criminal liability, civil liability for damages not less than $500, punitive damages, and attorneys’ fees.
For more information about this important topic contact FADA legal team member Craig Spickard (850-391-7704) or your dealership’s attorney.
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