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Dealerships Win Big in Military Lending Act Victory

Dealerships Win Big in Military Lending Act Victory

Hear that? It’s the sound of the automotive industry breathing a collective sigh of relief.

Last week, the US Department of Defense announced it would withdraw Question and Answer 2 from its December 2017 Interpretive Rule about the Military Lending Act.

In plain English, the DoD got rid of a rule dealerships hated…

a rule that made it near-impossible to sell vehicles to servicemembers and their families.

We’ve covered the issue at length on this blog, but in case you’re not familiar, here’s a basic rundown of the situation:

The Military Lending Act (usually shortened to “MLA”) provides consumer finance protections to servicemembers and their dependents. Along with a number of legal requirements, the law restricts how much a creditor can charge these customers in annual percentage rates. Automotive transactions were generally excluded when the law was enacted.

In 2013 and 2015, the MLA broadened, but still appeared to carve out exceptions for motor vehicle financing.

As it turned out, that wasn’t quite true.

Shortly after the amendments, the DoD complicated things by issuing two interpretations of the MLA. The first interpretation threw the motor vehicle financing exception into question.

The DoD’s second interpretation was the big one. It changed many auto lenders’ understanding of their obligations under the law. Essentially, the DoD said that some auto transactions might actually be subject to the MLA.

The kicker was that the new rule applied not only to future deals, but to any transaction dating back to October 3rd, 2016.

For a full walkthrough of what happened, read our article from 2019: “Military Lending Act: How it Affects Your Dealership.”

Suffice it to say, MLA compliance was a mess for dealerships. But the industry didn’t merely accept the situation. In 2018, the National Automobile Dealers Association and the American Financial Services Association took the DoD to task, petitioning the Department to withdraw the section of the rule that implied the MLA might cover some auto transactions.

After more than 2 years of arguing and advocating for dealers, NADA and AFSA won. Thanks to their efforts, the DoD has removed the rule. You can read all about it here.

Many dealerships see this as a victory—but don’t break out the champagne just yet. Keep in mind that the MLA is just one regulation among dozens that dealers and auto lenders need to pay attention to.

And there’s the second collective sigh—time to get back to work.

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Aaron Hartshorn

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