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#2232165 - 03/02/20 09:19 PM MLA & GAP
Questions Offline
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Joined: Jun 2009
Posts: 76
The Department of Defense finally issued new guidance to clarify the purchase money issue surrounding GAP.

https://www.federalregister.gov/doc...r-credit-extended-to-service-members-and

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Lending to Servicemembers (SCRA, JWNDAA), War, Terrorism
#2232175 - 03/02/20 11:54 PM Re: MLA & GAP [Re: Questions]
Kimo in Idaho Offline
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Joined: Jun 2019
Posts: 125
I guess I'm missing the point...The old rule doesn't really say that GAP is OK, although the old rule doesn't specifically disallow GAP I believe it can be read to still prohibit it under the wording that it gives. I admit I don't have a lot of experience with MLA and certainly not to prior to the 2017 guidance, but I don't see how there is a big change, unless we are arguing the meaning of "acquisition" and "cash-out".

I understand some are looking at this as expressly allowing GAP, and I would love for someone with more experience to give an opinion, but unless there was some historical knowledge that I'm missing I guess I don't believe this changes much.

Much thanks to anyone willing to give more information!

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#2232176 - 03/03/20 01:37 AM Re: MLA & GAP [Re: Questions]
run4fun Offline
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Joined: Mar 2002
Posts: 95
I don't think it provides clarification. In fact, it removes clarification that GAP and credit life financed as part of a vehicle purchase loan are not eligible for the consumer credit exception.

How are others looking at this? Are any of you who typically finance GAP or credit insurance in association with a vehicle purchase loan going to begin treating those not subject to MLA (qualifying under the exception)? I'm thinking about it, but am curious about what other lenders are doing. Thanks.

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#2232190 - 03/03/20 02:55 PM Re: MLA & GAP [Re: run4fun]
Questions Offline
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Joined: Jun 2009
Posts: 76
In my opinion, this "clarification" means that the Department of Defense doesn't want to come right out and specifically address the issue. So they're reverting back to the 2016 interpretive rule, which doesn't address the issue at all. I feel many institutions will view this as permission to exclude purchase money loans that finance GAP from MLA coverage, just like everyone was doing before the 2017 interpretive rule came out. However, I am concerned that the text says "this will allow the Department to conduct additional analysis on this matter". I would hate to change our process related to GAP insurance, only to have the DoD issue additional conflicting guidance down the road. So annoying!

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#2232211 - 03/03/20 06:20 PM Re: MLA & GAP [Re: Questions]
Inherent_Risk Offline
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Joined: Jan 2017
Posts: 253
It took them more than 2 years to figure out they needed to do analysis. How long do we think the analysis will take?

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#2232602 - 03/06/20 10:15 PM Re: MLA & GAP [Re: Questions]
Andy_Z Offline
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"Questions" - not all banks were financing GAP. When the QA guidance first came out many banks questioned it and for them it was a balance of income and risk. Some financed GAP and some did not. Then the Dec 2017 QA guidance confirmed it was improper. To me that could have put all the loans made by those accepting GAP financing risks at risk of being voided if it was an MLA loan, or considered a UDAP practice. But I haven't heard of any bank having an issue.

One thought is, QA2 prevented GAP financing and was rescinded. The message is, GAP financing is OK. THe other message is that the DoD could come back and say, "Yes, we were right, it's prohibited." Does that put loans made today at risk? If nothing happened after the 12-17 QA2 guidance will anything happen now?

So I think it's still a question of risk acceptance. I don't see why if the DoD will allow negative equity to be financed in the new car loan (that's as good as new money to me) but GAP is not allowed. The next opinion could also be that whatever is on the front sheet/sales contract as the purchase amount is what will be used for MLA purposes.

At the end of the day, the action tells me GAP is OK, at least for now. But we know the DoD doesn't like it and that could influence the next QA.
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AndyZ CRCM
My opinions are not necessarily my employers.
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Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

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#2233524 - 03/23/20 07:26 PM Re: MLA & GAP [Re: Questions]
Bbgreen Offline
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Joined: Jan 2014
Posts: 69
Texas
In layman's terms, a purchase money loan is not subject to MLA? Now, a purchase money loan with GAP is still not subject to MLA? Is this right?

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#2234246 - 04/03/20 09:05 PM Re: MLA & GAP [Re: Questions]
Andy_Z Offline
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The purchase money loan is not a consumer credit and the MLA requires disclosures on consumer credit, in layman's terms. As to GAP, well, (read this like Harry Callihan is talking to you) "do you feel lucky, laymen, well do ya?" GAP wasn't specifically defined as a prohibited cost removing the transaction from the definition of consumer credit. Different banks interpreted it differently so the DoD added it specifically to say "this is not a valid cost for the exemption." Now they backed off of that and said it's being reviewed. Do you take that to mean it is an acceptable cost, or that it's being studied and may, sometime between now and eternity be considered an unacceptable cost?



Consumer credit does not mean:
(i) A residential mortgage, which is any credit transaction secured by
an interest in a dwelling, including a transaction to finance the
purchase or initial construction of the dwelling, any refinance
transaction, home equity loan or line of credit, or reverse
mortgage;

(ii) Any credit transaction that is expressly intended to finance the
purchase of a motor vehicle when the credit is secured by the
vehicle being purchased;

(iii) Any credit transaction that is expressly intended to finance the
purchase of personal property when the credit is secured by the
property being purchased;

(iv) Any credit transaction that is an exempt transaction for the
purposes of Regulation Z (other than a transaction exempt under
12 CFR 1026.29) or otherwise is not subject to disclosure
requirements under Regulation Z; and

(v) Any credit transaction or account for credit for which a creditor
determines that a consumer is not a covered borrower by using a
method and by complying with the recordkeeping requirement
set forth in ยง 232.5(b).
_________________________
AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

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