Jeff Chandler

February 22, 2018

What’s happening around the auto industry?

We are almost three months into 2018 and already seeing a lot of changes taking place in the auto industry. A growing number of credit unions pursuing dealer agreements for indirect lending, used car values starting to “soften”, increases in usage of ride-hailing services and continued tightening of underwriting policies as delinquencies continue to rise. Another attention grabber is the latest interpretation of the Military Lending Act.

Auto retailers and indirect lenders alike are concerned about how to sell certain finance and insurance products to military personnel. Depending on what is financed, a creditor may find a portion of its loans are exempt from the MLA, while the remainder will require compliance.

Loans that don’t finance GAP or credit insurance, and that don’t provide additional cash-out financing that is unrelated to the vehicle’s purchase, are still exempt from the MLA rule.

However, a loan that finances GAP or credit insurance, or provides additional cash out financing that is unrelated to the vehicle’s purchase, will lose its exemption and the creditor must comply with the MLA rule requirements.

In July 2015, the Department of Defense (DOD) published a Final Rule to amend its regulation implementing the Military Lending Act (MLA). The MLA became effective October 1, 2015, and compliance was required by October 3, 2016. It was created to provide covered members, service members and their dependents, with specific protections. One of the most significant changes to the MLA (originally implemented in 2007), was the amount of interest that a creditor can charge a covered borrower. The maximum APR is known as the Military Annual Percentage Rate (MAPR) and is currently set at 36%, including fees.

Do you mean that you can help us with this?

The rule provides a “safe harbor” from liability for lenders who verify the MLA status of an applicant. The identities of the covered borrowers are made available via the Defense Manpower Data Center (DMDC), and is only offered through the nationwide credit reporting agencies (NCRA). As such, having access to this information during pre-checks or underwriting will allow lenders to reduce their liability and allow lenders to originate safely and confidently. Some lenders would prefer to get the covered borrower indicator from LexisNexis® Risk Solutions since they make limited use of credit bureau data in their lending channels.

Having this data available in RiskView™ provides a complete and robust credit risk solution that will allow business continuity with minimal disruption. The rule incorporates the MLA’s statutory penalties into the implementing regulations. Accordingly, the penalty for knowingly violating the MLA may include an organizational fine of up to $200,000 and up to a year in prison.

By performing this check, lenders are covered by the safe harbor afforded by the MLA. This allows them to continue lending as before to non-military consumers with the comfort that they are protected.

I am interested in knowing your thoughts on this. Please post a comment or reach out to me on LinkedIn.