Financial Hardship for our Military Could be Prevented
Tuesday, September 18, 2018
WASHINGTON, DC (September 17, 2018) —With a population of over 238,000, North Carolina’s Fort Bragg is the largest Army base in America. It was also directly in the path of Hurricane Florence. Over the course of the past week, Fort Bragg evacuated aircraft to safer ground and implemented measures to secure critical property and equipment. However, thousands of service members’ vehicles remained directly in the storm’s path.
Military members do not get to choose where they serve. It is part of their commitment. However, when members of our military are in harm’s way, we must do everything we can to ensure that those who serve our country do not find themselves in desperate financial straits in the aftermath of a natural disaster. Protecting their lives and property are our top priorities.
Having hurricane damage on your vehicle’s record can lower the value and make it difficult to sell. The most common form of Hurricane damage to vehicles is usually flood-related. During Hurricane Harvey, as many as 500,000 vehicles were affected by storm waters.
Unfortunately, an outdated interpretation of the Military Lending Act (MLA) restricts service members from fully insuring their vehicles in the event of damage or destruction by Hurricane Florence. Consequently, many service members will not be able to recoup the full replacement value of their vehicles, forcing them to incur additional debt.
The MLA was enacted in 2006 to protect active duty members of the military, their spouses and their dependents from deceptive or unfair lending practices. It does this by imposing a series of duties and restrictions on lenders who extend credit to military members. The Defense Credit Union was instrumental in crafting the original legislation and in its implementation among our member credit unions. The impact on predatory lending was very successful.
However, in December 2017, the Department of Defense issued an interpretive rule that essentially bans auto dealers from offering a product called GAP (Guaranteed Asset Protection) insurance to car loans. The intent of this rule was to prevent dealers from taking advantage of service members. But good intentions sometimes go awry.
GAP insurance is an optional way to cover the difference in the actual cash value of a vehicle and the balance still owed on the auto loan, in the event of damage. When you buy a vehicle, the vehicle immediately loses value as soon as you drive it off the lot. If the vehicle is totally damaged or stolen in the first couple of years, you may owe more than it is worth—that is, more than your regular auto insurance will cover. GAP insurance is designed to cover the difference.
The 2017 interpretative rule makes it difficult for borrowers covered by the MLA to purchase GAP insurance directly from auto dealers.This means that many service members have been purchasing vehicles without GAP coverage; and if their vehicles are flooded during the hurricane, they may be stuck with expensive bills they cannot afford.
This raises potential fair lending concerns in states that prohibit discrimination against service members in credit or other commercial transactions. And because the Department of Defense issued this interpretation without notice and without allowing opportunities for comment, the public was denied a chance to explain how this interpretation would harm military members and those who serve them.
Military credit unions have a history of stepping in when disaster strikes. For example, during the aftermath of Hurricane Maria in Puerto Rico, PenFed Credit Union provided relief for borrowers facing hardships due to hurricane damage, opening ATMs to deliver cash without fees to everyone on the island. PenFed also delivered a disaster relief package for employees, including a cash stipend, prepackaged meals, and a generator. Additionally, the PenFed Foundation offered grants for reimbursement of home repairs not covered by insurance after Hurricanes Maria, Harvey and Irma. In fact, our nation’s defense credit unions are also dedicated to providing similar support.
Our nation’s lawmakers have done their part—passing laws to protect our military from financial harm. The executive branch needs to do their part and write regulations that do not counter the intent of Congress. As such, the Department of Defense should change its interpretation of the Military Lending Act and make GAP insurance coverage an option that is readily available to service members and their families.
An important part of my job as CEO of the Defense Credit Union Council is to bring awareness to issues that impact our nation’s defenders—men and women who are voluntarily putting themselves in harm’s way on a daily basis. This included members of the National Guard who are already on hand to assist those in trouble in the aftermath of Hurricane Florence. The last thing they should be worried about is how they are going to pay for a flooded car.
Anthony Hernandez is the president and chief executive officer of the Defense Credit Union Council.
The Defense Credit Union Council is a trade association representing the interests of federally and state-chartered credit unions serving our military around the globe. By maintaining a close and constant liaison with the Pentagon, the Council supports its member credit unions and the Department of Defense (DOD) in coordinating policy, procedures, and legislation impacting morale and welfare, financial readiness, and the delivery of quality financial products and services to DOD personnel and their families. Organized in 1963, the Council’s membership is comprised of 180 credit unions with over 23 million members. If you would like more information about this topic, please contact Brittany Boccher at 719-213-5970 or email at firstname.lastname@example.org.