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Members of Congress send letter to DoD in Support of Changes to the MLA's Interpretive Rule

Friday, December 14, 2018  
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Congressman Warren Davidson leads seven Members of Congress in sending a joint letter to Mr. James Stewart, Under Secretary of Defense for Personnel and Readiness, urging a full withdrawal of "Question and Answer 2" (Q&A 2) of the Department of Defense's Interpretive Rule entitled "Military Lending Act Limitations on Terms of Consumer Credit Extended to Service Members and Dependents."

The full text of the letter is below. You can read a signed copy of the letter here.

Mr. James Stewart
Office of the Undersecretary for Personnel and Readiness Department of Defense
The Pentagon Washington, DC 22202

Dear Mr. Stewart:

We are writing to encourage a full withdrawal of "Question and Answer 2" (Q&A 2) of the Department of Defense's (the Department) Interpretive Rule published on December 14, 2017 and entitled "Military Lending Act Limitations on Terms of Consumer Credit Extended to Service Members and Dependents."

As you know, the Interpretive Rule intended to clarify the treatment of credit insurance and other products such as guaranteed asset protection (GAP) under the Military Lending Act (MLA). However, we are concerned that in doing so the Department has curtailed access to these optional products that many service members and their families rely on to help them manage the financial risks associated with owning an automobile.

Many automobile dealers offer service members and non-military customers the opportunity to purchase GAP and similar products when financing a motor vehicle purchase. For those who do elect to use these products, the cost is typically rolled into the principal balance of the vehicle finance agreement. GAP covers the difference between the amount a borrower owes to the lender and the amount paid by auto insurance when a vehicle is stolen or destroyed. Without voluntary protection products like GAP, service members and their families can find themselves still paying hundreds of dollars a month for a vehicle that they can no longer drive - resulting in financial hardship and worry that detracts from the military readiness the MLA was designed to promote.

The Interpretive Rule, specifically Q&A 2, has in effect eliminated the option for service members and their families to purchase GAP, credit insurance, and other similar products. This is troubling given that when Congress passed the MLA, it expressly exempted from the definition of "consumer credit" a credit transaction intended to "finance the purchase of a motor vehicle when the credit is secured by the vehicle being purchased." The Q&A 2 within the Department's Interpretive Rule upends this longstanding exemption under the MLA.

We understand that the Department has acknowledged the concerns associated with Q&A 2 and is reviewing this Interpretive Rule. Given our shared desire to ensure a vibrant financial services marketplace for our service members, we request that the Department resolve this matter as expeditiously as possible by working with OIRA to affect a straightforward withdrawal of Q&A 2.

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