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Automotive News: A tussle over GAP for military members

A change to the Military Lending Act, designed to protect service members, has instead left some in financial distress. And it has dealers, particularly those near military bases, wrestling with how to comply with the law.

A December 2017 interpretation of the act has blocked military members from buying from dealerships an aftermarket product that could save them from owing thousands of dollars if their vehicles are totaled.

While auto insurance covers the actual value of the vehicles, the quick depreciation of vehicles means the value is often less than a loan balance. Guaranteed asset protection — or GAP — covers the difference.

But to comply with the MLA, most dealerships no longer offer service members GAP, and most lenders haven’t been able to finance it.

“We have to get it settled,” says NADA Chairman Charlie Gilchrist.

One unnamed lender told the National Automobile Dealers Association that it has seen 117 total losses among its military customers in the nearly 15 months since the Department of Defense issued the new guidance. The average balance on those loans was $16,000; without GAP, those customers owed on average about $3,000 out of pocket.

NADA, the American Financial Services Association and other industry groups have been urging the department to reconsider for more than a year. They are now turning up the pressure. Some dealers report losing finance-and-insurance revenue in the wake of the change. And NADA says the MLA interpretation exposed about 5,000 service members to about $15 million in liability from total losses in 2018.

“This really is a ticking time bomb,” Charlie Gilchrist, chairman of NADA and president of Gilchrist Automotive in Texas, told Automotive News. “We have to get it handled.”

Read the full story and Assistant Executive Director Matt Nowel’s quote by clicking here.

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