Military Members May Soon See Limits on Auto Loans

A recent interpretation of the Military Lending Act may prevent military members from taking advantage of credit insurance products when purchasing a vehicle.

If a vehicle is stolen, totaled, or suffers some other major damage, Guaranteed Auto Protection (GAP) insurance is a financial product that can pay the difference between the amount you owe on the car and the amount your auto insurance company pays. GAP insurance is usually offered as part of an overall vehicle financing package and is a flat fee added to the vehicle loan.

Some would argue GAP insurance is a beneficial resource. For example, after hurricane Harvey, GAP insurance paid an estimated average claim of $3,221 to cover losses not paid by insurance policies.

In December 2017, DoD published an amended interpretive rule explaining that the Military Lending Act -including disclosure requirements and other restrictions - applies to GAP financial products. Although the Military Lending Act was passed in 2006, prior to December 2017 finance companies operated under the assumption it did not apply to products like GAP, because the Military Lending Act specifically excludes auto financing from its provisions. The December 2017 interpretation made clear it does apply to GAP, causing finance companies to reconsider how they do business.

[For information about MOAA's previous advocacy related to the Military Lending Act, see Military Lending Protections Improved and Protecting Your Wallet.]

Under the December 2017 interpretation, dealerships must verify the military status of each customer and provide additional disclosures and annual percentage rate calculations, as well as exclude the GAP product from the secured portion of the loan. Due to these additional burdens, some auto dealers and their finance companies are discontinuing offering GAP to servicemembers, while others are discontinuing offering it to all borrowers.

According to a large auto dealer group, an estimated 37 percent of customers purchased GAP, with over 50 percent of those customers having a military affiliation. An estimated 240,000 GAP or other credit insurance contracts currently in force for servicemembers are retroactively impacted by the December 2017 interpretative rule - meaning those GAP contacts may be void from the beginning if they do not already comply with the requirements of the Military Lending Act.

MOAA is interested in hearing from you about your experiences with GAP and similar credit insurance products. Have you used GAP or similar financial products and would like to share your experiences with us? Do you believe this type of financial product is important to you and other members of the military community? Were you denied GAP when purchasing a vehicle? Please send your feedback to