NADA is urging all dealers to consult Department of Defense website to determine whether customer has active military or dependent status before offering GAP and other products.
  [Nothing in this Bulletin is intended as legal advice. Dealers should consult their counsel for legal advice specific to their operations.] 
On December 14, 2017, the Department of Defense (DOD) issued an interpretation of the Military Lending Act (MLA) that could have severe implications for all dealers who sell or have sold vehicles accompanied by financial protective products to members of U.S. armed forces.
According to the new interpretation of the MLA, if, as part of a vehicle financing transaction with a military consumer or his or her dependent (“Covered Borrower”), a creditor
  1. Extends financing for a credit-related product or service (such as GAP, Etch, Credit Life, or Credit Accident or Health products), or
  2. Provides cash out financing,
The creditor must comply with the full range of duties and restrictions imposed by the MLA. These are credit financing related products and does not extend to service contracts or products that provide benefits to the motor vehicle itself. 
This interpretation is in effect as of December 14, 2017, and applies to all transactions since October 3, 2016. DOD issued its interpretation without notice or an opportunity to comment. As a result, NADA and other industry trade associations did not have a chance to explain (i) why they believe DOD's interpretation concerning credit-related products or services is inconsistent with the Military Lending Act, or (ii) how the DOD Interpretation will harm military members and the dealers and auto lenders who serve them. NADA is working expeditiously with multiple federal agencies and members of Congress to address these issues. 
In the meantime, dealers are on the hook to comply with these seemingly new and onerous provisions when extending credit services to active military personnel and their dependents (Covered Borrowers). Therefore, it is recommended that dealers avail themselves of a legal safe harbor by:
  1. Running the customer's name and personal information through the following DOD website to determine the customer's status before offering the products:; or
  2. Use a nationwide Credit Reporting Agency, or reseller of the CRA's reports, that provides an indicator or code on the report of all customers with active duty or active duty dependent status.
Please note that these safe harbor methods are only effective if the dealer timely creates and maintains a record of the search and the information that was discovered. Any customers that are revealed through the background check to be an active duty service member or dependent should not be offered GAP, Credit Life or Credit Accident & Health products.
Further, it is important to screen every customer through the methods listed above. Many Covered Borrowers may not even know that they have this designation, which is why simply asking the customer about their status is not sufficient to avoid liability under the MLA.
As stated above, NADA is actively working this issue for more clarification. WATDA urges all dealership personnel to keep an eye out for any updates coming from NADA and/or WATDA on this issue.