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Steps to Reduce Exposure to Penalties from Non-Compliance with the Military Lending Act (MLA)


The Department of Defense (DOD) issued an interpretive rule on December 14, 2017, which removes the motor vehicle exclusion qualification (stipulated in the MLA) for dealers who finance Guaranteed Asset Protection (GAP) or other credit insurance products to active duty military service members and their dependents.

The penalties for violating the MLA can be severe, including (but not limited to) rendering the contract void from inception. The National Automobile Dealers Association (NADA) and other advocacy groups are currently working with the DOD and other federal agencies to address this issue more comprehensively. In the meantime, dealers should take immediate steps to reduce their exposure and mitigate associated risks.

Dealers should consult with their legal counsel on how to best address the interpretive rule in their dealerships. Possible action steps include:

  • Identify finance contracts involving active duty service members or their dependents by doing the following:
    • Ask the customer if they are active duty military or the dependent of a member of the military that is on active duty.
    • Create an account on the Official MLA website and perform a search for active duty status
    • Look for statement codes or similar indicators within the customer’s credit report.
  • If the customer is identified as an active duty service member or dependent, do not offer the customer GAP or credit insurance products (such as credit life).
  • With the assistance of legal counsel, consider preparing a standard disclosure explaining that in order to comply with the requirements imposed by the MLA the dealership has decided not to offer GAP or credit insurance products to military members on active duty or their dependents.
  • Retain all documentation in the deal file.

As always, proper documentation will be essential should any issues arise. Dealers should be alert for future developments.

Morgan Prestwood | Manager, DHG Dealerships
205.212.5340 |

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