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DOD Reverses Ban on GAP Sales with New Car Purchase

Since December of 2017, the National Automobile Dealers Association has been petitioning the Department of Defense and the White House to overturn interpretive guidance from the Pentagon that prohibited dealers from selling Guaranteed Asset Protection (GAP) to individuals covered by the Military Lending Act. The risk of improperly selling GAP to those active duty servicemembers or their families was an invalidation of the security interest granted by the Retail Installment Sales Contract, making the contract toxic for any finance company to purchase.

We are happy to announce that yesterday, February 27th, 2020, the Department has agreed to withdraw the “Question 2”, which was the portion of the guidance that put this prohibition into place back in 2017. From here, the retraction will be placed in the Federal Register on Friday, February 28, and should become effective immediately thereafter.

After publication, dealers should be free to again offer and sell GAP waivers to those members covered by the MLA, as they did prior to December 2017.

We would like to congratulate the members of the NADA Regulatory team, who have spent two and a half years building a coalition of partners and petitioning various outlets of the federal government to get this guidance reversed. We believe allowing military members to protect the purchase of their new vehicles is a tremendous asset to those consumers who dedicate their lives to service.

One word of caution, while press releases and notifications are being distributed widely this week, it may take some time to disseminate the information throughout the various finance agencies. So, please be patient if financial companies are hesitant to reverse their internal policies on refusing to purchase these contracts. If you encounter a finance company who is unaware of the reversal, or has any questions, please ask them to contact Matthew Groves at matthew.groves@colorado.auto.

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