Is there an MLA / GAP Workaround? …what about discrimination?


The Department of Defense’s interpretation of the Military Lending Act (MLA) in late 2017 set up seemingly insurmountable barriers to selling GAP to military personnel. The most obvious road block was the 36% MAPR ceiling and the requirement to include the retail price of GAP in the cost of credit. The second appeared to be not just a detour but a closed road. A restriction that effectively prohibits the sale of GAP in indirect lending transactions – retail installment sale contracts – the primary method of in-dealership financing.

A number of dealers, concerned that not offering GAP to military personnel would prompt discrimination claims, opted for another route altogether – they stopped offering GAP products to any customer. 

AFIP retained Eric Johnson, a partner with Hudson Cook, LLP, to study the legal roadmap and identify navigable passages that would allow dealers to provide military personnel and their families with GAP and other owner protections. Here’s a summary of what he found.

Does offering GAP to only nonmilitary consumers constitute discrimination?

The short answer is that it would not constitute discrimination at the federal level, but it might at the state level. Consult an attorney well-versed in your state statutes to obtain a written opinion before proceeding.

Is it possible to circumvent the indirect lending restriction?

No, it’s not currently possible to directly circumvent the restriction in an indirect lending transaction. However, there is a federal or state-chartered bank, savings association and credit union exception to the prohibition. A dealer, as agent for a bank, could offer GAP as part of a consumer loan transaction originated by the bank. At present, AFIP is aware of one instance in which dealers are selling GAP to military buyers. Dealers under an agreement with Huntington Bank act as the bank’s agent to present a Promissory Note to the consumer buyer on behalf of the bank for purchase of a vehicle.

The dealer-agent-bank relationship satisfies the bank exception and permits GAP being offered as part of the consumer loan transaction originated by the bank. Keep in mind that if GAP is included in the transaction, all MLA provisions apply to the promissory note-funded transactions involving military buyers – including limitations on the MAPR; oral and written disclosure requirements; and prohibitions against arbitration and waivers of state or federal law.

How do you compute the MAPR and generate the required documents?

If you decide to explore the dealer-agent-bank exception path, you’ll need to know how to manage the MAPR limitation. Several online sources provide formulas for computing agreements that include GAP and stay under the 36% threshold.

Cautionary Caveats

  • Do not undertake any action toward an MLA workaround without written approval by management.
  • Do not proceed without every aspect of the plan documented in writing with a written approval provided by a qualified attorney.

by David Robertson



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If you’d like to see Eric Johnson’s legal analysis on the issues above,

contact David Robertson at



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