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Darwin Updates F&I Platform to Address Military Lending Act Rules

January 23, 2018

ISELIN, N.J. — F&I software maker Darwin Automotive today announced the integration of smart disqualify technology into its F&I platform. The update, which disqualifies F&I products based on Military Lending Act qualifications, was designed to address an interpretive rule the Department of Defense (DOD) issued on Dec. 15 under the MLA.

The DOD’s rule amended three of the “Q&A” format interpretations — and added one — it issued in August 2016 regarding compliance with its July 2016 final rule implementing regulations of the MLA — the first of which clarified that including credit-protection products like GAP in a servicemember’s vehicle finance contract would take the transaction outside the scope of the motor vehicle financing exclusion and subject it to a slew of restrictions and requirements under the MLA.

The interpretive rule also applies to a servicemember’s dependents and is retroactive to Oct. 3, 2015 — the latter putting both dealers and finance sources in regulatory jeopardy.

“With Darwin, the needs of a consumer are paramount in determining which products and services can best fit those needs,” said Darwin CEO Phillip Battista. “Out of respect to the men and women who have served, we want to provide the highest possible level of transparency at no cost and have integrated MLA qualification screening into our Darwin platform at no charge to our dealer and lender clients.”

Passed by Congress in 2006, the MLA provides specific protections for active duty servicemembers and their dependents in consumer credit transactions, including a 36% cap on the military annual percentage rate in covered transactions. It also requires military-specific disclosures and prohibits creditors from requiring arbitration in the event of a dispute, among many other protections.

When the MLA first took effect, by regulation it only covered three narrow categories of consumer credit. Credit transactions involving the financing of a motor vehicle or personal property when the credit is secured by the vehicle or property were statutorily exempted.

When the DOD amended its implementing rule in July 2015, the MLA’s protections were expanded to other types of consumer credit, although the motor vehicle finance exemption remained. However, shortly after the expanded rule took effect on Oct. 3, 2016, the DOD issued an interpretation of the personal property financing exclusion. It stated that financing items beyond the personal property being financed took the transaction outside the scope of the personal property exception to the MLA’s requirements.

That interpretation raised the question of whether the DOD had a similar view of the identically worded motor vehicle financing exclusion. In last month’s interpretive rule, the DOD said the answer depends on what the credit beyond the purchase price is used to finance. It then listed examples of items that don’t qualify for the exclusion, including credit-production products like GAP and credit insurance, as well as cash-out financing.

The MLA’s final rule does allow creditors, including dealers, to conclusively check whether a credit applicant is or is not a servicemember or a dependent of a servicemember through a credit reporting agency or the DOD’s own database.

As for Darwin’s new update, company officials said a new question was added to the interview portion of its F&I platform. It asks customers if they’re an active duty servicemember or a dependent of an active duty servicemember. If the answer is “Yes,” the company’s smart disqualify technology automatically removes products that would subject the deal to the MLA’s rules and restrictions — eliminating the need for the business manager to manually build or edit the menu.

“If a vehicle finance contract for active military members or their dependents includes financing for credit-related products or services, such as GAP or other types of credit insurance, or provides cash-out financing, the creditor, which would be the dealership or lender, must comply with the act,” Battista said. “Products and services such as upgraded in-vehicle technology or extended warranties are related to the vehicle and are exempt from the rule. But credit-related products and services, such GAP and credit life insurance, are related to the finance transaction, not the vehicle, so they are included under the act.”



  1. 1. Michael Shanahan [ January 25, 2018 @ 07:37AM ]

    The default approach of numerous compliance companies, dealer attorneys, and lenders matches that of Darwin. Each are eliminating the sale of products to “qualifying members” under the MLA. Albeit, one difference being the approach. Darwin’s questionnaire approach is not the best practice. The MLA provides two safeguard approaches to determine in whether there the customer is a qualifying member. One, being two check the dod website, and the other to utilize the credit bureau. Using a safeguard approach provides a the best protection for dealers. Using the questionnaire approach leaves the dealer exposed. What if the customer says they are not a qualified member? Such an answer is very possible and the MLA does not provide immunity to a dealer where it’s customer gets it wrong and the dealer relies on the questionnaire. Most industry professionals are advising their clients to utilize one of the aafegaurd approaches.

    I’m a bit bewildered by the willing of the industry to simply avoid the need to comply with the disclosure requirements of the MLA that allow the dealer to sell their products. I believe a better approach, however, would be to allow the sale of the credit related products (e.g., GAP and Credit and Credit Insurance). Allowing the sale of the products only requires the dealer to take two extra steps. One, calculating the MAPR; and, two, making the disclosure. Calculating the MAPR is simple. Every dealer’s system already does this — it just takes a little know how to do so. The disclosure is easy as well. It’s pretty much a canned statement that the finance manager must read and provide to the customer.

    If anyone is interested in actually complying with the rule so they can continue selling products, opposed to avoiding having to comply with the rule by not selling products, feel free to contact me.

    Michael Shanahan
    Dealer Attorney and Consultant

  2. 2. Jason Fletcher [ February 08, 2018 @ 05:51PM ]

    Michael Shanahan, I agree with you 100%. My company has developed a tool for calculating the MAPR and produce the disclosures. Please give me a call at 858-391-5670 to discuss this issue.


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