California Auto Dealer – Military Lending Policy

January 2018

Over 30 Years’ Experience Handling Buy/Sells And Automotive Law           



Erin K. Tenner

If you are looking for a Military Lending Policy, we have one available. Details at the end of this article.

As you have probably heard by now, the Military Lending Act (MLA) applies to auto dealers who sell GAP insurance and credit life insurance. We have prepared a Military Lending Policy for some of our clients and we are now making it available to all of our clients and readers. The MLA is not new, but the regulations interpreting it are new. The MLA is designed to protect anyone who is in the military and is called up for active duty for more than 30 days, as well as National Guard and Reserve members. The general belief was that it did not apply to auto dealers, until the Department of Defense (DOD) issued its recent interpretation stating that it does apply to auto dealers in certain circumstances. 

Many people are up in arms about the new DOD regulations because they are essentially saying the law always applied to auto dealers, and if you have violated it by not providing necessary disclosures to your active duty military customer or by exceeding the maximum interest rate of 36% (including many fees and expenses) then the contract is void (not voidable – just void). It also imposes a whole host of other penalties including possible jail time for offenders. 
State Law

Some California attorneys have suggested that the solution to dealing with the new regulations is to deny GAP insurance or credit life insurance to anyone who is active military, since these are the products that pull dealers into the MLA compliance requirements. The problem with the advice is that if you market or extend GAP or credit insurance to those covered by the MLA (which could be evidenced by those you already sold to), it would violate California law to discriminate. 
The state law prohibits discrimination against the military, but excludes those covered by the MLA from the prohibition under certain circumstances. It says in part:
“With respect to any loan or credit transaction covered [by the MLA] a person that does not market or extend those transactions to covered borrowers shall not be in violation of this section.” (CA Military & Veterans Code Section 394(f))
Some California attorneys feel that the state statute provides enough ammunition to fight an alleged violation based on a discrimination claim, and that it is better to discriminate in California and not sell GAP or credit insurance products to active military customers, than to attempt to comply with the MLA.    
Federal Law

However, discriminating may violate not only California law for the reasons stated above, but also federal law, under the MLA’s preemption language (32 CFR 232.7). The MLA says that federal law preempts the state law (meaning federal law applies if they conflict) but not with respect to greater protections provided by state law. Federal law also says the states cannot “permit the violation or waiver of any State consumer lending protection covering consumer credit that is for the benefit of residents of the State on the basis of the covered borrower’s nonresident or military status, regardless of the covered borrower’s domicile or permanent home of record, provided that the protection would otherwise apply to the covered borrower.” 
In short, this seems to be saying two things: 1) If someone falls under the MLA and the state provides greater consumer lending protection than the MLA, which California does by saying a lender cannot discriminate, then the same protection must be provided to those covered by the MLA even if they are not residents of the State, and 2) If someone would be covered by the state protection if they were a state resident, (and they would if they are in the military), then they cannot be EXCLUDED from the coverage just because they are an out of state resident or because of their military status, i.e. active duty. The exclusion may not be valid. This presents a potential problem for those discriminating against active military in California. 

Those recommending discrimination in California are interpreting the MLA to mean that because the state law does not apply to covered borrowers, there is no violation or waiver. The problem is that either interpretation could be adopted by a court.
The best solution is to comply. It is not that hard to do. The policy we have prepared gives several options for compliance, even under state law. If you choose to discriminate, be aware that you can’t offer or extend GAP or credit insurance, and even if you don’t offer or extend GAP or credit insurance, you may still be violating the MLA even if you are not violating state law.  

If you wish to purchase our Military Lending Policy, which covers the MLA and the Soldiers’ and Sailors’ Civil Relief Act, you may do so by contacting Erin Tenner at: or 818-907-4071, or by filling out and returning the attached form, which provides information and pricing. 


In case you didn’t make it to CNCDA’s legal update, here are a few of the new laws you need to know:

If you are constructing a new building or renovating a bathroom at an estimated cost of $10,000 or more AND a permit is required, AB 1127 requires that retail stores of more than 5,000 square feet must provide one baby diaper changing station that is accessible to men and women (or one for men and one for women). Fortunately, the provision is not enforceable by a private right of action and requires nothing new if men and women can already access a baby changing station in the facility.

Effective January 1, 2018, sexual harassment training must include gender identity, gender expression and sexual orientation harassment training. New posters are also required to cover transgender individuals.

Effective January 1, 2018, AB 1008 prohibits anyone with five or more employees from asking about criminal history on a job application. Criminal history can only be considered, and questions about criminal history can only be asked, after a conditional offer of employment is made. It is also has very specific requirements that must be followed before and upon denying employment based on a criminal history. It is unlawful to consider, distribute, or disseminate information about any of the following while conducting a conviction history background check in connection with any application for employment:

(A) Arrest not followed by conviction, except in the very limited circumstances.

(B) Referral to or participation in a pretrial or posttrial diversion program.

(C) Convictions that have been sealed, dismissed, expunged, or statutorily eradicated pursuant to law.

With a few notable exceptions, including for employers who employ fewer than 20 employees, effective January 1, 2018, it is unlawful to “[r]efuse to allow an employee with more than 12 months of service with the employer, who has at least 1,250 hours of service with the employer during the previous 12-month period, and who works at a worksite in which the employer employs at least 20 employees within 75 miles, upon request, to take up to 12 weeks of parental leave to bond with a new child within one year of the child’s birth, adoption, or foster care placement. If, on or before the commencement of this parental leave, the employer does not provide a guarantee of employment in the same or a comparable position upon the termination of the leave, the employer shall be deemed to have refused to allow the leave. The employee shall be entitled to utilize accrued vacation pay, paid sick time, other accrued paid time off, or other paid or unpaid time off negotiated with the employer, during the period of parental leave.” (Government Code Section 12945.6(a)(1)) It is also unlawful to maintain and continue to pay for group health care coverage for an employee who takes the leave. 

Please Note: 
These articles are necessarily general in nature and do not substitute for legal advice with respect to any particular matter. Readers should consult with an attorney before taking any action affecting their interests.

California Auto Dealer is a registered trademark. The content of this Newsletter may not be duplicated without permission. 
Erin K. Tenner
(818) 907-4071 /
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Please Note: This article is necessarily general in nature and is not a substitute for legal advice with respect to any particular case. Readers should consult with an attorney before taking any action affecting their interests.