The installment plan

March 02, 2007

It's time lawmakers mustered some serious outrage at the ridiculously high finance charges - amounting to hundreds of dollars in some cases - that a typical low-income Maryland driver has to pay for car insurance. How much would it cost taxpayers to correct this egregious situation? Absolutely nothing. And yet for years, legislators have been more inclined to protect the profits of "premium finance companies" than help make car insurance affordable. Fortunately, this may be the year all that changes.

Under legislation heard yesterday by the House Economic Matters Committee, the Maryland Automobile Insurance Fund would be allowed to charge its customers on an installment basis. That's a simple enough change to make, but the benefits would be substantial.

MAIF, a quasi-public state agency, is Maryland's insurer of last resort. A bad driving record or a poor credit history can give motorists no alternative but a MAIF car insurance policy. But under current law, a full year of MAIF premiums must be paid upfront. For most customers, that means getting help from finance agents who charge interest rates approaching 30 percent for this service.

This is no small matter. Officials with MAIF say 96 percent of their 71,000 policies are privately financed. The finance companies don't face much risk in that transaction. Not only do they charge a down payment, but if a customer fails to keep up, MAIF will refund to them any unearned premium at the time of cancellation.

If MAIF were allowed to charge on an installment basis, however, the agency would likely add about $5 on that month's portion of the premium (which typically totals about $1,700 per year), or just enough to recover costs. But MAIF would also likely charge a bigger down payment so private finance companies might still be preferred by some low-income drivers.

Gov. Martin O'Malley endorsed the MAIF reform legislation yesterday. Supporters say it's the first time a governor has done so. In a letter to the committee's chairman, he said the current situation "illustrates the maxim that `it is expensive to be poor.'"

Making insurance more affordable might also reduce the number of uninsured motorists in the state, a benefit to all. From utility rates to ground rent ejectments, lawmakers say they're looking out for the little guy. Reducing these outrageous finance charges should fit right in.

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