Highway robbery

Our view: Time to end the legalized fleecing of MAIF drivers with usurious interest rates

February 21, 2011

Imagine a lender charging consumers interest rates of 26 percent to 30 percent on loans that are risk-free. That's outrageous, particularly when you consider that low-income families are frequent victims of these usurious terms.

But if history is any guide, members of the General Assembly are unlikely to do much about correcting this highly profitable situation. Even in the midst of an ailing economy, sympathy toward the unfortunate customers of the Maryland Automobile Insurance Fund (MAIF) is hard to find.

How could this be? MAIF is the quasi-government agency that acts as auto insurer of last resort in this state, providing coverage for 70,000 vehicles. But under current law, it is forbidden from collecting premiums on an installment basis. Those premiums aren't cheap, and most of MAIF's customers are far from wealthy. Enter the premium finance companies that loan the money at bloated interest rates charged upfront and then collect their pound of flesh on a monthly basis.

If the customer fails to keep up with timely payments, the companies can charge additional fees. If there's a default, MAIF just refunds the pro-rated premium to the finance company. That's why the humongous interest charges are in no way proportionate to the risk.

If lawmakers were to simply permit MAIF to act like any other private insurance company and allow customers to pay in installments, Baltimore drivers alone would save $915,000 per year. Add in Prince George's and Baltimore counties (two other large MAIF territories), and the savings add up to nearly $2.5 million annually.

A lot of MAIF customers have poor driving records; others have poor credit histories. What they all have in common is that no other insurer will cover them. So those who can't afford to pay upfront premiums of $2,000-$3,000 are stuck with those huge interest charges.

Here's an example: A 23-year-old single male in Baltimore with no points or accidents pays $3,127 for MAIF coverage. If MAIF were allowed to spread out the payments, the driver would save the extra $300 or so he would otherwise pay for the loan.

Why won't lawmakers act? The premium finance companies have got a lot more clout in the State House than a bunch of anonymous MAIF drivers, and this year, many of those companies are arguing that any reforms would cause them to lose jobs.

But by that logic, no consumer protection law would ever be approved. Just because some of the profits from unfair loans go to employee salaries doesn't make them right. And if low-income city residents had another $915,000 in their pockets right now, you can bet the local economy would ultimately benefit.

The Senate Finance Committee is scheduled to hold a hearing Tuesday afternoon on legislation sponsored by Baltimore Sen. Catherine E. Pugh that would allow MAIF to charge on an installment basis. It probably won't attract a lot of MAIF policyholders, who have neither the time nor the wherewithal to appear or hire lobbyists.

But that doesn't make their cause any less right. Just because some Maryland drivers have made mistakes in the past shouldn't mean they deserve to be legally fleeced by unscrupulous lenders today.

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