Surprise charges and heavy interest rates led President Obama to sign the nations first credit card bill of rights. These new rules are meant to protect consumers from confusing fine print; unexplained charges; and excessive interest rates. This legislation passed through both houses of Congress with broad support. It is past time to bring similar change to an abusive Maryland loan industry.
This similar situation hurts Maryland drivers forced to use premium finance companies (PFCs) to pay for their automobile insurance. Take the case of Prince Georges County resident, Pamela M. Unable to obtain insurance in the private market, Pamela went to the Maryland Auto Insurance Fund (MAIF) to get insured. Due to an archaic Maryland State law, MAIF drivers must pay their premium in full at the inception of the policy. Pamela, like many of us, was unable to pay her entire premium in advance, and was forced borrow from a high cost finance company or drive uninsured. Pamela scraped together a down payment of $300 on her $2100 policy and borrowed the rest from a PFC. Only three days later, Pamela found a better insurance deal with a standard automobile insurance carrier and canceled her MAIF policy. However, the PFC kept $273 of her $300 down payment.
Thousands of Maryland's working families have found themselves paying to these PFCs just like Pamela. Most can seldom come up with the full yearly premium needed to purchase a MAIF policy, and their loan from the PFCs adds hundreds of dollars in interest and hidden fees to the cost of insurance. In case after case, PFCs will charge annual percentage rates (APRs) of 26% and higher to the policyholder. A string of abusive fees follow, including a $20 application fee, an $8 electronic check fee, an $8 late fee, a potential $25 bad check fee, and a $15 cancellation/reinstatement fee.
And unlike credit cards, when a MAIF insured cannot make the PFC payment, the PFC will cruelly cancel the insurance policy. Many of these policyholders will then have no other option, but to forgo insurance and drive without coverage.
This abuse is widespread, and hurting our citizens during these impossible economic times. Approximately 96% of all MAIF policies are financed through PFCs and over 60% of MAIF cancellations are at the request of PFCs. Fees mount, interest rates skyrocket and yet no help is coming.
I urge the Maryland State Legislature to take a page from President Obama's book, instead of turning a blind eye to the situation. Assist policyholders during these tough economic times, by passing legislation that will allow them to make their payments with an installment plan that doesn't exploit working families and drivers that play by the rules and stay insured.