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Finance firms fight for 25%-30% rates


Finance companies that charge Maryland motorists annual interest rates of 25 percent to 30 percent for auto insurance loans have mounted a do-or-die campaign in the state legislature to stay in business.

In recent weeks, the companies have lobbied legislators to kill bills that would free thousands of Maryland drivers from the high interest rates and could save them millions of dollars in insurance payments.

So far, the campaign appears to be working.

The chairman of one key committee says there is a lot of opposition to the proposal among members.

The chairman of another key panel predicted that his members would kill the proposal.

"I don't think the likelihood is there to pass out" the bill, said Michael Busch, chairman of the House of Delegates Economic Matters Committee. The proposal is contained in two slightly different bills in the House and Senate.

At issue is a request by the Maryland Automobile Insurance Fund -- the state's insurer of last resort -- to allow customers to pay their premiums in installments, as most private insurers permit.

Currently, MAIF customers -- some of them poor -- have to pay the full cost of the policy up front. Otherwise, they must make payments through premium finance companies that, on occasion, charge annual interest rates as high as 35 percent and 40 percent.

"I think that's wrong," said Carolyn Burridge, who represents the Maryland Taxi Cab Association.

At least 1,100 cabdrivers pay an average of $3,000 a year in insurance premiums through MAIF, she said.

The Maryland Insurance Administration -- a state watchdog agency whose job is to ensure that citizens are charged reasonable rates -- also favors the plan.

"We feel that if people have access to an additional payment mechanism, it will make it easier for them to afford MAIF insurance," said Lars B. Kristiansen, associate commissioner for policy.

"We believe they should have the same right to an installment plan like anybody else out there."

But some legislators and the finance companies that profit from the current system say an installment plan would create unfair competition.

"You're going to take a major chunk out of their business," said Sen. Thomas L. Bromwell, a Baltimore County Democrat, during a hearing earlier this week.

Other legislators say MAIF is an inefficient organization that may not be able to handle an installment program and would not work as hard as private companies to help customers meet payments.

"It seems to me we'll end up with more uninsured" drivers, said Sen. Thomas P. O'Reilly, chairman of the Senate Finance Committee, which may vote on the matter next week.

Insurance Administration officials, however, expressed confidence in MAIF's abilities.

"Obviously, the commissioner's office would not support this if it didn't think MAIF could handle the job," said Jean Bienemann, an associate commissioner.

Despite opposition to the installment program, legislators say they don't want people to think they don't care about high insurance costs. Mr. Busch has assigned a group to look at the problem in a broader context.

"I know there are a lot of lobbyists around this issue," he said. But "the committee is trying to take a prudent approach that will really benefit the consumer.

"We're trying to look at the big picture."

As proposed, the MAIF installment plan pending in the Senate would work as follows: Policyholders could make a 25 percent down payment to MAIF and pay the remainder in five installments. MAIF would charge only a $7 fee for each installment, or $35 a year.

MAIF estimates that the installment plan could save an average of $127 a year for each of its 20,000 policyholders in Baltimore. Policyholders on the Eastern Shore, where insurance costs much less, could save an average of $35 a year. Ms. Burridge said the installment plan would save cabdrivers about $515 on average annually.

MAIF issues about 201,000 policies in Maryland. The average cost of a policy is $1,183.

Representatives for some of the two dozen finance companies that have a large customer base in MAIF say the plan could be devastating to them.

"If you pass this bill, we will go out of business," Fred Schulte, vice president of H&S; Finance in Parkville, told the Senate Finance Committee earlier this week.

Lobbyists for finance companies also say that the oft-quoted 25 percent to 30 percent average annual interest rate is very misleading.

"It's a statistical lie," said Joseph A. Schwartz III, a lobbyist who represents the Maryland Insurance Council.

Mr. Schwartz said companies don't make nearly that much because many motorists cancel their policies in the first couple of months before the big profits kick in.

After that is taken into account, the average percentage interest rate is only about 16 percent, Mr. Schwartz said.

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