Homeowners aren't the only ones hit by predatory lending practices. Consider the plight of the Maryland driver who has the misfortune of having either a poor credit history or a bad driving record. Such unfortunates are paying through the nose for car insurance - thanks to premium finance companies that not only charge high rates but also get their money upfront and virtually risk-free.
Here's how it works. Drivers who must insure through MAIF - the Maryland Automobile Insurance Fund, the state's quasi-public insurer of last resort - are required to pay their annual premium in advance. The overwhelming majority of customers can't afford this. But under law, MAIF can't offer an installment plan the way private insurers do.
Enter the premium finance companies that offer high interest rate loans with interest charges paid on the entire sum upfront instead of on the dwindling balance. That's a lucrative proposition for the loan companies, but it can cost MAIF drivers hundreds of dollars. Plus, there's not even significant risk - the companies charge a down payment, and MAIF refunds the balance of the premium if the driver defaults.
To add insult to injury, the same agents who are writing MAIF policies and making money on premium financing often squeeze out a little more by selling their clients extras they can't necessarily afford, such as roadside repair or credit life insurance.
Small wonder most MAIF policies are canceled within the year. It's just too costly. As a result, there are a lot more uninsured motorists on the street, and that raises the cost of car insurance for everyone.
Lawmakers in Annapolis will soon be considering some overdue reforms. One measure would allow MAIF to offer drivers a 10-payment installment plan with a service charge of perhaps $8 per installment. Another would require lenders to charge monthly interest on only the outstanding balance.
Both proposals deserve support but are also likely to face opposition. After all, premium finance companies have found a sympathetic ear in Annapolis before. And it's fair to acknowledge that allowing MAIF premiums on installments would be a major dent in some of these businesses.
But unfair lending is still unfair lending, and the practice shouldn't be allowed simply because it's profitable for a relative few. Gov. Martin O'Malley supports the reforms. Legislators who claim to care about working-class families should, too.