Testimony in Support of HB 32

Testimony in Support of HB 32:

Maryland Automobile Insurance Fund –

Acceptance of Premiums on Installment Basis

TO: Hon. Dereck Davis, Chair, and members of the House Economic Matters Committee

FROM: Melissa Broome, Senior Policy Advocate

DATE: February 26, 2008

The Job Opportunities Task Force (JOTF) is an independent, nonprofit organization that develops and advocates policies and programs to increase the skills, job opportunities, and incomes of low-skill, low-wage workers and job seekers in Maryland. JOTF supports HB 32, which would enable the Maryland Auto Insurance Fund (MAIF) to collect premiums on an installment basis.

Unlike any other insurance company in Maryland, MAIF is required by law to collect premiums in full at the start of the policy. Because 96% of MAIF’s policyholders are unable to pay the premiums in full, they are forced to turn to premium finance companies, which charge interest rates that approach 30%. The result is that low-income residents are forced into predatory lending practices.

A 2007 report released by the Job Opportunities Task Force, “Overpriced and Underserved: How the Market is Failing Low-Wage Baltimoreans,” revealed that low-wage Baltimore area residents are paying inflated costs for most basic necessities—from groceries, to mortgages, to transportation, to financial services. These high costs often snowball and make it difficult for families to achieve economic security.

The report found that mobility it key getting ahead. We live in a regional economy, where services and jobs are not always located near home. In fact, almost half of all workers in Maryland travel to another county for their job. While having a car is critical, the high costs associated with insurance put ownership out of reach of many families. When consumers turn to MAIF as their last resort, they should not have to face yet another unnecessary cost.

JOTF’s report makes a series of recommendations for reducing the high costs that create a barrier to economic security for low-wage workers. Changing the requirement that MAIF policyholders pay their premiums upfront is among these recommendations.

By allowing MAIF to accept premiums on an installment, the legislature can take an important step toward insuring that low-income residents do not fall victim to predatory lending practices. We respectfully urge a favorable report of HB 32.