Consumer advocacy groups are sounding the alarm about a bill that was pushed through the legislature at the behest of the consumer finance industry and is now on Gov. Roy Cooper’s desk.
An industry spokesman counters that the measure merely clarifies the existing law and questions why consumer groups are raising a fuss. The spokesman also defended the industry’s treatment of consumers.
“If we weren’t fair to our consumers, we would not be in business,” said R.E. Everette, chair of the legislative committee of the Resident Lenders of North Carolina, which represents independently owned consumer finance companies in the state. Everette owns the Greenville-based Time Financing Service, which has 24 offices across North Carolina.
It’s unclear how the governor views the bill. A spokesman for Cooper, Ford Porter, said that the measure, HB 140, is one of a number of bills being reviewed by the governor.
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The consumer groups say if the bill becomes law it would expand the types of products that consumer finance companies can sell credit property insurance on in conjunction with a loan. Credit property insurance insures against damage or loss to property used to secure a loan; loan companies sell it along with other types of insurance, such as life insurance policies that pay off a loan if the borrower dies. Borrowers typically borrow the cost of the premiums as part of their loan.
Under state law, consumer finance loans can offer installment loans ranging up to $15,000 at interest rates ranging from 18 to 30 percent, depending on the size of the loan.
Al Ripley, director of the N.C. Justice Center’s consumer and housing project, said that the bill would enable the industry to expand sales of what he called “junk insurance.”
“If you’re able to sell more of it, you’re going to hurt more people,” he said.
The law currently stipulates that credit property insurance can be sold for “personal household property” such as “household furniture, furnishings and appliances designed for household use.” The bill strikes the word “household” and adds that such insurance can be sold for “other personal property,” but not an automobile.
That, said Ripley, would expand credit property insurance to products such as all-terrain vehicles, dirt bikes and “the trampoline in the back yard.”
But Everette insisted the industry already can sell credit property insurance for products such as ATVs.
“We’re just modernizing the law … making sure everything is clear,” he said.
Consumer groups contend property credit insurance is expensive and highly lucrative for the industry.
Kelly Tornow, director of N.C. policy with the Center for Responsible Lending in Durham, calculates that, based on data from the state insurance department, the loss ratio for credit property insurance in North Carolina in 2013 was 8.81 percent. In other words, for every $1 in premiums paid, insurers paid out less than 9 cents in claims.
Everette questioned the accuracy of that analysis, saying the loss ratio cited was “way low.”
“The insurance we sell is not junk insurance,” said Everette. “It’s insurance at a reasonable price. … And it’s all voluntary. It’s not required.”
The National Association of Insurance Commissioners recommends that loss ratios for various types of credit insurance should be at least 60 percent – that is, at least 60 cents paid in claims for every $1 in premiums – according to Reinvestment Partners, a Durham consumer advocacy group.
Ripley said the low loss ratio demonstrates that the credit property insurance provided by the consumer loan industry “rarely benefits the consumer.” He noted that many consumers already have homeowners insurance or rental insurance that cover their property.
But it is widespread. According to a report by the state banking commissioner, 68 percent of the 528,479 consumer finance loans made in 2014 included premiums for credit property insurance.
The measure on credit property insurance surfaced in three different bills during this year’s legislative session. It was stripped out from one after the consumer groups complained, Ripley said, but later was added to two otherwise unrelated bills.
The consumer finance industry, said Ripley, has been “very persistent.”