As was explained in Tuesday’s edition of the Weekly Briefing, one of the worst bills to emerge from the waning hours of the 2017 legislative session was a proposal from the often predatory consumer finance loan industry to allow it to pack more high interest loans with virtually worthless credit insurance.
“Though industry lobbyists claim the change is a mere ‘clarification,’ it’s clear that it would permit the sales of insurance on an entire raft of possessions (‘other personal property of the debtor, exclusive of an automobile’) on which it is not now permissible to sell it. This would, of course, be one thing if credit property insurance were actually a useful and valuable product for North Carolina consumers. The truth, as readers have probably guessed by now, however, is otherwise. You can tell this by looking at the ‘loss ratio’ that insurers experience.
The National Association of Insurance Commissioners’ model loss ratio is 60%. This means that for every dollar the insurers take in through premium payments, they should pay out 60 cents in claims. Unfortunately, the loss ratio for credit property insurance comes nowhere close to this number. The state Department of Insurance’s 2013 Credit Property Survey found that the credit property insurance loss ratio for single interest credit property insurance in 2013 in North Carolina was just 8.81% or about one-seventh of what it ought to have been.
In other words, consumers are already being grossly overcharged for this product and expanding the scope of its sale will just make matters worse. If the bill becomes law, thousands of struggling people who already can’t afford the loans they’re taking out will be that much deeper in the hole.”
Now, thanks to reporter David Ranii of Raleigh’s News & Observer and good government watchdog Bob Hall of Democracy North Carolina, we have a strong inkling as to how and why such a lousy idea emerged out of nowhere with zero public discussion. This is from Ranii’s latest article, “Consumer loan industry is a big winner at the NC legislature – and a big donor”:
“The consumer finance industry, which recently succeeded in persuading the Republican-led state legislature to pass a bill that it wanted, has been a major contributor to GOP lawmakers in recent years.
An analysis of state Board of Elections data by Democracy North Carolina, a voter rights and campaign finance watchdog group, found that people associated with the consumer loan industry and two industry political action committees gave at least $530,000 to legislators and party committees over the past four years. Of that amount, 92 percent went to Republicans.
‘I would say they got a real advantage by putting in this kind of money,’ said Bob Hall, director of Democracy NC.”
Uh, yes, that would be a very obvious conclusion given that the provision in the bill on Cooper’s desk was slipped in just before the end of session by GOP powers that be without so much as a committee discussion.
The bottom line: The hints of “pay-to-play” politics associated with this bill provide yet another compelling reason for Cooper to veto it and for lawmakers to back down when the bill is returned to them.