WASHINGTON – Nine companies accused of illegally collecting excessive interest on insurance premium loans to high-risk drivers are fiercely denying the allegations.
The Maryland Insurance Administration charged Monday that nine premium finance companies violated state law by loaning premium payments to Maryland Automobile Insurance Fund members and collecting interest at rates above the maximum 1.15 percent per 30 days. MIA ordered the companies to “cease and desist their unlawful methods.”
The accusation is “absolutely ridiculous,” said Robert Rubenstein, president of U.S. Capital Associates. “It actually leans on slanderous. It is absolutely untrue.”
The companies loan money to MAIF policyholders who are unable to pay their premiums. MAIF is the insurer of last resort for drivers with troubled driving or credit histories.
The nine companies named are Agency Services Inc., Central Acceptance Company Inc., Gebco Insurance Associates Inc., H&S Finance Company Inc., Insurance Billing Services, Insurance Payment Plan Inc., Premium Finance of America Inc., Senate Acceptance Corporation and U.S. Capital Associates.
The violations came on policies cancelled in mid-term, the administration said, requiring a portion of paid interest be refunded to the policyholder. The companies are accused of using a calculation method that front-loads interest on cancelled policies, allowing them to collect interest of greater than 1.15 percent in the early months of a loan.
“It probably would not be apparent to the consumer,” said Karen Barrow, MIA director of public affairs. “We feel the method that they are using is inappropriate because it overcharges people.”
In an example from MIA documents, Central Acceptance Company Inc. earned $259.71 in interest on a policy cancelled five months into a 10-month agreement, $80.88 more than it should have earned at a 1.15 percent interest rate.
President Nicholas DiLiello, defended his company’s methods.
“I’ve been here almost 40 years and this is how the procedure has always been done,” he said. “I don’t know why all of a sudden it’s being changed.”
Hal Katz, president of Insurance Payment Plan Inc., said he has calculated interest the same way since entering the business in 1977. He said MIA commissioner Ralph S. Tyler, who was appointed in September 2007, is the first to take issue with the method. MIA was founded in 1872.
“If that’s their change of position, I have no problem with it,” Katz said. “I just don’t appreciate the wording in his order because it makes us sound like a crook.”
Two of the companies, U.S. Capital Associates and Insurance Billing Services, are also accused of collecting interest on policies that were never issued, a practice Tyler called “outrageous and unlawful.”
In these cases, drivers signed a loan agreement when applying for a policy, only to have MAIF deny the policy. The two companies are accused of failing to fully refund interest paid on the unissued policies. They were ordered to refund all interest paid plus 6 percent interest.
“It is a misstatement of facts and it is absolutely not true,” said Rubenstein. “I don’t even know where that’s coming from.”
MIA is only ordering refunds in cases where policies were never awarded. Companies who commit future violations could face fines of up to $1,000 per violation, as well suspension or revocation of their licenses. They have 30 days to request a hearing.
Katz said he is undecided whether to pursue the matter but both Rubenstein and DiLiello plan to do so.
“We are appealing,” Rubenstein said. “I’m very confident that we will prove the insurance commissioner absolutely incorrect.”