Jerry Kopel

A soup of subjects

May 2, 2010

By Jerry Kopel

A mélange of subjects, from the "Rule of 78" on credit insurance, Sunrise on medical marijuana dispensaries, to ghost committees.

I really thought the "Rule of 78" had been abolished at least as to merchants and not to banks. No so. If you look at the 35 pages of regulations regarding credit insurance by statute presently delegated to Insurance Commissioner Marcy Morrison to approve, delete, or amend.

If it meets her belief that it fits within the bounds of the credit insurance language, arising from CRS 10-10-109 and 110, I believe she could permit credit insurance sales under the Rule of 78.

"Credit insurance" means insurance to replace non-payment by the debtor for a loan. The Rule of 78 Refund Method is a way to calculate a credit insurance refund based on the original amount of the premium paid

When you borrow money to pay for credit insurance, the Rule of 78 gives the creditor your money at a faster rate than an exact equal monthly payment. And if you pay off your debt early, you do not get back an unused portion of credit insurance you would have received if payments had been used up at a same amount each month.

Assume you have a one year contract to buy and pay for a TV for $1000. The creditor suggests you buy a $100 insurance policy in case you are no longer able to make the TV payments based on your health problems interfering with your ability to work.

Turn the money around and the first month is called "12". Working backwards from 12 you go down to "11", then "10" until you reach "one." Add all the numbers up and you have "78". The first month you owe 12.78 percent of $100 credit insurance debt or $15.38 just on the insurance, not the TV acquisition. The second month is 11.78 percent or $14.19 due. The third month is 10.78 percent or $12.82.

If the credit life insurance policy debt had been equaled out, your payment for the first three months would have been slightly under $25. Instead you paid $42.31 of the $100 debt. If payment on this debt had equaled out after half the year had passed, you would only had used up $50 instead of $73.08.

That is actually a rather large early payment. After a year, the amount paid would have been the same total, but the creditor had use of a larger portion of your payment early on.

According to a recent report in the Denver Post seven Insurance Division employees have to pass yearly on 14,000 filings on insurance rates or refunds.

About two dozen states copy Colorado's approach of not having a board or commission that approve the proposals rather than the head of the department. The Rule of 78 does not provide consumer protection and is listed in regulations regarding refunds under "alternative methods in specific instances".

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How to get a conclusion on a marijuana dispensary system that legitimates the occupation? The system is not part of the state constitutional references to marijuana. That should have opened the door to CRS 24-34-104.1, Colorado's Sunrise review of new occupations.

Not just anyone will be allowed to run such a dispensary. The Dept. of Regulatory Agencies has an experienced staff available to decide "whether the unregulated practice of the occupation or profession clearly harms or endangers the health, safety, or welfare of the public and whether the potential for harm is easily recognizable and not remote or dependent upon tenuous argument" and "whether the public can be adequately protected by other means in a cost-effective manner."

Perhaps I missed a news story, but I don't recall when these experienced staffers were asked to present their view on licensing this new occupation.

* * *

There has to be a special heaven for advisory committees than never were and never will be. Such as the High Technology Scholarship Program Advisory Committee existing in the statutes with the mandate to establish guidelines for Higher Education to use in awarding scholarships through the program.

The seven member board would get necessary expenses for attending meetings. The committee never met and it made no proposals because no members were appointed. Scholarships were to be funded by private donations but none were ever received.

Sponsors of HB 1256 repealing the statute's language, Rep. Frank McNulty, R-Douglas and Sen. Michael Johnston, D-Denver, might consider asking Legal Services to review similar committees that can be removed without having to wait ten years to do away with a shadow of a law. The "single subject" concept is met by wiping out wisps. Even though the committee was never created, there had to be a bill to do away with the uncreated creature.

Rep. Randy Baumgardner, R-Grand County, and Sen. Bruce Whitehead, D-Archuleta, carried HB 1223 to repeal the forest advisory board created to help the Division of Forestry establish policy. The committee was established in 2000 but stopped meeting in 2001.

Gov. Bill Ritter established his own advisory board under executive order in 2008 which has more power to shape policy including framing short and long term action plans for forest management. The entire cost is under the executive branch with no funding from the legislative budget.

(Jerry Kopel served 22 years in the Colorado House.)

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