Consumers including those with lousy credit should stay away from at least one type of full coverage car insurance for their auto loans
What we know
Just because you have problem credit doesn't mean you should be paying more for the full coverage auto insurance required for a car loan just because of the type of policy it happens to be.
Here at Auto Credit Express we know why borrowers with poor credit have to pay higher interest rates on auto loans. And while we accept the fact that auto insurance companies can take a consumer's FICO scores into consideration in many states when pricing out policies, deceiving these borrowers into thinking they can save money on a particular type of coverage when they can't is wrong.
In fact, consumers with problem credit in the process of choosing an auto insurance policy might be interested in a marketing decision that Allstate Insurance made in California over two years ago.
Allstate Your Choice Auto insurance
According to a press release from the nonprofit group Consumer Watchdog, Allstate Insurance agreed to stop issuing new policies for its "Your Choice Auto" (YCA) insurance program in California in January of 2011 in response to a challenge brought by the consumer agency. At the same time Allstate also stated that it would be transitioning all current YCA policy customers into standard auto insurance programs by the end of the year.
All this came about because Consumer Watchdog challenged the marketing of YCA policies under California's Proposition 103 that requires insurers in California to prove that their rates are not excessive and that their insurance products are legal.
According to CW, the YCA program charged drivers up to 15% more in premiums while promising that future tickets or accidents would not increase the policy premium. But according to the agency, the benefits were not worth the additional charge (the consumer group also found that during the time these policies were in force, Allstate pocketed $20 million per year in additional premiums).
In checking out the program Consumer Watchdog noted that Allstate was also "violating California's good driver discount law, unfairly discriminating against drivers despite their good driving record, selling a deceptive product; and encouraging irresponsible driving."
"Your Choice Auto became a cash cow for Allstate by charging customers more than they should be paying under California's good driver law," said Todd M. Foreman, in-house counsel for Consumer Watchdog. "Only when faced with the threat of having their executives cross-examined about the actual costs and benefits of YCA did Allstate finally agree to take this product off the market."
Pulled in California
Following a notice of hearing from the California insurance commissioner and the filing of testimony and exhibits by both Allstate and Consumer Watchdog, the insurer decided to withdraw the program rather than go through the hearing process. As of January 10, 2011, Allstate no longer issues new YCA car insurance policies in the California market. But the decision in California doesn't affect similar programs in the remaining states in which YCA policies are sold.
According to Allstate spokesman Bill Mellander, the company will continue to sell Your Choice Auto policies in other states and "is committed to the YCA product line. It is probably the single best example now of the innovations we bring to the marketplace."
As we see it
Although borrowers with bad credit car financing are required to have full coverage auto insurance, we feel that if given a choice they might want to consider something other than an Allstate YCA policy. After all, if Your Choice was a bad choice in California, there's a good chance it's probably a bad choice everywhere.
Another point to remember: although auto insurance companies in many states can use credit scores to price their policies, even buyers with problem credit should shop around for the best price.
Finally, here is what we think is a good choice: at Auto Credit Express we match people that have experienced difficulties with their auto credit with new car dealers that can offer them their best opportunities for approved car loans.
So if you're ready to reestablish your car credit, you can begin now by filling out our online car loan application.