December 13, 2013

Medical expense credit cards can be costly

Regulatory action against CareCredit orders $34.1 million in refunds and improved disclosures.

CareCredit, a medical credit card used by hundreds of doctors, dentists and veterinarians in the area, came under fire this week from the Consumer Financial Protection Bureau.

After an investigation spurred by hundreds of complaints, the federal agency accused the company and GE Capital, its corporate parent, of deceptive practices involving its deferred interest rate of 26.99 percent. The bureau ordered the payment of $34.1 million in refunds to an estimated 1.2 million customers.

“When people seek medical care, they are in a particularly vulnerable situation. They are sick or injured, or maybe a loved one is in pain,” Richard Cordray, director of the consumer bureau, said in a release. “Unlike when they are at a bank or when they receive unsolicited mail, they are not ‘on guard’ financially. They are not thinking carefully about the terms of a financial contract — fees, penalties, interest rates.”

In this case, CareCredit offers a no-interest introductory period for six to 24 months, depending on the offer. During that period, it accumulates interest at nearly 27 percent, almost double the average credit card rate of 15 percent. If the charge is not completely paid off during the no-interest period, the cardholder is socked with the accumulated interest plus the unpaid balance.

CareCredit has high customer satisfaction and repeat usage, company spokeswoman Cristy Williams said.

“We have worked cooperatively with the CFPB on this inquiry and are committed to providing more education for providers who offer our program and enhanced consumer disclosures,” she said in an email.

A few years ago, I was offered a CareCredit card to finance the high deductible I faced as I considered surgery after I broke a small bone in my ankle. The interest-free deal sounded positive.

I knew there must be a catch, though I was not told what the interest rate was at the time. Also, I had a health savings account, funded for just such an expense, but no one at the doctor’s office asked me about it.

That’s part of the problem, the consumer bureau found.

According to its order, since January 2009, consumers who signed up for the credit card often received an inadequate explanation of the terms. Medical providers and their office staffs are the primary sellers of the card to patients, the consumer bureau said.

CareCredit is one of the largest players in the medical credit card niche, offered by more than 175,000 providers nationwide. The bureau estimates that 85 percent of CareCredit cardholders were placed under its deferred-interest financing plan.

CareCredit’s website lists hundreds of area providers that offer the card. Besides doctors, dentists and veterinarians, it’s offered by testing labs and imaging centers, surgical centers, hearing and eye centers, chiropractors and orthodontists.

Medical credit cards are aimed at patients with no insurance or with high deductibles.

In my case, being offered a credit card during that vulnerable moment was too much to take emotionally. I decided against not only the card but also the surgery itself.

After my ankle healed on its own, my orthopedist told me that I hadn’t needed the surgery he recommended after all.

But if you’re in a car accident, bleeding, having trouble breathing — or worse, your child is in that condition — it’s hard to think clearly about financial decisions.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the consumer bureau’s order requires GE Capital and CareCredit to create a $34.1 million reimbursement fund.

Consumers must be notified that they can file claims seeking reimbursement. They will be reviewed by an independent adjudicator.

CareCredit must improve disclosures provided to consumers when they apply and again on billing statements.

CareCredit will contact most cardholders within 72 hours of the initial transaction to explain the product. On transactions over $1,000, consumers must be enrolled directly by CareCredit, not the provider’s office. And cardholders will be warned before the promotional period ends.

Medical office staffers who sell the CareCredit card to patients must undergo training, and plain-language disclosure forms are required to ensure that consumers receive adequate information before signing.

“This is one of many examples of why the bureau was needed,” said Don Baylor, senior analyst at the Center for Public Policy Priorities in Austin. “Obviously, they have a very big field in which to play — all the financial services and products in the country — but they are showing their worth to the consumer.”

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