More than 1 Million Consumers Were Potential Victims of Misleading Practices
WASHINGTON, D.C.—(ENEWSPF)—December 10, 2013. Today the Consumer Financial Protection Bureau is ordering GE Capital Retail Bank and its subsidiary, CareCredit, to refund up to $34.1 million to potentially more than 1 million consumers who were victims of deceptive credit card enrollment tactics. At doctors’ and dentists’ offices around the country, consumers were signed up for CareCredit credit cards they thought were interest free, but were actually accruing interest that kicked in if the full balance was not paid at the end of a promotional period.
“Medical debt is already a big problem for many Americans. Poor credit card transparency should not be making the problem even worse,” said CFPB Director Richard Cordray. “Deferred-interest products can be risky for consumers in the best of circumstances, and today’s action ensures that CareCredit will no longer profit from consumer confusion. The Bureau will not tolerate financial companies that take advantage of patients and their loved ones.”
CareCredit offers personal lines of credit for health-care services, including dental, cosmetic, vision, and veterinary care. Doctors, dentists and other medical providers and their office staff, such as office managers and receptionists, are the primary sellers of the product, offering it as a payment option for their patients. The product is sold by more than 175,000 enrolled providers across the country. There are about 4 million active CareCredit cardholders.
Approximately 85 percent of CareCredit borrowers are placed in a deferred-interest financing plan. Under this “no interest if paid in full” plan, consumers make monthly payments while CareCredit assesses 26.99 percent annual interest on a consumer’s balance throughout a promotional period, which can range from six to 24 months. If any portion of the balance has not been paid when the promotional period ends, the consumer becomes liable for all of the accrued interest.
According to the CFPB order, since January 2009, consumers who signed up for the credit card frequently received an inadequate explanation of the terms. Many consumers, most of whom were enrolled while waiting for health-care treatment, incurred substantial debt because they did not understand how they could have avoided deferred interest, penalties, and fees. The CFPB began investigating CareCredit after receiving hundreds of complaints from consumers. During the course of its investigation, the Bureau found evidence of:
Deceptive enrollment processes: The CFPB found that service providers misled some consumers during the enrollment process by not providing adequate guidance clearly laying out the terms of the deferred-interest loan. CareCredit’s limited involvement during the enrollment process and lack of oversight and monitoring allowed this deception to continue.
Inadequate disclosures: Many consumers did not receive copies of the actual CareCredit agreements and instead had to rely only on the oral explanations given by the service provider or office staff. Many consumers were enrolled on the belief that it was an interest-free card, and did not understand that they were actually agreeing to a deferred-interest product with a 26.99 percent interest rate.
Poorly trained staff: Many staff members in the health-care offices, who were responsible for explaining the CareCredit agreement to borrowers, had received little or no training by CareCredit, and relied only on pamphlets. In interviews with CFPB investigators, some providers admitted that they were themselves confused by the deferred-interest card.
Create a $34.1 million reimbursement fund: Consumers who incurred charges in connection with their credit cards will be notified by CareCredit that they may file a claim seeking reimbursement. Claims will be reviewed by an independent adjudicator. More than 1.2 million consumers will have access to this independent review process and the reimbursement fund. The company will pay all expenses related to the administration of the fund.
Enhance consumer disclosures: CareCredit will also be required to enhance the disclosures provided to consumers during the application process and on billing statements. The new disclosures will include improved descriptions of the deferred-interest product, and consumers will be warned in advance when the promotional period is ending. Representatives will contact most CareCredit consumers within 72 hours of the initial transaction to explain the product to them over the phone. In addition, for certain transactions of more than $1,000, consumers will enroll directly through a CareCredit representative and not through the doctor or dentist office representative.
Improve consumer experience with service providers: CareCredit providers will be required to follow new transparency principles, including mandatory training for staff who market the CareCredit card to consumers. They will also be required to provide plain-language disclosure forms to ensure that consumers receive adequate information before signing up for a card.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions engaging in unfair and deceptive practices. To ensure that consumers harmed by the inadequate disclosures and deceptive enrollment processes are appropriately compensated, and that consumers are no longer subject to these unfair practices, the CFPB’s order requires that GE Capital Retail Bank and CareCredit:
In the CFPB’s October 2013 CARD Act Report, it identified deferred-interest products like the one offered by CareCredit as an area of concern that can pose risks for consumers. The interest rate on these cards is often substantially higher than the rate on standard general-purpose credit cards. As a result, for consumers who have available credit on a general-purpose credit card and who cannot repay the entire balance during the deferred-interest period, deferred-interest promotions can sometimes be more expensive than revolving the same balance on their existing card.
The full text of the CFPB’s Consent Order is available at: http://files.consumerfinance.gov/f/201312_cfpb_consent-order_ge-carecredit.pdf
Prepared Remarks of Richard Cordray, Director of the Consumer Financial Protection Bureau, CareCredit Enforcement Action Press Call, Washington, D.C., December 10, 2013
Today the Consumer Financial Protection Bureau is ordering GE Capital Retail Bank and its subsidiary, CareCredit, to refund up to $34.1 million to consumers who were victims of deceptive credit card enrollment tactics at doctors’ and dentists’ offices around the country.
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. They are usually filling in and signing multiple forms: insurance forms, HIPAA disclosures, and medical history paperwork. 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. Their focus is on getting physically better. So it is particularly important that a credit card company offering personal lines of credit to pay for health care is doing everything to the letter of the law – that they are treating people fairly, with dignity, and with the utmost transparency.
The CareCredit card is one of the largest cards in this niche of the credit card market. It is sold and offered by more than 175,000 enrolled providers across the country. Receptionists, office managers, and office staff have been selling it to patients when they were paying for their medical care, waiting to see the doctor or dentist, or maybe in between treatments. While the arrangement guarantees that the health-care provider gets paid, patients sometimes end up with huge credit card bills they cannot afford.
Our investigation showed that many patients thought they were signing up for an interest-free loan. Or they may have thought they were signing up for an in-house payment plan with their doctor. But the card was really a “no interest if paid in full” product that is a much trickier deal. The cards typically charge no interest for a promotional period – which ranges from six to 24 months – but they are accruing interest at a 26.99 percent rate the whole time. If the patient does not pay the complete balance by the end of the promotional period, the accrued interest is then applied in full. And, as is the case with many deferred-interest products, the 26.99 percent interest rate on the CareCredit card is substantially higher than the rate on standard, general-purpose credit cards that the patient might otherwise have used to pay the bill. The result can be that the patient is misled into signing up for a very expensive loan.
The Consumer Bureau came to this case after receiving substantial complaints from consumers. According to the order we are filing today, CareCredit has been engaged in harmful consumer practices since January 2009. During the course of our investigation, we found that many patients did not receive paper copies of the credit card agreement and instead relied on staff at health-care offices to explain it to them. Some staff had received little or no training from CareCredit. Some providers themselves admitted that they were confused about the actual consequences of the deferred-interest terms.
Deferred-interest products can be risky for consumers in the best of circumstances and today’s action ensures that CareCredit will no longer be able to profit from consumer confusion. Today, we are ordering CareCredit to create a $34.1 million reimbursement fund. Consumers who may have wrongly accrued charges in connection to their card will be notified about their right to file a claim, which will be assessed by an independent adjudicator. We estimate that more than 1.2 million consumers were wronged and could be eligible for money from the reimbursement fund.
In addition, CareCredit will have to be more transparent to consumers about its product in the future. It must make consumers aware of the high interest rates that will be applied if the charge is not paid off at the end of the promotional period. In most cases, a CareCredit representative will have to call the consumer within three days of applying for the card to explain the terms of the deal. In addition, for certain transactions over $1,000, consumers will have to enroll directly through a CareCredit representative, and not through the doctor’s or dentist’s office. The company will also have to do more training of any health-care office personnel who are selling the product. And, they will have to warn consumers when the promotional period is ending.
The general-purpose credit card market often offers promotional rates with an interest-free period. Such cards typically involve no potential retroactive assessment of interest. But deferred-interest products are very different, and consumers often do not recognize the difference. In October, we issued a report to Congress on the CARD Act and the credit card market, and we identified deferred-interest products as an area of concern. As was true in this case, they can end up costing vulnerable consumers a lot of money.
We will continue to monitor these products carefully, and most especially we will not tolerate financial companies that take advantage of patients and their loved ones. Consumers paying for medical or dental procedures should not be asked to sign up for complex financial products whose key terms are not adequately explained. Medical debt is already a big problem for many Americans. Poor credit card transparency should not be making the problem even worse. Thank you.
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.