It was reassuring when I sat in my dentist’s office to read a brochure that said I could make payments interest free if I ever had a big dentist bill through a special credit card described in the brochure.
However, deferred-interest credit cards, such the one I was reading about, can pose risks for consumers. The interest rate on these cards is often much higher than the rate on general-purpose credit cards.
For example, a federal agency is requiring GE Capital Retail Bank and its subsidiary, CareCredit, to refund up to $34.1 million to more than one million consumers who were victims of deceptive credit card enrollment tactics.
At doctors’ and dentists’ offices throughout 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 wasn’t paid at the end of a promotional period.
“Medical debt is already a big problem for many Americans,” Richard Cordray, director of the Consumer Financial Protection Bureau, said. “Poor credit card transparency should not be making the problem even worse.”
Credit for health-care services
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 main sellers of the product, offering it as a payment option for their patients.
The credit card is sold by more than 175,000 providers across the country. There are about four million active CareCredit cardholders.
About 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 hasn’t been paid when the promotional period ends, the consumer becomes liable for all of the accrued interest, Cordray said.
Since January 2009, consumers who signed up for the credit card often received inadequate information about the terms, according to the bureau order. Many consumers, most who were enrolled while waiting for treatment, piled up substantial debt because they didn’t understand how they could have avoided deferred interest, penalties, and fees.
The bureau began investigating CareCredit after receiving hundreds of complaints from consumers. During its investigation, the bureau found evidence of deceptive enrollment processes, inadequate disclosures, and poorly trained staff.
The bureau’s order requires that GE Capital Retail Bank and CareCredit to create a $34.1 million reimbursement fund, enhance consumer disclosures,provide training for those who sell the cards, and use a plain-language disclosure form.
Consumers who were charged for use of their credit cards will be notified by CareCredit that they can file a claim for reimbursement. Claims will be reviewed by an independent adjudicator.
More than 1.2 million consumers will have access to the review process and the reimbursement fund.