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.
Enforcement Action
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:
- 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.
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
