Put yourself in this situation. You’d like a medical procedure – maybe Lasik, or braces, or even care for your pet. You don’t have the money to pay for it upfront, but your doctor says there’s another option: pay off the procedure interest-free for 24 months with a medical credit card. It sounds like a great way to pay off your debt.
Let’s say that once your two years are up, you still have a little bit of your balance left over. You know that you’ll have to pay some interest on what little you have left. But something unexpected happens. You’re required to pay interest on your entire balance, not just the bit you haven’t paid yet. It has been building against you this entire time. You didn’t know it, but now the floodgates are open, and debt rushes toward you.
An accusation of deceptive marketing
CareCredit, a subsidiary of GE Capital Retail Bank, has offered credit cards to patients in need of medical attention as far back as 1987. These cards are intended for individuals who need help paying for dental, vision, cosmetic and veterinary services.
CareCredit cards operate under a deferred-interest system. For the first 6 to 24 months of the account, cardholders do not pay interest. They are still incurring interest charges, but they won’t be expected to pay until the introductory period is over. If they can pay off the borrowed sum before the period ends, they’ll walk away without paying interest at all. A number of other companies offer similar credit cards. These products are perfectly legal and, in the right circumstances, advantageous to consumers.
Here’s the problem. According to the Consumer Financial Protection Bureau, many CareCredit customers had no idea they’d be held accountable for interest accrued during the introductory period. They were led to believe interest would not start building until the zero-interest period was over.
The misunderstanding seems to have its roots in negligent recruiting practices. Medical providers like doctors and dentists sell these cards to their patients. Currently, there are more than 175,000 enrolled providers. Due largely to a lack of training, these providers were unable to fully educate patients on the terms and conditions of CareCredit cards. CareCredit did not train the representatives selling their products, and, as a result, the folks pushing the credit cards on patients were often confused about the deferred-interest system.
So what happens? Medical staff unwittingly feeds their patients misinformation. The patients don’t always receive a written copy of the terms and conditions. When the introductory period ends, they are slammed with retroactive interest on the remaining sum. The rate is a staggering 26.99%-very high, even among bad-credit cards.
The CFPB steps in
The Consumer Financial Protection Bureau started investigating CareCredit in 2009. The bureau determined the company guilty of harmful consumer practices. As a result, CareCredit has been ordered to refund $34.1 million to 1.2 million misinformed consumers. GE must notify anyone who may be eligible for reimbursement. An independent adjudicator will review the claims.
Going forward, CareCredit will be taking steps to ensure future customers fully understand the terms and conditions of their products. The company is working to improve disclosures both on the application and on billing statements. Upon signing the agreement, all customers will receive a call from an actual CareCredit rep to go over the terms. All loans over $1,000 will now require the involvement of a CareCredit representative for approval.
Advertisements and salespeople tend to omit details. Remember never to sign up for anything without reading the terms and conditions for yourself!
Photo via CareCredit.com