Patients who signed up for a credit card to pay for braces or eye surgery through CareCredit, an arm of General Electric, were given no warning of the high fees tied to the loans and racked up thousands of dollars in debt as a result, the Consumer Financial Protection Bureau said Tuesday.
The government watchdog ordered the medical financing company to pay $34.1 million for providing inadequate disclosures and engaging in deceptive enrollment practices. All of the money will go toward reimbursing the more than 1.2 million CareCredit customers who have incurred credit card penalties and fees since 2009. Eligible consumers will be notified by the company.
“When people seek medical care, they are in a particularly vulnerable situation,” CFPB Director Richard Cordray said during a call with reporters. “They are not thinking carefully about the terms of a financial contract. So it is important that a company offering lines of credit to pay for health care is . . . treating people fairly, with dignity and with the utmost transparency.”
CareCredit did none of those things, according to the bureau. The company took a hands-off approach to enrolling customers, relying on doctors, dentists and receptionists to explain the terms of agreements, the complaint said.
Investigators at the CFPB found that many patients thought they were signing up for an interest-free loan or enrolling in an in-house payment plan with their doctor. But about 85 percent of patients were actually signing up for deferred-interest financing, a credit product that consumer groups say is rife with onerous terms.
Under the financing plan, patients made monthly payments while CareCredit assessed 26.99 percent annual interest on their balance throughout a six-to-24-month promotional period. Any portion of the balance left unpaid once the promotion ended was subject to the accrued interest, according to the complaint.
CareCredit did not admit or deny any wrongdoing. Dori Abel a spokeswoman for parent company GE Capital, said, “We’ll continue to invest and enhance the CareCredit program as we look forward to continuing to serve our cardholders and providers.”
As a part of the consent order, CareCredit must create new disclosures with a detailed description of the deferred-interest product and give consumers advance notice of the expiration of the promotional period. Patients must also be enrolled directly through a CareCredit representative, not through the office staff of a doctor or dentist, for transactions over $1,000.
This is not the first time CareCredit has run afoul of the government. New York Attorney General Eric Schneiderman accused the firm of duping patients into thinking they were enrolling in an in-house payment plan, not a pricey credit card. He reached a settlement with the company in June that required, among other things, a cooling-off period to give consumers a chance to review the terms of the plan.
About 4.1 million Americans have a CareCredit card, which is sold and offered by more than 175,000 health-care providers across the country. CareCredit is a dominant player in a niche market that includes financial goliaths such as Citigroup and Wells Fargo.
Medical credit cards have grown popular as more insurance plans require Americans to cover a greater share of medical costs, according to consumer groups. They say many of these cards offer promotional financing to entice patients, who are often walloped by retroactive interest charges.
“It’s to the providers’ benefit to promote these cards because they get paid upfront, but the downside to the consumer is they may end up with a big interest charge,” said Chi Chi Wu, staff attorney at the National Consumer Law Center.