The U.S. Consumer Financial Protection Bureau (CFPB) has ordered 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.
Consumers at doctors' and dentists' offices around the country were signed up for CareCredit credit cards that they thought were interest free, but they were actually accruing interest that was automatically added if the full balance was not paid at the end of a promotional period, according to a CFPB statement.
"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 healthcare 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% 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% annual interest on a consumer's balance throughout a promotional period, ranging 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.
Since January 2009, consumers who signed up for the credit card frequently received an inadequate explanation of the terms, according to the CFPB. Many consumers, most of whom were enrolled while waiting for healthcare 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 consumer complaints.
During the course of its investigation, the agency found evidence of the following
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% interest rate.
Poorly trained staff: Many staff members in the healthcare 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.
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 to do the following:
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.
On October 2013, a CFPB report 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.
In August 2010, New York Attorney General Andrew Cuomo began investigating 10 dental and medical practices for alleged predatory lending practices involving CareCredit and other health credit cards. And a federal conspiracy lawsuit later was filed on behalf of 20 patients who say they were overcharged for procedures by a Florida dental clinic and that CareCredit refused to investigate their complaints.
The Florida lawsuit accused Francisco Fonte, DMD, owner of Advanced Dental Innovations Management (ADIM) in Royal Palm Beach; his office manager, Martha Somohano; and his business manager, Gerardo Casal, of conspiring to enroll the patients for CareCredit cards, according to the Racketeer Influenced and Corrupt Organizations Act lawsuit filed in U.S. District Court for the Southern District of Florida, West Palm Beach Division.
The lawsuit alleges that the three fraudulently induced patients to complete applications for CareCredit cards by telling them that they were not actually applying for the cards but were told by Somohano that the office simply wanted to check to see if they would qualify for credit.
Office manager Somohano was accused of posing as a dentist, giving patients illegal drugs, and stealing dentists' identities that she used to write prescriptions for several painkillers, including Vicodin and oxycodone, according to a report by the Palm Beach County Sheriff's Department. She allegedly took the drugs herself but also doled them out to patients as they waited to be seen, police said.
Dr. Fonte, Somohano, and Casal were charged with 22 counts of fraud, including insurance fraud and grand theft, according to the Division of Insurance Fraud for the Florida Department of Financial Services. The three "manipulated clients' payments to benefit themselves," according to the arrest affidavit.
ADIM and its management team also were investigated by the state's insurance fraud division. The Florida Board of Dentistry has revoked Dr. Fonte's license.
