On December 10, 2013, the United States Consumer Financial Protection Bureau issued a Consent Order against GE Capital Retail Bank and its affiliate CareCredit LLC (collectively, “CareCredit”) relating to the health care credit card program operating under the CareCredit name.
Deceptive Credit Card Enrollment
CareCredit was ordered to refund up to $34.1 million to consumers, who were harmed by deceptive credit card enrollment practices at doctors’ and dentists’ offices around the country. Additionally, CareCredit was ordered to comply with a remedial monitoring plan and a credit bureau rehabilitation plan.
The Consumer Financial Protection Bureau issued the Order after receiving substantial complaints from consumers, including patients. The Bureau’s Director, Richard Cordray, in his prepared remarks, noted “When people seek medical care, they are in a particularly vulnerable situation. They are usually filling in and signing multiple forms: insurance forms, HIPAA disclosures, and medical history paperwork. Unlike when they are at a bank or when they receive unsolicited mail, they are not ‘on guard’ financially. They are not thinking carefully about the terms of a financial contract – fees, penalties, interest rates. Their focus is on getting better. So it is particularly important that a credit card company offer offering personal lines of credit to pay for health care is doing everything to the letter of the law – that they are treating people fairly, with dignity, and with the utmost transparency.”
For background, CareCredit issues the CareCredit card, which is marketed primarily for health-care services, including dental, veterinarian, cosmetic, vision, and audiology services. Consumers can use the CareCredit card only with Enrolled Providers. For dentistry, the Enrolled Provider is the dental practice. Enrolled Provider-dental practices offer patients the CareCredit card to finance dentistry costs. The Order indicates that dental practices comprise approximately 55% of CareCredit card business, and that CareCredit has approximately 175,000 Enrolled Providers, and approximately 4,100,000 active CareCredit cardholders.
Interest Rate Trap
From 2009 through December 10, 2013, the Order indicates that CareCredit provided two types of financing options for the CareCredit card, and that 85% of CareCredit cardholders selected the Promotional Option described as “No Interest if Paid in Full Within 6, 12 ,18, or 24 months”. The Promotional Option is for a defined period. If the consumer does not pay the original balance in full within the promotional period, CareCredit charges 26.99% interest on the consumer’s declining balance from the date of the consumer’s original purchase. A 26.99% interest rate then applies to the account balance going forward. This type of financing arrangement is called a deferred-interest promotion.
Dental Offices Help Open Patient Credit Card Accounts
Consumers may open a CareCredit card directly with CareCredit or through the Provider Channel. When opening the account for dentistry through the Provider Channel, the consumer (either the patient or other responsible party, such as a parent) applies for and enrolls in the card in an Enrolled Provider’s office, i.e. the dental office. Enrolled Providers-dental offices give consumers application materials, convey information about the CareCredit card, and facilitate the submission of the application to CareCredit. Patients open the card and are billed for their dental or other health-care services that are typically performed at that time or shortly thereafter. CareCredit promptly issues payment to the Enrolled Provider-dental office for the services charged to the CareCredit card.
Lack of Training & Monitoring
The Order indicates that the investigation determined that in some cases CareCredit insufficiently trained Enrolled Providers on delivering material information to consumers about the Promotional Option’s terms and also, failed to sufficiently monitor some Enrolled Providers’ compliance with CareCredit’s policies and the law. The Order further states that “For example, contrary to CareCredit’s policies, some Enrolled Providers: a. told consumers that the CareCredit Card was ‘interest free for 12 months,’ as opposed to being a deferred-interest promotion; and b. failed to provide consumers with the proper written disclosures or otherwise inform consumers that the interest rate would be 26.99 percent at the end of the promotional period.” The Order included the finding that “. . . CareCredit’s failure to adequately train and monitor all Enrolled Providers, and CareCredit’s failure to ensure that material disseminated by the Enrolled Providers was capable of counteracting erroneous information given to consumers, caused substantial injury to consumers that was not reasonably avoidable, and was not outweighed by countervailing benefits to consumers or to competition.”
Dentist Office Contracts – Lots of Changes Coming
The remedial monitoring plan in the Order requires substantial changes to Enrolled Provider contracts, including for dental offices, to include the incorporation of Transparency Principles, restrictions on charges in advance of treatment, and changes to the application for the CareCredit card for certain charges over $1,000.
The “Transparency Principles” require the Enrolled Providers to accurately describe the terms of the CareCredit card to consumers. Within 60 days of Consumer Financial Protection Bureau approval, CareCredit will send the approved cover letter with the Transparency Principles to Enrolled Providers.
CareCredit’s Enrolled Provider contracts will prohibit charges for services not yet rendered, unless those services (i) include orthodontic services, or are custom products ordered by the consumer, or (ii) are intended to be and are completed, or out-of-pocket costs incurred, within 30 days of the applicable charge. For all services (other than orthodontic services) that are not completed within 30 days, the consumer is entitled to a refund or account credit for all such services not yet completed. (Presumably, if there is a refund, the Enrolled Provider-dental office will suffer a charge-back to its account for the refund, thus incurring minimally the dollar cost of the refund.)
For any consumer who wishes to submit a new CareCredit application for dental or audiology charges over $1,000, the Enrolled Provider (including a dental practice) will require the consumer to apply directly with CareCredit. However, the Order indicates that this requirement will not apply to transactions that occur more than three days after an application is completed in the Provider Channel (including with a dental office). The Order does indicate that if an Enrolled Provider-dental office fails to follow the procedure for a newly-enrolled consumer for dental or audiology charges over $1,000, CareCredit will provide the consumer with an unqualified right to reverse the covered dental or audiology transaction from his or her account, even if services are in fact rendered. (Again, if there is a reversal of charges, the Enrolled Provider-dental office will probably suffer a charge-back to its account for the reversal, thus incurring minimally the dollar cost of the reversal.)
The remedial monitoring plan also has enhancements to disclosures and record keeping requirements for Enrolled Providers-dental practices. Enrolled Provider-dental practices will be required to participate in periodic training and pass a post-training test.
The Order requires that CareCredit not give kickbacks, rebates, compensation, or in-kind services to any Enrolled Provider-dental practice in exchange for an Enrolled Provider’s new loan volume. The Order also prohibits CareCredit from using any paid endorsements to professional associations in any consumer-facing marketing or related consumer-facing materials.
The Order requires CareCredit to terminate certain Enrolled Providers-dental practices based on their chargeback rate and to monitor Enrolled Providers and take appropriate actions where warranted. Additionally, CareCredit is to use its best efforts to promptly resolve consumer complaints and the Order includes requirements for account handling during the pendency of a complaint. The Order also requires CareCredit to provide notice to consumers before the expiration of the Promotional Option period, to allow consumers to make informed decisions concerning payment.
Consumers, who may have wrongly accrued charges on their CareCredit card account, will be notified about their right to file a claim, which will be assessed by an independent adjudicator. The Consumer Financial Protection Bureau estimates that more than 1.2 million consumers will be eligible for money from the reimbursement fund.
Dentists need to anticipate that many of their patients will be receiving notices about their right to file a claim under the Order, and will ask their dentists and dental staff questions.
Dental Contract Review
As always, Dentists are prudent to have their contracts and related business practices, and in particular, third party financing arrangements, reviewed by their attorneys prior to agreeing to contracts, amendments to contracts, and third party financing arrangements. ■
Jeanine Lehman is an Austin, Texas dental and health law attorney. She can be reached at (512) 918-3435 or Jeanine@Jeanine.com. © Jeanine Lehman 2014. Reprinted from Law Offices of Jeanine Lehman P.C. Dental Legal Update with permission.