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Feds: Consumers Misled Over Medical Debt

stethoscope on top of a pile of moneyIt takes a lot of chutzpah to prey on the sick for profit.

People waiting to see a doctor, in the words of Consumer Financial Protection Bureau chief Richard Cordray, may not be “‘on guard’ financially. They are not thinking carefully about the terms of a financial contract – fees, penalties, interest rates. Their focus is on getting physically better.”

That’s what makes the latest announcement of a deceptive practices penalty against yet another credit card issuer so galling.

This week, the CFPB ordered GE Capital Retail Bank and its subsidiary CareCredit to refund up to $34.1 million to its customers as a result of deceptive credit card enrollment tactics. More than 1 million consumers will get refunds.

The government alleged CareCredit and the doctors who pushed these loans led consumers to believe the credit card was an interest-free way to pay off medical debt when, in fact, it was a deferred-interest promotion.

Many of the consumers who signed up did so while waiting for health care treatment. CareCredit, with more than 4 million customers and 175,000 enrolled providers, is offered through the offices of doctors, dentists, optometrists and veterinarians throughout the country.

Deferred-interest promotions are fairly common in retail credit cards and work like this: Interest accrues from the start of the loan (at 26.99% APR in CareCredit’s case). Pay off the balance in full by the end of the promotional period, and interest is waived. Carry a balance beyond that date, and you’re on the hook for all the accrued interest.

The CFPB found that service providers misled some consumers during the enrollment process by not giving them enough information about the terms of the loan. The consumer watchdog agency also found many consumers never received copies of their CareCredit agreements, which would have spelled out the deferred-interest program, and that health care workers were not adequately trained to explain the terms of those agreements. Some providers admitted to the CFPB that they didn’t know how the loans worked.

As a result of the ruling, CareCredit will make refunds and enhance the disclosures it provides to consumers during the application process. Those who market the cards will be required to undergo mandatory training and give out plain-language disclosure forms to patients.

This is all good news, but it doesn’t change the fact that this isn’t a great deal. An accruing interest APR of 26.99% is still high if you’re not sure you can pay off the balance by the end of the promotional period, which for CareCredit ranges from six to 24 months.

If you’re facing an unexpected medical or veterinary bill, try to negotiate a repayment plan with the medical provider. Or use a credit card with a much lower interest rate, which you can find in our database.

If you’re owed a refund, you’ll get a notice by CareCredit with instructions on how to file a claim.

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