CareCredit ordered to refund $34 million to cardholders

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CareCredit, the medical credit card that signs up patients for deferred-interest financing, will refund $34.1 million to about 1 million consumers under a crackdown announced Tuesday by the U.S. Consumer Financial Protection Bureau.

Many patients signed up for the card in doctors' or dentists' offices thinking that the financing would be interest-free, the CFPB said.  But finance charges built up at 26.99 percent, and the bill came due if the cardholder failed to pay off the entire balance within the promotional period.

"Medical debt is already a big problem for many Americans," CFPB director Richard Cordray said in a statement. "Poor credit card transparency should not be making the problem even worse."

Store-card giant GE Capital Retail Bank and its CareCredit subsidiary agreed in a consent order to set up the $34.1 million fund to reimburse cardholders who received inadequate disclosures since 2009. Consumers who incurred charges will be notified by CareCredit that they may file a claim for reimbursement, the CFPB said. About 85 percent of CareCredit cardholders participated in plans that advertised deferred interest for periods of six months to 24 months.

A representative for GE Capital did not return calls seeking comment. The consent order does not amount to an admission of wrongdoing by the companies.  

GE Capital and CareCredit were the target of a settlement with New York Attorney General Eric Schneiderman in June, whose investigation found that about 25 percent of cardholders ended up paying high-rate interest on CareCredit deferred interest cards.

The CFPB also announced that CareCredit will strengthen its consumer disclosures and provide a warning when the deferred interest period is ending. For some transactions of more than $1,000, applicants will enroll directly through a company representative instead of at a medical office.

 In addition, the order forbids the company from making "kickbacks, rebates, compensation or in-kind services" to medical offices that sign patients up for the credit cards.

Staff in health-care offices who enrolled patients for the card were poorly trained by CareCredit and relied on pamphlets to describe the terms of the card to patients, the CFPB said. The agency said that some consumers were told the introductory period was "interest free," not-interest deferred. 

"Deferred-interest products can be risky for consumers in the best of circumstances," Cordray's statement said. In October, the agency's report card on the Credit CARD Act of 2009 identified deferred-interest products as a risky area for consumers.

There are about 4 million active CareCredit cardholders nationwide and 175,000 medical providers enrolled to sign up patients for the cards, according to the CFPB.

The action against GE Capital and CareCredit  extends a string of CFPB crackdowns on credit card issuers. In September, the CFPB and bank regulators ordered Chase Bank to refund $309 million to customers who paid for credit monitoring services that they did not receive. In 2012, Discover Card, Capital One and American Express were the subjects of enforcement actions that refunded about $435 million to cardholders.

Medical cards have drawn attention from consumer advocates as a financial pothole that needs fixing. While deferred interest deals in general can be confusing, people awaiting medical treatment are especially vulnerable.

"There's something terribly wrong when banks incent medical practitioners to steer patients into overpriced financial products," said Joe Ridout, spokesman for Consumer Action. He said the CFPB's order should send a message to other medical cards, and deferred interest cards in general, to improve their explanation of how the deals work.  

"We've heard from a number of people who got stuck with unexpected charges," he said. One Salinas, Calif., man called the organization's complaint line because instead of 0 percent interest, he wound up paying 30 percent on his entire balance because of a missed payment.

On the other hand, care providers and patients say the deferred interest deals can be a substantial benefit for people struggling to afford treatments, providing they manage to pay the entire balance on time without a single misstep.

See related: Medical credit cards: Treatment today, payment headaches tomorrow, Many pay interest on no-interest deals

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