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N.Y. regulators put brakes on health card issuer

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A health care credit card issuer has agreed to change the way it promotes and runs its card program, New York state officials said today.

New York Attorney General Eric Schneiderman said CareCredit L.L.C., a unit of GE Capital Retail Bank, is entering into a settlement agreement with Schneiderman’s office.

State officials have not yet posted the settlement agreement online, and representatives from GE Capital and CareCredit were not immediately available to comment on the announcement.

GE Capital is one of many credit card issuers that has set up health care card businesses in recent years. The typical card program offers a low interest rate, or no interest rate, for consumers who can pay off the entire balance within three months to 18 months. After the initial promotional period ends, a consumer may have to pay an annual percentage rate ranging from about 12 percent to about 26 percent, according to

Physicians, hospitals and other health care providers — including dentists,  chiropractors and veterinarians — have been encouraging consumers to use health care credit cards to fill coverage and savings gaps.

Consumer finance specialists at organizations like Consumers Union  questioned whether the health card issuers and promoters were giving consumers enough information about what would happen when the initial promotional rate period ends. Some card programs surprised consumers by applying the regular high interest rate retroactively, to the entire promotional-rate period, when the promotional-rate period ended, the group said.

The New York state attorney general’s office began looking into the matter in August 2010. Officials said at the time that they had issued subpoenas to two card issuers in addition to GE Capital and to 14 dental clinics and non-dental health care clinical that had helped promote the cards.

Officials said they had received hundreds of complaints from consumers about health care credit cards.

The CareCredit cards can charge a rate over 26 percent when their promotional-rate periods end, New York officials said in the announcement of the new settlement agreement.

About 65 percent of CareCredit card holders apply for the card while they are in a provider’s office, and GE Capital gives providers an incentive to offer the card by paying the providers in full within 48 hours after the card holders have put care expenses on their cards, officials said.

About 160,000 U.S. care providers accept the CareCredit card, and 535,000 New York state residents have the cards, officials said.

Only about 25 percent of the consumers who use the cards with the “no interest if paid in full” promotion end up having to pay the 26.99 percent interest rate, officials said.

But, “in many instances, providers failed to inform consumers of the basic terms of the CareCredit card and represented that CareCredit had ‘no interest,’ when it carried retroactive interest of 26.99 percent if not paid in full during a promotional period,” officials said. “Other consumers were led to believe that they were signing up for an in-house, no-interest payment plan directly with their provider or a line of credit with 0 percent interest. Consumers who did complain often encountered difficulty in obtaining refunds.”

Officials said the settlement agreement calls for GE Capital to:

  • Keep consumers from charging any transaction over $1,000 on a CareCredit card within three days after a consumer has submitted an initial application. A consumer who does charge a large transaction on a new card during the three-day “cooling off” period will be able to reverse the transaction, officials said.
  • Prohibit providers from taking CareCredit payments unless they already have provided the services or will provide the services within 30 days after accepting payment for the services.
  • Require providers to do a better job of explaining the card program rules to consumers.
  • Include a clear description of how the card works at the top of the application packet.

The settlement agreement also calls for GE Capital to set up an appeals fund to help about 1,000 consumers who have filed complaints about the card program.

GE Capital has agreed to either pay the disputed claims or send the disputed claims to an independent arbiter.

The appeals process could lead to the company providing up to $2 million in refunds and credits, officials said.

The CareCredit program is supposed to put a compliance officer in charge of efforts to track consumer complaints and efforts to comply with the terms of the settlement agreement.

The program cannot “give rebates, compensation, or in-kind services to any provider in exchange for a provider’s success in generating business for CareCredit,” officials said.

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