July 12, 2013
Veterinary clinics scrutinize CareCredit in wake of investigation
Merchant expense, new rules, reputation questioned
By: Edie Lau
For The VIN News Service
First came an investigation by the New York State Attorney General for alleged predatory lending practices. Then came a legal settlement in which the target of the investigation, a medical services credit card company called CareCredit, agreed to explain more clearly to consumers the terms of its financing.
Photo courtesy of Best Friends Animal Clinic
The CareCredit card-processing machine is “gathering dust” at Best Friends Animal Clinic in Marshall, Va., since owner Dr. Ebalinna Vaughn decided the medical-services credit card isn’t worth the high merchant fees.
Now a number of veterinary clinics that used to accept CareCredit are shunning the card. Some say they’re being asked to take too much responsibility for client education under the new “transparency” policy. Some wish to distance themselves from a business with a tainted reputation. All say the commissions they pay to the credit card company are too high.
“I still have the machine sitting up front but we’re not running any sales through it,” said clinic owner Dr. Ebalinna Vaughn. “It’s essentially gathering dust right now.”
As a practitioner in Virginia, Vaughn isn’t directly affected by the June 3 settlement between CareCredit and New York State, which requires CareCredit to take a variety of consumer-protection actions in that state only. However, Vaughn said she received a telephone message from a CareCredit representative in June stating that the company needs to review her clinic’s “compliance” and that clinic staff need to be retrained.
Exactly what that entails isn’t clear; Vaughn and the representative have been playing telephone tag. But the call prompted the veterinarian to do her own review — of how much her clients use CareCredit. Not much, she determined.
“I realized in the first six months of this year, we had done a total of $2,800 in CareCredit sales, of which I lost 5 percent on most, and 10 percent on one large sale,” Vaughn said, referring to the commissions. “I decided I’d had enough.”
Vaughn is one of several veterinarians in and out of New York who recently expressed reservations about CareCredit on a message board of the Veterinary Information Network (VIN), an online community for the profession.
A spokeswoman for GE Capital Retail Bank, parent of CareCredit, said the company is hearing just the opposite. “To date, we’ve had positive feedback from New York State providers in the CareCredit network, and very few concerns expressed about training requirements or the updated transparency principles,” said Cristy Williams by email.
Williams cited a recent survey of more than 1,500 cardholders and practices, including more than 430 veterinary practices, in which more than 95 percent of respondents rated the card “a fair to excellent value.”
She added: “CareCredit continues to experience steady growth, with nearly 175,000 participating professionals in various specialties across its network. This is especially true of veterinary care — one of our fastest-growing segments, with well over half of all animal hospitals in the United States accepting CareCredit.”
Several veterinary clinic owners and managers, however, told the VIN News Service that they’re thinking about parting ways with CareCredit. They may not be the only ones. According to reports by Reuters and Bloomberg, GE Capital is looking to sell the unit. Williams called the reports rumor and declined to comment.
Originally named Dencharge, CareCredit was founded some 25 years ago by a dentist for dental patients. GE purchased the company in 2003. Today, CareCredit is the largest issuer of consumer health-care financing in the country, according to the New York State Attorney General settlement document. Dental-service financing remains the unit’s biggest segment, with dental practices comprising about 60 percent of CareCredit’s business.
Besides dentists and veterinarians, medical providers who accept CareCredit include optometrists and ophthalmologists, dermatologists, audiologists and chiropractors, according to the company website.
On purchases of $200 or more, CareCredit offers cardholders an option of six, 12, 18 or 24 months to pay off their balances without incurring interest charges, provided the bill is paid fully within the specified period.
That’s where trouble may set in. According to the settlement document, some consumers, not understanding the terms of the deferred-interest financing, get hit after the promotional period ends with interest charges that accrue at a rate of 26.99 percent on the entire purchase price.
The relationship between the medical provider and CareCredit also is murky to some.
“Approximately 65 percent of CareCredit card holders apply for the card while they are in a provider’s office,” the settlement states. “In many complaints made to the OAG (Office of the Attorney General), the provider completed the application information and submitted the application on behalf of the consumer. Consumer complaints revealed that some consumers were led to believe that they were signing up for an in-house, no-interest payment plan directly with their provider. Others thought that they were applying for a line of credit with zero percent interest, while other consumers believed that the information they gave to their providers was being used to check their creditworthiness only, and was not an application for financing.”
Among cardholders choosing no-interest promotional financing, about 25 percent end up paying the 26.99 interest rate, “too often because of the consumer’s lack of understanding of what to do to avoid paying interest and general misunderstanding of the terms of the financing,” the settlement states.
New York State’s investigation into CareCredit practices began in 2010 under former Attorney General Andrew Cuomo, who’s now governor.
Current Attorney General Eric Schneidermann, in written remarks announcing the settlement, said: “The explosion of medical credit card debt is a major concern for many New Yorkers, particularly low- and middle-income households and vulnerable seniors. The problem is made even worse by those who encourage high-pressure sales tactics in our health-care settings and companies who charge outlandishly high interest rates. This agreement will help New Yorkers by stopping providers from charging large, upfront fees for future services and from glossing over the huge interest rates associated with CareCredit when promoting the credit card to patients.”
Terms of the settlement require CareCredit to, among other things:
Amend its contract with providers to include a set of “Transparency Principles” to ensure that providers accurately describe the terms of the card to consumers, including how to avoid deferred interest charges by paying in full before the promotional period ends.
Roll out enhanced training of providers and ensure that providers who fail to comply are terminated or otherwise disciplined.
Improve the process for resolving complaints. For certain disputes, if providers don’t produce a signed receipt, disclosure form and signed application, CareCredit will issue a chargeback.
The settlement prohibits CareCredit from:
Charging for services not yet rendered unless the services are completed or out-of-pocket costs are incurred within 30 days of the charge.
Giving rebates, compensation or in-kind services to a provider in exchange for the provider generating business for CareCredit.
Using paid endorsements to professional associations in consumer marketing materials.
The settlement also establishes a “cooling off” period of three days from the initial credit application in which no transaction of greater than $1,000 may be charged. This provision does not apply to providers of veterinary or vision services, however.
The requirements strike Dr. Jeanne Fournier, a veterinarian in Lockport, N.Y., as “ridiculous.” She is exasperated more with her state government than with CareCredit.
“How absolutely insane are we getting in this country that consumers are no longer responsible for signing stuff and not reading it?” she wrote in a post on VIN.
“New York State is very bad at thinking that adults can’t think for themselves,” Fournier added in a telephone interview. “Why does it become my responsibility?”
Fournier said the retraining requirement is onerous because it will take employee time away from regular clinic duties. Further, she said that whenever a client uses the card for the first time at the clinic, the clinic must keep on file copies of two forms of the cardholder’s identification, as well as signed paperwork, for six years.
Not only is that a long time, Fournier said, she is concerned that the storage requirement may conflict with other rules governing credit-card security.
Looking through her books as she spoke, Fournier determined that CareCredit transactions account for 7 percent of her practice income this year so far. That's a significant proportion, she said, but noted that most of those transactions were for less than $200 each. Since CareCredit no longer provides deferred-interest financing on transactions of less than $200, she surmised that cardholders may have less incentive to use the card as much.
Fournier said she’s actively considering switching her business to a competitor’s credit card.
Jim Alpin, practice manager of a veterinary hospital in Chaffee, N.Y., also is contemplating dropping CareCredit. He doesn’t mind making sure clients understand how the card works — he said his clinic staff already strive to explain that as clearly as possible.
But if continuing to take CareCredit means having to take a lead in consumer financial education, that makes Alpin uneasy. “It’s not a veterinarian’s job to counsel people financially,” he said. “We’re in the veterinary business. We’re not in the financial business.”
Moreover, he’s wary of being allied with a company whose practices have been found deficient.
“We started with CareCredit because it had such a great name … but I have watched a lot of controversy, especially over the last year and a half, with predatory lending (accusations) and stuff like that,” Alpin said. “It doesn’t make you feel good as a practice to accept a credit card that’s been sued by your state. Your clientele is going to say, ‘Why are you using a company that has predatory lending?’ ”
CareCredit’s established standing in the veterinary community is reflected in endorsements by the American Animal Hospital Association (AAHA) and the New York State Veterinary Medical Society (NYSVMS), which consider the company a “preferred” or “recommended” vendor.
Like other preferred or recommended vendors, CareCredit pays a royalty to the organizations for the status. Whether the New York settlement will affect those relationships is unclear.
Kate Spencer, an AAHA spokeswoman, said by email: “We are working with CareCredit to gather pertinent information so that we may fully understand the context and any ramifications that may result from the agreement that was reached between CareCredit and the New York Attorney General’s office.”
Barbara Ahern, legal counsel for the NYSVMS, said she does not believe the terms of the settlement affect her group’s relations with CareCredit because the prohibition on paid endorsements applies to marketing materials that are provided to the consumer. “We are completely invisible to the consumer," Ahern said. "It’s a service that we recommend to our members."
She added: “I did confirm with the assistant attorney general who was in charge of this investigation that it really did not have any impact at all on what the veterinary medical society is doing. All we can do is make sure that our members are aware of these new terms of the program that CareCredit offers them.”
Giving more information to the consumer is a good thing, Ahern said, and something that the society has recommended to its members all along. Ahern said she has not heard any complaints from members about the new provider terms.
Nonetheless, she said, the group's board plans to take a close look at the new provider agreements. “If our members are saying … that they’re no longer happy with the program, that they feel it places too much burden,” she said, then the board would reconsider its endorsement.
VIN News Service commentaries are opinion pieces presenting insights, personal experiences and/or perspectives on topical issues by members of the veterinary community. To submit a commentary for consideration, email email@example.com.
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