Credit card companies no longer will be allowed to raise interest rates
on most existing balances or engage in other practices deemed deceptive
or unfair under rules adopted by the Federal Reserve Board Thursday.
The new regulations go the heart of problems experienced by some
Veterinary Information Network (VIN) members this year with their cards
— in particular, cards issued by Advanta Bank Corp in affiliation with
Henry Schein, a distributor of medical goods and services.
Abrupt and precipitous increases in interest rates on some Schein
cards, applied to existing and new balances, spurred a lively and often
indignant exchange on VIN message boards.
The discussion was started in September by Dr. Carol Tice, practicing
in North Carolina, whose Schein card interest rate started at zero
three years ago, settled at 7.99 percent for two years, then began an
ascent in March, rising to 18.99 percent and skyward, until it reached
37.18 percent in November. Tice said she’d had no late payments on any
credit accounts or other financial trouble that would trigger what's
known in the industry as "rate jacking".
Her plight caught the attention of VIN President Dr. Paul Pion, who
contacted Henry Schein executives after Tice was unable to get help
from either Schein and Advanta.
Keith Drayer, vice president of Schein Financial Services, told Pion he
would help, but later told VIN News Service that he was unable to
intervene due to privacy rules that prevented him from accessing Tice’s
credit card account. Shortly after that, though, Tice said Advanta
refunded her nearly $665 in interest charges and promised to restore
her original interest rate.
But the story doesn’t end there.
Tice said Thursday that she recently found out that the rate is 20.33
percent — not the 7.99 percent she expected. Tice cut up the card weeks
ago but still has a balance of about $2,000, which she said she hopes
to pay off in January, assuming business picks up.
Tice was pleased to learn about the new consumer protections adopted
Thursday by the Federal Reserve Board, but lamented that they won’t
take effect until July 1, 2010. “What will happen for the next year?”
Among provisions of the new rule:
Banks cannot treat a payment as late unless it gives the consumer a reasonable time to make the payment.
- When different interest rates apply to different balances on an
account, banks must allocate any payments exceeding the minimum payment
first to the balance with the highest rate, or pro rata among all the
- At the time an account is open, banks must disclose all interest
rates that will apply to an account and cannot increase those rates
unless a) the bank previously disclosed that the introductory rate
would expire and named the subsequent rate; or b) the rate is set as a
variable rate; or c) after a year, the bank gives a 45-day notice of an
increase for new transactions only; or d) a cardholder makes a minimum
payment more than 30 days late.
- Banks cannot calculate interest using a two-cycle billing method.
Under this method, a consumer who pays the entire balance in one month
but does not do so in the next month is charged interest based upon the
balance of the past two months.
Fed Chairman Ben Bernanke said the rules were important in helping
consumers cope with the increasingly complex terms and features of
credit cards. “Consumers must understand the pricing of credit card
services if they are to make well-informed, responsible decisions about
the use of credit and the management of their accounts,” he said in a
VIN discussants, meanwhile, are becoming cautious about financing deals
beyond credit cards. When Dr. Leila Marcucci at Bay Area Bird Hospital
in San Francisco recently inquired about colleagues’ experiences with
another Henry Schein affiliate card, the Schein Health Card, Tice and
others responded with words of warning.
“From my experience with HS they are worthless for following up if there are issues,” she wrote.
The Health Card is a product health-care practitioners can offer to
their clients as a way of financing goods and services from the
practitioner. The client gets free or low-interest financing for a
specified period of time. Participating practitioners pay a fee to the
financial institution that issues the card.
As with the Henry Schein credit card, Schein is not the financial institution behind its affiliate health card. It’s Citibank.
Drayer of Henry Schein said that, as with the Advanta card, his
company’s role is to introduce clients to offerings by affiliate
financial institutions, then step out of the way. “We don’t have a
financial interest in Citibank and influence them, nor could we,”
Drayer said, noting that the decision to do business with the bank is
the client’s. “Doctors could easily say, ‘No, I want to not offer
patient financing.’ ”
“Patient financing is a great thing,” he added. “It’s probably the best
practice-builder a doctor can offer to get pet owners to say yes to any
kind of elective or cosmetic procedure, to not have to give pet owners
the choice of euthanasia.”
Drayer said Schein does not earn money on the transactions, but
benefits by having clients who are doing well. “We want the vets to be
fiscally and financially running successful practices. Our interest, of
course, is that, hopefully, veterinarians will do more procedures,” he
Marcucci said the hospital where she works offers patient financing
currently through CareCredit, a unit of General Electric Co. The
Citibank/Schein financing offers better terms at the outset, she said:
a fee of 2.5 percent per transaction, compared with CareCredit fees
that start at 5 percent for three months’ financing and go up from
“It's very tempting,” Marcucci said. “A lower merchant rate, no
annuals, no minimums, no startup fees ... if it’s flat-out exactly as
One potential problem, she said, is that the 2.5-percent fee is
advertised as a promotional rate, and Citibank could not say how long
it would last.
Marcucci said that although she is aware of other veterinarians’
troubles with the Schein affiliate credit card, comparing that to the
health card is “apples and oranges. I don’t think of it as a Henry
Schein product so much as it’s a Citi product.”
She added that what’s been happening to some credit card holders is
“shocking and abnormal, and Henry Schein should not be partnering with
someone like this, but I would probably give them the benefit of the
doubt that they didn’t expect it.”
She said whether her hospital switches financing companies won't be decided until the first of the year.