Fed adopts consumer credit-card protections

VIN members wary of other finance deals

Published: December 19, 2008
By Edie Lau

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?” she asked.

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 balances.
  • 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 prepared statement.

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 said.

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 there.

“It's very tempting,” Marcucci said. “A lower merchant rate, no annuals, no minimums, no startup fees ... if it’s flat-out exactly as it appears.”

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.

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