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Deferred-interest medical cards can be dangerously enticing

Kelly Dilworth

Not long ago, I nearly fell for a high-interest medical card. My elderly dog, Bones, needed some expensive dental work and I wasn’t sure if I’d be able to afford it.

The vet couldn’t tell me how many tooth extractions Bones would need until after the procedure, and I worried a mouthful of bad teeth would put me over the edge financially. But my dog was in pain, so I decided to go ahead with it and hope for the best.

While waiting for the final bill, I flipped through a brochure for a CareCredit card. I should have known better, since I had written about medical credit cards before. But the brochure’s promise of zero interest financing for as long as 18 months was hard to resist. Surely, I was financially disciplined enough to pay off the loan before the promotional period expired; this would just give me a little more time to save up.

CareCredit cards offer deferred interest — which is different from the 0 percent financing deals on standard credit cards. In theory, I knew that if I missed the card’s promotional deadline, I’d be on the hook for retroactive interest that dated back to my first purchase. However, I was so confident in my financial management skills that I barely glanced at the card’s 26.99 percent APR.

High risk, high reward?
Apparently, lots of people who consider medical credit cards think that way. When I was reporting my March 2013 story on medical credit, I talked to a number of CareCredit customers who said they loved the card because it allowed them to take out an interest-free loan.

Several told me they wouldn’t have been able to pay for medical care, ranging from surgery to dental work, without it — and since they were able to repay the loan before the promotional period expired, they felt the risk was worth it.

The problem is, when people don’t repay their loans in time, the consequences of taking out a deferred interest medical card such as the CareCredit card are often steep. Interest begins to accrue immediately on deferred interest cards, even during the so-called “interest-free” period. So by the time that period ends, the interest accrued can snowball into hundreds, or even thousands of dollars of extra debt, depending on the initial loan.

Deceptive marketing
According to the Consumer Financial Protection Bureau, lots of people don’t realize this. And because the medical providers that offer the cards don’t always adequately explain how the cards work, many people are shocked to find they owe far more on their loans than they anticipated.

Earlier this month, the CFPB ordered CareCredit (and its parent company GE Capital) to refund about $34 million to consumers who signed up for CareCredit cards without being adequately briefed on the card’s terms. The consumer watchdog also ordered CareCredit to beef up its disclosures with better explanations of how deferred interest cards work and let consumers know ahead of time when a promotional deal is about to expire.

In a nod to the emotionally charged atmosphere that often accompanies the application process, the CFPB also ordered CareCredit to specially train office staff in how to properly promote the card and asked them to make sure consumers receive easy-to-understand disclosure forms that are written in plain language. That way, consumers who apply for the card — many of whom are in pain or in emotional distress — are more likely to understand what kind of loan they’re getting into.

An emotionally charged decision
In a press call announcing the bureau’s action against CareCredit, CFPB director Richard Cordray underscored the emotionally fraught decision-making that often accompanies the medical card application process. “When people seek medical care, they are in a particularly vulnerable situation,” said Cordray in prepared remarks. “They are sick or injured, or maybe a loved one is in pain. … Unlike when they are at a bank or when they receive unsolicited mail, they are not ‘on guard’ financially. They are not thinking carefully about the terms of a financial contract — fees, penalties, interest rates.”

That’s what makes deferred interest medical cards like the ones offered by CareCredit so dangerous — even for people like me who understand the terms. When you’re in a vet’s or doctor’s office trying to receive care, you’re less likely to be thinking clearly about your options — especially if it’s an emergency. You may not have time to shop around for loans with better terms, and it’s easy to fool yourself into thinking that you’ll be financially disciplined enough to repay the loan before the extra high interest kicks in.

Ultimately, my dog didn’t need a large number of extractions, so I was able to pay his dental bill with cash. However, if he needed a more expensive operation, I have a feeling I would have applied for that high-interest medical card. When you’re in the heat of the moment and making a snap decision about care, a card that offers quick interest-free financing can, for an instant, seem like a lifesaver.

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