In the wake of its discussion of deferred interest products in its October report on the Credit CARD Act (see October 15, 2013 Alert), the CFPB announced an enforcement action against a provider of deferred interest health-care credit cards and its affiliate bank alleging, among other things, unfair and deceptive acts or practices in connection with the provision of the cards. Deferred interest health-care credit cards are generally cards that offer promotional financing, and then retroactively assess and charge interest if the balance is not paid in full by a specific date. According to the consent order, the deferred interest health-care cards were primarily sold by the staff of medical providers, who offered the cards to patients as a form of financing for services rendered. The consent order alleged, however, that the provider and bank did not sufficiently train and monitor the medical providers and their staff, resulting in inadequate, incorrect and misleading disclosures to consumers. For example, the CFPB alleged that the staff informed consumers that the cards were “‘interest free for 12 months,’ as opposed to being a deferred-interest promotion” and failed to inform consumers that the interest rate on the cards would be 26.99% at the end of the promotional period.
The consent order requires the bank to institute a remedial monitoring plan that includes, among other things: (1) the creation of “Transparency Principles” to require medical providers and their staff to accurately describe the card terms to consumers; (2) a prohibition on charges for services not yet rendered; (3) with limited exceptions, a requirement that the consumer apply directly to the bank for credit for charges over $1,000; (4) enhanced disclosures to be provided during the application process and on billing statements; (5) enhanced training of medical providers and their staff; (6) the elimination or rebates or similar incentives to medical providers in exchange for new loan volume; (7) the termination or enhanced monitoring of medical providers with relatively high chargeback rates; and (8) the improvement of the bank’s consumer complaint resolution process. The bank is also required to deposit $34.1 million into a reimbursement fund for affected consumers.