The CareCredit medical card has been fined by regulators for deceptive marketing, but it gets high marks from health care groups. Over 100 professional groups -- including such well-known ones as the American Dental Association -- endorse the card.
But there's a big asterisk on those endorsements: CareCredit pays for most of them.
In a regulatory filing Thursday, the credit card company revealed that it pays dozens of professional societies to convince their members to pitch the high-interest credit cards to patients.
CareCredit had relationships with 107 professional associations and other groups as of Dec. 31, 2013. "Of these relationships, 63 were paid endorsements linked to member enrollment in the relevant program," according to a filing with the U.S. Securities and Exchange Commission.
Professional associations contacted by CreditCards.com defended paid endorsements, while legal experts said the practice is problematic, especially in the health care environment.
"I think it's troubling because medical professionals tend to build up trust," said Jeff Sovern, law professor at St. John's University. Patients might trust their provider to steer them into the best deal, without knowing that a paid endorsement influenced the provider's choice.
"If this leads to poor decision making by the patient, I think there's a real risk," said Jim Hawkins, law professor at the University of Houston.
Legal protections bypassed
Protections in the U.S. Truth in Lending Act are designed to help consumers compare different financing offers. Influencing a care provider's recommendation via a paid endorsement from a professional association can help cards avoid the scrutiny of comparison shopping, Sovern said.
CareCredit has been cited for faulty marketing practices by the New York Attorney General's office and by the U.S. Consumer Financial Protection Bureau. Patients frequently misunderstand the cards' delayed interest terms and wind up owing hefty surprise charges, the regulators said.
In a December order, the CFPB barred CareCredit from paying "kickbacks, rebates, compensation or in-kind services" to medical offices in return for signing patients up for its cards. However, it did not prohibit the company from paying professional societies in return for enrolling medical offices to pitch the card to patients.
Other card issuers, including Wells Fargo and Citibank, offer medical care credit cards that have not been cited by regulators for their marketing practices.
CareCredit owner GE Capital refused to comment beyond the information in the regulatory filing.
The endorsements from professional associations are important to the medical card's business, the filing states. CareCredit attracts new health care providers "largely by leveraging our endorsement from professional associations and health care consultants," according to the filing. How much it paid for the endorsements was not revealed.
At Dec. 31 2013, CareCredit had 149,000 health care provider offices that agree to provide its cards. At the consumer level, it had 4.4 million active accounts with total balances of $6.5 billion, according to the filing, with an average debt per customer of $6,222. CareCredit cards carry rates above 25 percent, which may be deferred for six months or longer.
GE Capital plans to spin off its consumer financial business, including store credit cards and CareCredit, into a separate entity named Synchrony Financial. Uninsured health services including dental work, hearing aids and veterinary care for pets are among the most common uses for medical cards such as CareCredit.
Endorsements and the public
While CareCredit uses paid endorsements to market its card to health service providers, it does not use the endorsements in marketing materials directed at patients, according to a legal filing that settled New York State's investigation into the card in 2013.
But neither are the professional endorsements a secret from the public. On its website, the American Dental Association carried a news announcement dated Jan. 10, 2012 calling CareCredit the only health care financing company endorsed by ADA Business Resources, a unit of the ADA. An ADA representative would not discuss the professional group's business arrangement with CareCredit.
The American Animal Hospital Association, another CareCredit endorser, said it carefully selects the companies it endorses in return for royalties, and monitors their performance.
"AAHA is very particular about our Preferred Provider Program," communications manager Kate Spencer said in an email response to questions. "We have a very limited number of these relationships and we monitor the programs on an ongoing basis in an effort to ensure our programs are the best option for our members."
Even when an endorsed product is selected carefully, any payment for the endorsement should be disclosed -- to patients as well as to service providers, one health care expert said.
"Given the unique nature of medical debt, it is crucial that due diligence be done by any health-related association offering an endorsement of a medical credit card," said Mark Rukavina, founder of a health care business consultant Community Health Advisors and member of a medical debt and price transparency task force convened by the Healthcare Financial Management Association.
"Transparency is vital," he said in an email response to questions, "and it is important for providers and patients, alike, to know if the association was paid for its endorsement."
Paid endorsements have come under fire in other business areas, and calls for disclosure of the deals is increasing. Under the Credit CARD Act, colleges were required to disclose their marketing arrangements with credit cards, leading to fewer such agreements and a reduction in money paid to colleges under the agreements. In December 2013, the Government Accountability Office issued a report urging colleges to reveal marketing deals for debit cards and prepaid cards.
In the medical industry, drug companies and medical device makers have cut payments to health professionals for promotional speeches, as disclosure requirements -- part of the 2010 federal Affordable Care Act -- approach their effective date.
Debt collection violation disclosed
Synchrony Financial's filing also disclosed that it discovered, through an audit of its debt collection operations in 2012, that some Spanish-speaking customers and customers in Puerto Rico were excluded from settlement offers and statement credits that were offered to others. The lapse, a possible violation of the Equal Credit Opportunity Act, was reported to the CFPB and is the subject of a civil investigation by the U.S. Justice Department, according to the filing. The resolution could involve payments to customers "in addition to what we have voluntarily undertaken," as well as fines imposed by regulators. The card issuer also said it is in discussions with the CFPB over the marketing of its debt cancelation products, which have been the target of fines levied on other card companies.
GE Capital is the largest store-card issuer in the U.S. and one of the largest credit card companies, with 62 million active accounts and $94 billion in purchase volume in 2013.