Why it matters
Allegedly deceptive enrollment tactics by third-party marketers cost the issuer of healthcare credit cards $700,000 in a settlement with the Consumer Financial Protection Bureau (CFPB). Springstone Financial LLC offered deferred-interest loan products at dental offices. But according to the CFPB, some dental office providers neglected to mention that interest—at a rate of 22.98 percent—accrued from the date of purchase and became due if the balance was not paid in full by the end of the promotional period, or characterized the product as a "no interest" loan. About 3,200 consumers signed up for Springstone's product and paid deferred interest before the company terminated it in December 2014. To settle the charges, Springstone agreed to refund $700,000 to the affected consumers and obtain permission from the CFPB before offering a product with similar terms and conditions in the future. The settlement highlights the CFPB's continuing concern with the marketing of deferred-interest products, and also the exposure a creditor can face based on the acts of third-party marketers.
Springstone Financial LLC offered a deferred-interest product to consumers at dental offices. But, as the CFPB alleged in a recent enforcement action, in some instances dental office staff deceived consumers by presenting the product as "interest free" when in fact interest began to accrue from the date of the consumer's purchase and was charged if the balance was not paid in full by the end of the promotional period.
Springstone operated a healthcare financing program between January 2009 and December 2014. Approximately 9,000 healthcare providers were authorized by Springstone to offer two products: an installment loan and a deferred-interest loan product that incurred no interest if the balance was paid in full within a given promotional period. Office staff at the healthcare providers' offices gave interested consumers the application materials, helped them fill out the application and submitted applications to Springstone.
But according to the CFPB, certain of the providers deceived consumers about the terms and conditions of the deferred-interest product. Some consumers were told the product was a "no interest" loan, the CFPB said, while others were not informed that they faced 22.98 percent interest from the date of purchase if the loan wasn't paid in full by the end of the promotional period.
The CFPB estimated that more than 3,200 consumers were affected by these misleading practices, which ran afoul of the Dodd-Frank Wall Street Reform and Consumer Protection Act's prohibition on unfair, deceptive or abusive practices, and it held Springstone responsible.
Springstone agreed to pay $700,000 to the affected consumers as part of a settlement agreement with the CFPB. The company will notify the consumers and either issue a credit or send a reimbursement check so that the consumers do not have to take any action to get their refund. In addition, should the company decide to market or sell any product with terms and conditions substantially similar to those of the deferred-interest loan product—which Springstone terminated in December 2014—a determination of nonobjection from the CFPB is required.
The CFPB has previously stated its concerns regarding the marketing of deferred-interest products, including in a bulletin issued in September 2014, and the Springstone settlement shows that the bureau continues to focus on these programs.
Although this is not the first time the CFPB has taken action against a creditor based on the action of third-party marketers, it is important to keep in mind that the CFPB will hold the creditor responsible if the CFPB believes, as alleged in the settlement, that a creditor fails "to adequately train and monitor" third-party marketers.
Also noteworthy is that Springstone is now a subsidiary of LendingClub Corp. Lending Club stated that the product in question was terminated shortly after LendingClub's acquisition of Springstone.
To read the consent order in In re Springstone Financial, click here.