We received several inquiries relating to the September 2013 WDA Journal article “Lending Laws: Do they apply to your practice?”
This follow-up article addresses some of those inquiries. The various state and federal lending laws are complex. And, while this article is intended to provide guidance to Wisconsin Dental Association members, it is not a substitute for consultation with an
attorney and/or accountant. The previous article outlined situations where a dental practice may unintentionally be deemed to have extended credit to a patient and, by doing so, would have to comply with the applicable lending laws.
But, I would like to take a step back and discuss one of the primary purposes of the lending laws, which is consumer protection from predatory lending practices. For example, when you receive a credit card statement or statement for your car loan, the statement must include certain disclosures such as the interest rate, minimum required payment, how much you would pay if you only made the minimum payment and many other pieces of information.
So, if a dental practice offers a payment plan to patients that “looks and feels” like the extension of credit, it is wise to review that plan and determine if the lending laws apply.
The reality is that many patients can’t pay dental bills in full, yet need the services now rather than at a later date when money may be more readily available. To address this need, dental practices regularly offer deferred payment plans to patients.
The following are four categories of payment methods that will not run afoul of the lending laws:
Cash/check payment at the date of service
- A discount may be offered, so long as the practice doesn’t offer an in-house credit plan.
- An “in-house” credit plan would be any arrangement that constitutes an extension of credit. For example, instead of using a third-party like a credit card company or CareCredit, the practice runs the credit plan internally.
- If your practice is running an inhouse credit plan, please consult an attorney to make sure your plan complies with the lending laws.
Payment by credit card
- The credit card company is the lender.
- Allows for deferred payment, but avoids the dental practice being the lender.
- Third-party payment program
- Instead of using a credit card company, your practice may have a business relationship with a third party (such as CareCredit) that finances dental services for patients.
- The third-party (e.g., CareCredit) is the lender, the dental practice is not.
Four installments or less
- If the patient pays a large bill in four or fewer installments then the lending laws do not apply.
- The installments do not need to be monthly; they could be every other month or quarterly.
- It is fine if a patient makes more frequent payments, so long as the payment plan provides for four or fewer installments.
- If a patient is in default and collection efforts result in an agreement to make installment payments, the amount/frequency of future installment payments will not impact whether the transaction is subject to the lending laws. The key to whether the lending laws apply is what the understanding was between the dental practice and the patient at or before the time services were provided, not what happens afterward when the practice tries to collect its bill. Permitting a patient to pay a bill over time after attempts (such as sending past-due letters) to collect the full amount have failed, does not cause the transaction to become a credit transaction.
Plans that involve greater than four installment payments or that include finance charges, whether labeled as interest or as service fees, are subject to the lending laws.