Consumer Protection

What’s worse than payday loans? Surprise California-sized health care loan payments!

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California legislators have since the middle of last month been weighing a proposal from Assemblywoman Monique Limon to cap interest rates on loans between $2,500 and $10,000– colloquially known as “anti-payday loan” legislation.

The legislation is attracting mixed reviews from the financial services sector.

Not surprisingly, a lot of payday lenders hate it.

But the quiet word is that a lot of banks love it, since if passed, it would push consumers towards banks who– some studies allege— charge proportionally much higher costs for bounced checks and unauthorized overdrafts than the effective APR on a high-interest payday loan.

The bill may also face skepticism from millennials, who have limited ability to take out conventional loans due to a lack of assets, and who often need to borrow smaller amounts than traditional banks will lend (usually banks want borrowers to take out a minimum of $3,000).

In any event, as the payday lending kerfuffle plays out, via CAL Matters this morning, we learn about an arguably bigger problem  facing Californians with limited options for financing multi-thousand dollar costs in circumstances where they can’t just roll down to their local bank or credit union and get a loan, as you might for a new car.

Meet one Mr. Bonius, from Laguna Beach, who is waging a one-man war against “hey, you’re about to have a medical or dental procedure, here’s a pricey health care loan” firms:

Alan Bonius needed dental work.

Moments before he was given novocaine, his dentist recommended that he finance the cost through a promotional CareCredit program offered through Synchrony Bank. Not surprisingly, he didn’t read the fine print while girding for the needles and drills.

Bonius, who describes himself as a private citizen from Laguna Beach, paid the minimum on the $1,388 bill each month, leaving him with $600 at the end of the promotional period. The shock came after the promotional period ended. The $600 balance jumped to $949.

Long story short:

  • He was charged interest on the original $1,388 bill, not on his balance.
  • He told his story to a friend at the Western Center on Law & Poverty.
  • The legal aid attorney got word to state Sen. Holly Mitchell, a Los Angeles Democrat, who turned it into Senate Bill 639, a measure to restrict interest charged on medical credit cards, a recurrent consumer issue.

Bonius, who traveled to Sacramento to testify in favor of the bill, told me: “I don’t want it to happen to me again or to anyone else. I’m one of those strange cats who believes in democracy.”

The bill passed 9-0 in its first committee, with no opposition. But the year is new, and several more hearings are ahead. We’ll keep an eye on this one to see if a guy from Laguna Beach who believes in democracy can change a law.

Surprise medical bills have been getting a pretty good trashing, nationally, in recent months. But this may be one of the most egregious examples of “surprise” billing we’ve heard of.

Unlike when a customer makes a decision to go online and take out a payday loan or walk into a physical shop– or indeed go to the bank to draw out money you don’t have or apply for a loan– when you’re already strapped into the dentist’s chair, freaking out about drilling and novocaine and all the rest of the usual dental horror that awaits most of us at a serious dentist’s visit, there is really no capacity to rationally weigh options or read the fine print before signing. Granted, a lot of people doing everything from signing up for gmail accounts to taking out payday loans to opening a new bank account under whose terms a bank can charge you up the wazoo for a bounced check or unauthorized overdraft do not in practice read the terms and conditions. But their ability to do so is far greater than Mr. Bonius’ seems to have been here.

In addition, the practice of charging interest on the whole bill as opposed to the portion he did not pay right then and there seems totally uncool. Ultimately, if you take out a $200 payday loan to cover the gap between the $400 you have in savings and the $600 bill from your auto mechanic when your Honda Accord breaks down, you pay interest on the $200, not the $600. Mr. Bonius’ experience seems just egregious– but the likelihood is that it’s relatively common.

Hopefully the legislature will get on this one and at least clarify that interest is chargeable on what’s borrowed but not on portions of bills that are not borrowed. With health care costs going up, up, up, it’s hard to believe legislators wouldn’t get credit for taking on this fight.

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