We’re at the point where our oldest is about to go through orthodontia. He will be able to salve his pain with the knowledge that we are paying through the teeth! (Sorry for that.) We came back from the orthodontist with a document entitled, "Estimated Financial Plan for Upcoming Orthodontic Treatment." It would make a great exam question for my class in consumer protection, and it made me wonder about small-business compliance with consumer credit regulation. It also got me thinking about the contractualist solution to these sorts of issues.
The orthodontist’s financial plan offers two options. The first option is an "interest free financing" plan (their boldface) under which we can pay $1,250 as a down payment and then pay $3,750 over 24 months. The second option allows us a "one time payment" (again their boldface) including a 5% discount of $250. Of course, the first option is not interest free. I would be foregoing a $250 discount today to finance $3,750 over 24 months. On an unamortized basis, that is only a 3.3% annual interest rate, which is not a bad deal for an unsecured loan (although more in a moment on whether it is truly unsecured). The point, however, is the first option is not interest free as the financial plan states.
UPDATE (1/15): Thanks to Jack Ayer, I have the correct interest rate calculation. The true interest rate on this loan is 6.71%. Still a good deal for unsecured financing but not interest free.
This would seem to be a violation of the federal Truth-in-Lending
Act–section 226.4(b)(8) of the Fed’s Reg Z makes clear that a discount
for the purpose of inducing payment by a means other than the use of
credit is a finance charge and I’m not aware of any exemptions for
orthodontists–and perhaps state consumer protection law. Maybe the orthodontist is saved because TILA disclosures are not triggered by this financial plan and perhaps the orthodonist will surprise me at our next meeting by offering a contract with accompanying TILA disclosures. Still, it would violate consumer protection laws to misleadingly offer an interest-free financing plan that is not interest free.
Perhaps of more concern is the statement in the penultimate paragraph: "Braces cannot be removed unless the account is paid in full." (Again, their italics.) The passive voice of "cannot be removed" masks what they are really saying–we will not remove braces until you pay. At least our kneecaps will be safe. I looked online to see if such behavior would be consistent with dental codes of ethics, but I could not find anything. Does anyone know? Under tort law, I wonder whether it would be consistent with the orthodontist’s professional duty of care to refuse to remove braces because of an unpaid bill? As distasteful as these tactics are, they would not run afoul of the federal Fair Debt Collection Practices Act because the orthodontist would be collecting his own bill and that statute only applies to third-party debt collectors. At the least, it made me wonder about someone who would keep braces on a child because the child’s parents can’t afford to pay the bill. As sympathetic as I am to small businesses trying to collect their debts, this crosses the line of acceptable conduct.
I thought I would post this experience here for two reasons. First, it highlights the issue of small-business compliance with complex consumer credit regulation. TILA is a complicated statute, and I am not even sure I got it right here. How is an orthodontist to know about the existence of these statutes? Professional organizations help somewhat. A web search turned up several documents offering TILA advice to orthodontists. The legal advice necessary to ensure compliance with all these statutes would greatly increase the orthodontist’s costs, not to mention my medical bill. In this particular case, I can’t say I have a great deal of sympathy as the billing practices seem particularly aggressive. Advertising "interest free" financing when it’s not free is not just a technical violation of the statute but seems deliberately designed to mislead. Financially unsophisticated patients are unlikely to discover the hidden interest.
The contractualists might just suggest that I go find a different orthodontist. It’s not that simple, however. Champaign, Illinois, is not a small community, but the choices of orthodontists are limited. This particular orthodontist was recommended by persons in the medical community. Although his billing practices have cooled my zeal for his services, I do not anticipate billing disputes and have not factored his financial policies into the price I am willing to pay for his services. Moreover, these are orthodontia services for our child. I will incur the costs of aggressive financial practices, but he will suffer the consequences if we switch to a less-skilled provider. Finally, I was able to find the hidden finance charge, and I read and understood the fine print. Many consumers would not have done so. Disclosure and markets is often not a sufficient answer as this example illustrates.
Comments
3 responses to “Almost Like Getting Your Teeth Drilled”
Have you ever had a small-business do work around your house? Say for new windows or stump grinding. They almost never comply with consumer protection statutes. Sometimes they may pay lip-service to them, but they never actually comply. For the most part, however, they do comply with the No. 1 rule of small business (any business really) – make the consumer happy and be fair.
Although your orthodontist’s plan violates TILA, it really isn’t very deceptive – even for the financially unsophisticated. I had a similar experience with my orthodontist, except there was no difference between the present price and the installment price. The other issue is a bit more problematic.
I note he does not threaten to halt treatment (i.e. not make adjustments, fix broken wires, change bands, etc.) if the balance is unpaid, he merely threatens not to remove the braces. My guess is that he would not follow through on the threat. There is too much risk that his doing so would result in harm to the child.
Doctors are better regulated than dentists. Thank your medical safety to the oversight of Medicare, Medicaid, malpractice lawyers, hospitals and 10 zillion insurance companies.
There is, however, very little meaningful dental insurance for consumers. Most of what exists covers hardly more than office visits and the occasional cavity, but none of the expensive stuff like orthodonture and dental implants.)
There are fewer bucks to be made suing dentists, so you don’t have much defacto oversight from the legal profession except in the most egregious cases.
And nearly all dental work is outpatient work, eliminating hospital oversight and the busy mouths of nurses, technicians and other dentists who gossip about who’s good and who’s a hack.
Consequently, dentists tend to be less regulated and lots richer than doctors. They can simply charge what the market will bear. I suspect the Dental Oath is, “First do no unprofitable work.”
That said, as a consumer who’s bad at math, I don’t find this guy particularly snarky. He tells you how much it’ll cost if you pay out, or pay upfront. As long as he keeps to his price list, the APR seems to be a relatively negligable factor. You know what you’re facing down to the last dollar going into the deal.
Be careful. We paid our orthodontist the entire amount upfront through a bank at 1.9% financing program they offered. My daughter has been in braces 3 months and the orthodontist files bankruptcy. We now have to pay the bank the entire amount and find another orthodontist to take over.