Insights

Possibly with an eye to the upcoming November elections, several state Attorneys General have recently announced investigations into, and enforcement actions against, nontraditional sources of consumer financial services products. For example, New York’s Attorney General (running for Governor) recently announced an industry-wide investigation into “predatory health care lending,” where “consumers, especially seniors and vulnerable patients, are mislead about financing, causing them to be pushed into debt.” The New York investigation focuses on the marketing by physicians and dentists of third party health care credit cards that include a 0% promotional rate, increasing to over 25% Annual Percentage Rate if the balance is not paid in full during the promotional period. The cards are allegedly marketed by health care providers as a way for patients to pay for services not covered by traditional health insurance plans. Participating health care providers may receive certain fees from the credit card issuers based on revenues earned by the issuers, and may have other economic incentives to market the cards to their patients. The Minnesota Attorney General’s web site also includes some cautionary information about the costs of using health care credit cards, and suggests that some health care providers may have a conflict of interest when marketing these cards to their patients.

Connecticut’s Attorney General (running for the U.S. Senate) recently asked the Connecticut Insurance Commissioner to take action against life insurance companies that pay life insurance benefits in the form of “checkbooks” that allow the beneficiaries to write “checks” against life insurance benefits held by the insurance companies in so-called “retained asset accounts” (RAAs). Apparently prompted by recent press reports about RAAs, Attorney General Blumenthal alleges that RAAs are not FDIC-insured accounts, that the “checks” are not bank checks, and that beneficiaries might be receiving lower interest rates than the rates available for FDIC-insured bank accounts (or the rates being earned by the life insurance companies on the life insurance benefits). He also alleges that providing “checkbooks” to life insurance beneficiaries does not meet the life insurance company’s obligation to pay the full amount of the death benefit promptly after the insured’s death. New York’s Attorney General also announced the issuance of subpoenae on several major life insurance companies, requesting information about their RAAs. The National Association of Insurance Commissioners (NAIC) subsequently announced that it has established a working group to re-visit RAA practices of life insurers, focusing on consumer disclosures provided in connection with RAAs. Connecticut’s Insurance Commissioner is co-chair of this working group. The FDIC also recently wrote NAIC to express concern about the need to clearly disclose to consumers whether RAAs are FDIC-insured, and has also asked banks providing RAA services to life insurers to “be vigilant in minimizing consumer confusion about FDIC insurance coverage.” Immediately after the NAIC working group’s initial meeting, NAIC issued a consumer alert about important RAA issues a consumer should consider.

The Arkansas Attorney General (running for reelection this year) recently filed a lawsuit against Internet payday lenders that lend money to Arkansas consumers at rates well above Arkansas’ usury ceiling. The payday lenders might be relying on the substantive law of their home states for usury purposes. According to Attorney General McDaniel’s press release, he demanded in 2008 that all payday lenders in Arkansas cease operating, but two companies marketing payday loans to Arkansas consumers through various websites refused to stop their Arkansas operations.

Several state Attorneys General and the Federal Trade Commission are engaged in ongoing enforcement of “do not call” telemarketing restrictions against companies that use prerecorded, auto-dialed “robo-calling” to sell various products and services, including extended warranties on automobiles, health care discounts, and lower-rate credit cards. For example, the Arkansas Attorney General announced a settlement earlier this year against a Florida telemarketing company engaged in unsolicited auto-dialed prerecorded calls to Arkansas residents, for the purpose of selling automobile extended warranties. Indiana’s Attorney General (who is not up for reelection this year) recently announced a settlement with a company engaged in prerecorded, auto-dialed telemarketing of cards that may be used to obtain certain health care discounts. The press release indicates that the Indiana Attorney General also has a pending case against a company using similar telemarketing methods to sell credit card rate reduction and consolidation services.

Most of these state investigations and enforcement actions appear to have been prompted by complaints from a large number of constituents—reinforcing the old adage that good bedside manners (good customer relations) generally provide good (although by no means foolproof, especially in election years) protection against administrative enforcement actions. Some of these Attorney General actions also appear to have been prompted by press reports—providing a useful reminder that one’s business practices should ideally be able to stay away from the front pages of reputable news publications.

Elizabeth C. Yen is a partner in the Connecticut office of Hudson Cook, LLP. Elizabeth can be reached at 203-776-1911 or by email at eyen@hudco.com.