Bracing for reform

Opposition to bank reform in the United States is coming from a most unlikely source – America's orthodontists.

Are orthodontists really scared about bank reform? Bloomberg reports that Robert Bray, former head of the American Association of Orthodontists, delivered a message to Capitol Hill this week, warning that new rules could have dire implications for the braces business:

Bray is worried that orthodontists may be subject to new consumer-protection rules that Congress is drafting for banks because their practices allow patients getting braces to pay over time. That would mean costly new regulations that might discourage orthodontists from extending credit.

"Orthodontists did not cause this financial crisis, and we should not be a part of this in any way," said Bray.

Bray stepped down as president of the AAO just this week, during the association's annual convention, conveniently held in Washington. Earlier this year he was busy lobbying for tax cuts targeted at the orthodontics industry, so he evidently knows how to play both sides of the game.

At first glance, his plea to Congress not to get little old orthodontists confused with the predatory robber barons at Goldman Sachs and Countrywide and JP Morgan Chase seems perfectly reasonable. Surely, Congress has no intention of lumping braces-payment plans in with negatively amortising option-ARM subprime mortgage loans?

Maybe I am still harbouring some resentment from my days as a middle schooler with rubber bands in my mouth, or maybe I am just living in fear of the day I am told it will cost $5-10,000 to fix my own son's smile, but I feel an irresistible urge to be the devil's advocate here. Why not keep a sharp eye on the orthodontists?

Braces don't cost as much as houses, but I'm guessing more than one home equity loan has been taken out to pay the dental bills (hey, so maybe orthodontists did contribute to the financial crisis!) More to the point, orthodontists do play some of the accounting games that other lenders do – and they shouldn't get away with it. As Credit Slips' Bob Lawless explains, a typical payment plan for orthodontics treatment might be described as "interest free" – but if you pay in cash, up front, you will get a discount. Of course, that discount is really just a way to hide the true interest rate.

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 orthodontist 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.

Failure to disclose a hidden interest rate isn't as abusive to consumers as some of the more exotic mortgage loan products pushed on borrowers at the height of the housing boom, but it exists on the same spectrum. Take a look, for example, at the "No Down Payment Plan" specifically endorsed by the American Association of Orthodontists, which purports to offers borrowers tax advantages and touts the low fixed rates made possible by the "No Down Payment Plan's unique relationship with their lenders."

Now, I'm sure that the professional organisation representing orthodontists is an ethical outfit, and maybe there's nothing at all to worry about with that particular "No Down Payment Plan." But as orthodontic bills continue escalate, I'm also sure providers of orthodontic services will offer all kinds of increasingly innovative payment plans, and I'm equally confident that without proper supervision, those plans will be structured to benefit the orthodontist, and not the consumer.

Hey, if the retainer fits... wear it.

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