WASHINGTON–The Consumer Financial Protection Bureau (CFPB) has published a report on what it called “high-cost specialty” financial products, such as medical credit cards, alleging that while they are sold by what are often fintechs to patients as a way to alleviate growing medical costs, they actually only add to the burden.
“Patients are typically offered these products in a medical provider’s office even when their insurance may cover the procedure or they qualify for a hospital’s reduced or no-cost financial assistance program,” the CFPB said. “The report finds that these specialty products are typically more expensive for patients than other forms of payment, including conventional credit cards, with interest rates often reaching above 25%.”
Adding to Stress
The CFPB said the products can add to, instead of remove, the financial stress that comes with medical bills, including “decreased access to credit, costly and lengthy collection litigation, and an increased likelihood of bankruptcy.”
According to the CFPB, financial institutions and financial technology companies are generating a growing number of financing products for patients and their families.
The Bureau cited public information that indicate the financing terms for medical credit cards and medical installment loans include interest rates significantly higher than traditional consumer credit cards, 26.99% to 16%, respectively.
“These products often have deferred interest plans, with all accrued interest potentially becoming due at the end of a defined period, which can prove especially expensive and unaffordable for patients,” the CFPB said.
Charging $23 Billion in Expenses
The CFPB report found people used specialty medical credit cards or loans with deferred interest periods to pay for almost $23 billion in healthcare expenses for more than 17 million medical purchases from 2018 to 2020. They also paid $1 billion in deferred interest. These payment products are used for a wide range of basic medical care, including emergency room visits, medications, and lab work, as well as for dental and vision visits and treatment. The payment products may cover medical bills as low as $35 and as high as $40,000, the CFPB said.
What Research Found
The CFPB said its research found:
- Medical financing companies market their products directly to healthcare providers. “Financial firms market primarily to hospitals and other healthcare providers and give them marketing training and promotional materials to use when offering the products to patients. The incentives financial firms market to healthcare providers include the promise of cost savings, payments within a few days, administrative ease, and minimal financial risk,” the CFPB said. “Healthcare providers may be disincentivized to explain legally mandated financial assistance programs or zero-interest repayment options before offering these products to patients.”
- Patients need guidance on terms and risks. “While medical financing companies service the credit cards and loans, healthcare providers are the ones that offer the products to patients as well as disclose the terms of the products. Healthcare providers may be unable to adequately explain complex terms, such as deferred interest plans, to patients. Healthcare providers may rely solely on marketing materials and training that financing companies provide to them at no cost.”
- Patients can get stuck with ballooned deferred interest and lawsuits. “The CFPB found that over the past decade, purchase amounts as part of deferred interest promotions have decreased in all purchase categories except in the category of medical care,” the CFPB said. “This may be because medical debt is not easily anticipated, and the costs are not known until after services are rendered. Additionally, financing medical debt on a credit card may increase patients’ exposure to extraordinary credit actions that healthcare providers would typically not pursue. For example, there can be a greater incentive for creditors to pursue lawsuits because unlike many healthcare providers, creditors can pursue a debt’s principal plus interest and fees.”
Read the CFPB’s Medical Credit Cards and Financing Plans.
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