CFPB Report Identifies Pitfalls of Medical Credit Cards, Loans

In the age of high deductibles, providers are increasingly turning to financial institutions and fintech companies to offer medical credit cards and installment loans to their patients. However, a new Consumer Financial Protection Bureau (CFPB) report finds these patient financing options may be doing more harm than good.

“Consumer complaints to the CFPB suggest that, rather than benefitting consumers, as claimed by the companies offering these products, these products in fact may cause confusion and hardship for some of their patients,” the report stated.

Medical credit cards and installment loans offered by financial institutions and financial technology companies assist healthcare providers with handling the financial aspect of care, with the promise of generating cost savings, easing administrative burdens, getting payments quicker, and minimizing financial risk. In turn, providers market the credit card and loan options to their patients or have promotional materials in the office.

But these patient financing options may be disincentivizing providers from discussing financial assistance programs, even when they are legally mandated to do so, according to the CFPB report. What’s more, patients are oftentimes paying more for their healthcare under these company-backed credit cards and loans compared to provider-sponsored repayment options and general credit cards.

Using publicly available data, the CFPB found that medical credit cards and medical installment loans have significantly higher interest rates than traditional consumer credit cards, at 26.99 percent to 16 percent, respectively.

The patient financing options also typically have deferred interest, which means patients may have to pay all accrued interest at the end of the defined period if they fail to pay off their balance within that timeframe. The report showed that patients paid $1 billion in deferred interest from 2018 through 2020.

Many patients are unaware of or confused by their deferred interest period, creating more financial stress, the report continued. Some patients have also formally complained about being signed up for medical credit cards or installment loans without their consent or knowledge.

“For the majority of patients who pay off their full balance in the designated time period, deferred interest financing can be advantageous. For those who do not understand the terms – or who cannot pay the amount in full during the promotional period – the cost substantially exceeds the cost of other available credit,” the report stated. “As a result, people with low or moderate incomes who face the worst financial outcomes may be subsidizing those who can take advantage of the special financing periods.”

Patient borrowers with credit scores below 619 were charged deferred interest on about a third of purchases. Patients in lower credit score tiers were also more likely to have shorter promotional periods — often between 6 and 11 months. In 2020, specifically, 56 percent of deferred interest purchases by borrowers with subprime scores had promotional periods of 11 months or shorter, as opposed to only 41 percent of deferred interest purchases by borrowers with superprime scores.

Patients with lower incomes already have higher rates of medical debt, according to a HealthCare.com survey published last year. One in five Americans who earned between $10,000 and $25,000 per year also said that their debt causes extreme stress.

“Fintechs and other lending outfits are designing costly loan products to peddle to patients looking to make ends meet on their medical bills,” said CFPB Director Rohit Chopra in a statement. “These new forms of medical debt can create financial ruin for individuals who get sick.”