CFPB Warns Against High-Cost Medical Credit Cards

The bureau warns that a burgeoning medical credit card market could exacerbate medical debt woes for millions of people.

Americans put about $23 billion in healthcare expenses from 2018 to 2020 on high-interest medical credit cards and medical installment loans and paid about $1 billion in interest and other fees, a federal watchdog says.

And the Consumer Financial Protection Bureau in a new report, warns that the proliferation of these payment schemes "can create a significant financial burden for patients and deter them from seeking needed healthcare in the future."

The cards were used more than 17 million times in the three-year span to pay for everything from medications and lab work to emergency department visits for bills ranging from $35 to $40,000, the report says, warning that the proliferation in the marketing and use of medical credit cards, medical installment loans and other "high-cost specialty products" can easily and quickly saddle consumers with mountains of debt.  

Medical financing companies market their credit cards and payment schemes directly to hospitals and other care venues, and patients are often offered these credit cards in physicians’ offices, the report notes, "even when their insurance may cover the procedure, or they qualify for a hospital’s reduced or no-cost financial assistance program."

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

The report warns that financial terms and interest rates of many of the medical credit cards and medical installment loans are also "significantly higher than traditional consumer credit cards, 26.99% to 16%, respectively," and that the payment plans "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."

To bolster the use of medical credit cards, the CFPB says financial firms woo providers with a promise of quick payments, minimal financial risk and administrative ease. The report warns that after accepting these incentives, providers may be "disincentivized to explain legally mandated financial assistance programs or zero-interest repayment options before offering these products to patients."

The report also found that credit cards, installment loans and other deferred-interest payment plans are often sold to patients with little disclosure or explanation of the terms of the debt. Clinicians pushing the products on their patients often rely "solely on marketing materials and training that financing companies provide to them at no cost," the report says.

Worse still for consumers, financing medical debt on a credit card could increase patients’ risk of legal exposure if they’re in arears because creditors could use aggressive collecting tactics such as lawsuits that providers typically wouldn’t pursue.