CFPB Warns Against Costly Medical Credit Cards and Loans

The Consumer Financial Protection Bureau (CFPB) has issued a warning for patients against costly medical credit cards and loans. These products can cause patients to pay significantly more than they otherwise would have.

The Problem with Medical Financing Products

Medical financing products, such as medical credit cards, medical installment loans, health savings accounts, and flexible savings accounts, are being offered by medical providers as alternative financing options. While these financing products were initially used for elective care, they now cover a range of services, from emergency visits and specialty care to regular checkups.

However, the terms of credit can be confusing, making it difficult for patients to understand the costs associated with these products. Financial companies market these products to healthcare providers, who are then encouraged to promote them to patients. These medical credit cards and installment loans have largely replaced low- or no-cost informal payment plans offered directly to patients by their medical providers.

The Impact on Vulnerable Patients

Patients who use medical financing products may find themselves facing fees, interest charges, and adverse financial outcomes they didn’t anticipate. In some cases, patients reported signing up for medical financial products without consent. Patients who are in pain or under stress may find it more difficult to process complex information.

Furthermore, many medical financing companies do not vary the price of credit according to the borrower’s credit score, offering just one flat annual percentage rate. Interest rates for medical financing products are generally higher than general-purpose credit cards, and term lengths can range from 3 to 60 months. Deferred interest promotions commonly offered zero or low interest for a set period of time, but once the promotion period expired, rates could significantly increase.

Ultimately, 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. According to the CFPB report, payoff rates for deferred interest healthcare promotions varied. From 2018 to 2020, payoff rates remained just under 80%, but were lower for consumers with near-prime and subprime scores, at 70% and 69%, respectively.

The CFPB’s warning against costly medical credit cards and loans comes as federal, state, and local officials across the country continue to call attention to the growing problem of medical debt in the U.S. The impact of medical debt is disproportionate to those with lower incomes and poorer health, as well as on communities of color. Patients should be cautious when considering medical financing products and should explore other financing options before making a decision.