The CFPB Turns Its Eyes Toward Medical Credit Cards and Financing Plans

By Nina Javan

A May 2023 report by the Consumer Financial Protection Bureau (CFPB), analyzes the trends and issues related to financial institutions and fintech companies providing financing mechanisms to families and individuals struggling to pay out-of-pocket healthcare expenses.  The report finishes with the statement that the CFPB “will continue to look at how medical credit cards and loans are marketed to providers, the reach of these products, and how the use of these products, particularly for patients with limited access to credit, impacts patients’ finances and health outcomes.”  In essence, this is a “we will continue to monitor this situation” statement, rather than a solid conclusion regarding specific practices.  However, the areas highlighted by the report do give some guidance regarding issues that may be identified as problematic (and therefore subject to regulation or guidance) in the future.

First, the report highlights the issue of these products being offered at their provider’s office, where the provider-patient trust relationship can skew judgment, understanding, and the usual scrutiny a patient might otherwise engage in before selecting such a product.  Further, some patients may end up confused about who’s offering the financing, and may misunderstand and believe it’s a payment plan offered by the provider rather than a loan or other credit product offered by a third party.

Second, there is some indication that disclosures may be insufficient to explain how the payment products work.  In particular, the issue of deferred interest appears to be misunderstood by many consumers.  A payment product may offer an 18-month deferred interest period and, if the consumer pays the entire balance within that time, they won’t incur interest.  However, if they do not, they will be charged all the interest that accrued during the deferred interest period, and that will be for the entire balance, rather than just the remaining balance.  While deferred interest financing can be advantageous to patients who can afford to pay off the entire balance during the deferred interest period, for those patients who can’t, the cost substantially exceeds the cost of other available credit.  Thus, on average, patients of lower financial means tend to be those that bear the highest cost.

Finally, generally speaking, even without considering the issue of deferred interest, the cost of these products are on average higher than other credit products.  For example, the many medical financing companies do not vary the price of credit according to the borrower’s credit score, offering only one flat APR.

The takeaway from this report is that, although the CFPB is not yet taking action with respect to these products, financial institutions should ensure that the disclosures provided for any medical financing products are clear about

1. who is providing the financing,
2. how the repayment terms work (with emphasized language for how any deferred interest period would operate), and
3. the cost of credit relative to other available credit (i.e., non-medical credit products).

Further, financial institutions should exercise extreme caution in working with specific medical providers to offer these products, lest the act of providers offering products in-office is later deemed coercive, with liability also attaching to the third-party financing companies.