Federal regulators are focusing in on medical credit cards and financing plans and the roles that healthcare providers have in facilitating them.  The Consumer Financial Protection Bureau (“CFPB”) is a federal agency charged with implementing and enforcing federal consumer financial laws in effort to ensure markets for consumer financial products are fair, transparent, and competitive.  The CFPB has made it a priority to monitor issues that impact medical financing and debt reporting under its current director, Rohit Chopra.

In a report published earlier this month, the CFPB notes that medical credit cards and other point-of-sale credit products were once used almost exclusively for elective care but have grown in scope to pay for basic medical treatment, dental care, emergency treatments, and even regular checkups.  The CFPB notes that third-party financing companies offer credit products subject to above-market interest rates and have largely replaced no-cost or low-cost payment plan products historically offered directly from medical providers. 

When patients face out-of-pocket or surprise medical or dental expenses they often turn to medical credit cards offered by their provider if they do not have sufficient cash, have limited access to credit, do not realize that they are eligible for financial assistance, or want to ensure they can receive treatment quickly.  The CFPB observed that these medical credit cards often include deferred interest provisions whereby the patient would not pay any interest during a promotional period, but when the period expires, the patient would owe interest on the full purchase amount, not just the remaining balance. 

The CFPB also found that financing companies depend heavily on healthcare providers to promote their credit products to patients, and that healthcare providers are supplied sales and training literature and intake financing software to expedite the transaction.  Director Chopra claims that these credit products “turn[s] healthcare providers into the sales team for credit card companies[.]”  The problem, according to Director Chopra, is that these products can “erode patient trust” in the provider.  The CFPB has noted an uptick in consumer complaints that the medical office employees are inadequately disclosing the terms and conditions of the products they are selling. Many patients believe they are entering into a financing agreement directly with the provider, when in fact it is with a third-party lender. Further, in compiling deferred interest data, the CFPB found that, during a three year period, patients incurred approximately $1 billion in deferred interest debt related to healthcare charges, and those who paid interest paid an additional 23% on top of their initial bill.

Medical credit cards and financing products have the potential to offer cost-saving features for medical providers by reducing expenditures related to billing, collection, or securing reimbursement from insurance companies.  Further, these products have the potential for increased treatment sales and an increase in patient goodwill.  For patients, the CFPB agrees that medical credit cards can be “advantageous” for the majority of patient-borrowers, who pay off their balances during the designated promotional period and would otherwise not be able to access care. 

However, given the CFPB’s findings and heightened focus on medical debt, medical providers should ensure their staff are aware of the terms and conditions of the third-party financing products they are promoting and not misleading them to alternative means of paying for healthcare.  If you have any questions about the use of third-party financing products in your practice, please contact Corey Scher (cscher@foxrothschild.com) or Edward Cyran (ecyran@foxrothschild.com).