CFPB Issues Report Highlighting Risks of Medical Financing

On May 4, 2023, the CFPB issued a report titled Medical Credit Cards and Financing Plans (the “Report”) that summarized the new developments in medical financing and the associated risks with these products.  The Report complements the CFPB’s April 26, 2023 report that analyzed a sample of final medical collection tradelines from 2012-2020 to study whether the removal of some medical collections from the credit reports of consumers impacts the availability of credit.

The CFPB noted that approximately 50% of U.S. adults have difficulty in paying for medical care and that out of pocket medical costs have increased for both insured and non-insured patients steadily over the years.  As a result of this increase in cost, the CFPB noted that financial institutions have marketed products such as medical credit cards and installment loans, which previously mainly were used for elective procedures, to healthcare providers and encouraged those providers to promote the products to patients.  The Report stated that these third-party forms of medical financing have largely replaced the low cost or no-cost informal payment plans that were previously offered directly by medical providers.

The CFPB observed that medical financing companies market their products to medical providers by stating that the products will reduce the providers’ administrative burden of collecting bills and dealing with insurance and deliver faster payment.  Accordingly to the CFPB, the financing companies also market their products as reducing the medical providers’ overall costs because the providers will not have to mediate billing disputes and engage debt collectors to recover unpaid bills.  However, the CFPB asserts that these products generally do not benefit the consumers and, instead, cause hardship and confusion for patients.

The key findings in the Report include:

  • Despite the CFPB’s and state regulators’ past efforts in improving disclosures, consumers continue to feel misled about the terms of some medical financing products. The CFPB provided the example of a patient that signs up for a credit card or loan at their physician’s office who may feel that the product is offered by their medical provider rather than a third party.  Further, complaints submitted to the CFPB show that some patients do not realize they are enrolled in financing at all.
  • Patients, specifically those that are not able to pay off their loans within their loan’s promotional deferred interest period, can pay much more than they would otherwise pay on the loan. On average, borrowers that incur interest through a medical financing product pay an additional 23% of their initial purchase.
  • Low-credit patients may be at heightened risk because “20 percent of overall healthcare purchases with deferred interest were assessed interest between 2015 and 2020. In that same time, borrowers with credit scores below 619 were charged deferred interest on around 34 percent of purchases.”

The CFPB noted that a better understanding of these products “may help improve the lives of the many patients – of all economic backgrounds – who find themselves stretching to cover necessary medical payments.”  The Bureau concluded by noting that it would “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.”