The Consumer Financial Protection Bureau was urged to eliminate deferred interest during a hearing Tuesday that addressed the problems associated with medical credit cards and other payment products.
Panelists who spoke during the agency’s hearing on medical financing and healthcare debt said deferred interest has saddled patients with exorbitant levels of medical debt.
Panelist Chi Chi Wu, a senior attorney with the National Consumer Law Center, called deferred interest “one of the biggest credit card abuses left” after the Credit CARD Act reforms of 2009.
Deferred interest credit cards offer no interest during a promotional period, but interest is retroactively applied if the entire balance is not paid in full by the end of that period, including on portions of the balance already paid off.
“This is something that the CFPB actually has special regulatory authority to eliminate, because in this case, deferred interest is actually created by regulatory exemption,” Wu said during the hearing in Washington, D.C. The bureau could eliminate the loophole or restrict it significantly, she said.
The hearing occurred just days after the CFPB, the Department of Health and Human Services and the Treasury Department launched an inquiry into medical credit cards and installment loans as part of a broader effort by the federal government to get healthcare costs under control.
CFPB research suggests these products “pose a significant risk of consumer harm,” so the agency seeks to better understand the credit origination, debt collection, and credit reporting practices of the companies that offer these products, a CFPB spokesperson said in a Thursday email.
As part of that inquiry, public comment is sought through Sept. 11, which the CFPB will use “as it considers next steps to address the harms caused by these specialty financial products,” the spokesperson said.
Wells Fargo, Synchrony Financial subsidiary CareCredit and Bread Financial subsidiary Comenity are the top companies offering medical credit cards, a May CFPB report said.
The inquiry aims to “bring some light to a market that has often operated in the shadows,” CFPB Director Rohit Chopra said during the hearing.
Often lacking transparency, the medical payment products might be presented to patients in vulnerable moments, panelists said. An uninsured patient given a bill they can’t afford and then presented a medical credit card offer as the only way to cover the cost may have little time to digest the terms of the offer.
Typical medical credit cards have less favorable terms than general credit cards and can carry interest rates around 27%, Chopra said. “And it isn't just the amount of overall interest,” he said. “We’ve also heard about potentially hidden finance charges where the amount borrowed may be inflated.”
With deferred interest credit cards, “people can find themselves hit with large and unexpected interest costs, even when they’ve been making payments on the bill all along,” Chopra said.
Chopra and panelists repeatedly noted medical credit cards and other payment products may be pushed on patients in ways that let healthcare providers avoid processes for insurance claims or financial assistance programs. Many patients either aren’t aware of financial assistance programs or are deterred from accessing them, panelists said.
Patients eligible for free or discounted care are instead persuaded to sign up for the deferred interest credit cards, contributing to “a vicious cycle of medical debt,” said Mona Shah, senior director of policy and strategy at the organization Community Catalyst.
The federal scrutiny comes as medical credit cards and loans are popping up in more healthcare settings. Where they used to be more commonly found in elective care settings or dental offices, panelists said the payment products are now also offered at some primary care practices and emergency rooms, which Wu called “disturbing.”
Patricia Kelmar, senior director of healthcare campaigns at U.S. PIRG, said the organization’s Oregon affiliate examined 2019 bankruptcy filings and discovered the most frequently listed creditor was Synchrony, the issuer behind the CareCredit card, according to a 2021 report.
“These medical credit card debts appeared even more frequently than the medical debts owed to the hospital and provider networks in the state,” she noted. “Medical debt is landing folks into bankruptcy because of credit cards, not really because of the hospital and provider network billing practices.”
In a statement, CareCredit said its financing offers, which expand consumer access to dental work, audiology or pet care, “have been around for decades, are transparent and clear for consumers, and have saved our cardholders billions of dollars in interest over the years.”
A Wells Fargo spokesperson said the bank’s healthcare credit card is available for dental, audiology, vision and veterinary services. The bank reviews a patient’s ability to repay before approving an application for the card, and the maximum interest rate is 12.99%, the spokesperson said.
“The card is not available for procedures covered through subsidized or charitable medical coverage and our provider network does not include medical hospitals, out-patient surgical centers, or urgent care centers,” the Wells Fargo spokesperson said.
During the hearing, Chopra wondered if healthcare providers truly understand the products they are marketing to patients.
“In market after market, we see that often the company who is part of pushing the loans may not even be aware about the problems it can lead to,” Chopra said. “We saw this over and over again in student loans in colleges, and it appears this is a place where we should focus some of our energy in our inquiry.”
Chopra also hinted at future action by the bureau. The CFPB is “very seriously looking at a range of rulemaking changes under the Fair Credit Reporting Act, so stay tuned for more of that,” he said.
“It’s very clear there is a lot we need to wade through,” Chopra said. “We will be using this inquiry to inform a whole set of agenda items” on medical financing.
A spokesperson for Bread Financial didn’t immediately respond a request for comment.