Medical credit cards: CFPB urged to abolish deferred interest at hearing

Medical credits cards intended to help consumers pay for health care instead may be driving them further into debt, according to a hearing held last week by the Consumer Financial Protection Board.

“This spring, the CFPB published a report on the use of these payment products,” said Rohit Chopra, the board’s director. “Our research shows that these payment products have less-favorable terms than other general credit products and can land patients with significant amounts of deferred interest. Indeed, over a three-year period, patients paid $1 billion in deferred interest on medical credit cards. This deferred interest isn’t something that’s fair or transparent — people can find themselves hit with large and unexpected interest costs even when they’ve been making payments on the bill all along.”

The hearing was part of a stepped-up effort by the CFPB, Centers for Medicare & Medicaid Services, Department of Health and Human Services and Department of the Treasury to examine the prevalence and nature of financial products used to pay for health care, as well as their impact on consumers and consumer protections.

Medical payment products include special-purpose credit cards and installment loans used to cover the cost of medical treatment. Although these products can offer an enticing promise of cost savings, convenient payment plans and administrative ease for medical providers, CFPB research indicates that in many cases, patients end up worse off. The typical medical credit card has an interest rate of 27%, which is substantially higher than the average 16% general purpose credit cards.

Related: Medical credit card crackdown: Feds zeroing in on regulations to protect patients

Witnesses testified that deferred interest has burdened patients with exorbitant levels of medical debt. 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, adding that the CFPB could eliminate the loophole or restrict it significantly.

The public is encouraged to share its experiences with medical financial products in the Federal Register through September 11. “We hope to not only gain a better understanding of consumer harms and financial challenges raised by specialty medical payment products but to also bring some light to market that has often operated in the shadows,” Chopra said.