Clark Hill Summer Associate Pawan Jain contributed to this article.
On July 11, the Consumer Financial Protection Bureau (“CFPB”) held a hearing on issues surrounding medical debt and specifically, payment products. Not surprisingly, the invited experts and special guests taking part in the discussion predictably targeted some key themes that are of recent interest to the Bureau: trendy exploitative practices targeting vulnerable individuals, the inadequate protection of consumers in a predatory marketplace, and the urgent need for regulatory reform to address and alleviate these systemic problems. While the panel was comprised of four accomplished consumer rights advocates, representatives from the healthcare and financial services sectors were noticeably absent and did not have an opportunity to confirm or rebut any of the volatile claims made. In this article, we summarize the hearing and point out the need for a nuanced regulatory approach that considers the complexities faced by healthcare providers, emphasizes consumer responsibility, and acknowledges the importance of proper risk assessments pertaining to the payment products discussed.
Exploitation of Vulnerable Consumers
Most of Director Chopra’s dialogue with the panelists was focused on the destructive nature of medical credit cards and certain loans. According to their testimony, these financial products often target uninsured individuals or those who cannot afford co-pays, trapping them in a cycle of debt. Providers, they allege, are then guilty of purposefully “hiding the ball” by unfairly blending these financing concepts with their formal charity care, hardship, and government-payer programs. In doing so, they fail to provide adequate assistance that is mandated of them as nonprofit entities under Section 501(r) of the Internal Revenue Code and otherwise. Essentially, their position is that by steering patients towards high-interest credit products in an exploitative manner, it compromises the individual’s financial, mental, and physical well-being.
Inadequate Consumer Protections
According to the Director and the panelists, the lack of transparency and understanding among consumers regarding medical debt and payment products is a significant concern. They assert that many individuals are unaware of available financial assistance programs and are often not informed of their rights and available protections by their healthcare providers. The panelists further mentioned that the non-profit healthcare facilities are aggressively advertising these third-party medical financing services with a 0% introductory interest rate. They often spoke out against deferred interest and certain hidden finance charges that burden the patients with unexpected and exorbitant costs. Each was able to point to anecdotal evidence from their clients to support their position, but notably, none referred to statistical research. They also indicate that these payment products in the healthcare space are a disservice to patients because, through this process, the patient’s debt transforms from a healthcare debt, an obligation that comes with many consumer protections attached (such as the No Surprises Act and the CFPB’s new mandates on medical credit reporting) into credit card or purely financial debt, which is less regulated and easily subject to various loopholes.
The panelists also mentioned that these issues in the medical debt and payment product landscape disproportionately impact women and minority communities, which is a major focus point for the Bureau in recent policy making across the financial services landscape. Panelist Julia Char Gilbert, of the Colorado Center on Law and Policy, for example, claimed that the lack of accessibility and clarity in financial assistance processes further widens the equity gap, perpetuating systemic racism and classism.
Regulatory Reforms and Solutions
Director Chopra and the panelists were unified in suggesting that there is an urgent need for comprehensive regulatory reforms to address the exploitative practices outlined above. The recommendations put forward by experts and stakeholders were quite expansive and included:
- Banning credit reporting of all medical debt: Panelist Mona Shah, a Senior Director of Policy and Strategy at Community Catalyst, along with nearly all the panelists, advocated for the outright elimination of credit reporting for medical debt, implying the CFPB’s recent efforts in restricting such reporting was an incomplete solution.
- Eliminating deferred interest: Panelist Chi Chi Wu, a Senior Attorney at the Consumer Law Center, emphasized the importance of banning deferred interest outright. She suggested that the CFPB should close the existing loophole in the Card Act and restrict this exploitative practice once and for all.
- Strengthening Financial Assistance Programs: Panelist Jennifer Holloway of Tzedek DC and nearly all others stressed the importance of improving and simplifying Financial Assistance Programs processes, making them more accessible and user-friendly for individuals in need.
- Enhancing provider education….and enforcement(?): Director Chopra speculated that healthcare providers may not be aware of the technical practices in the medical loan industry and the true financial impact on patients, but believes they have an obligation to understand this. He and the other panelists emphasized that the providers must be better educated about the implications and consequences of medical credit products and even stated that the Bureau will strategize to see how to make that a reality. Chopra wants providers to prioritize genuine financial assistance rather than steering patients towards high-interest and costly payment options. He indicated that this may be an area of focus for the Bureau in the near future.
Balancing the equation: unmaking the bias in the CFPB hearing
As indicated above, the CFPB hearing cast a light on certain practices related to medical debt and associated payment products – labeling them as exploitative. Yet there were no healthcare or financial services representatives present to balance the rhetoric. As a result, this hearing morphed into a somewhat self-serving attempt to confirm the sentiment found in the Bureau’s May 4 report titled Medical Credit Cards and Financing Plans, which stated summarily that, “[t]he growing promotion and use of medical cards and installment loans can increase the financial burden on patients who may pay more than they otherwise would pay and may compromise medical outcomes.” While the report and hearing do shed light on important concerns surrounding medical debt, they fail to consider alternative perspectives and overlook key factors that contribute to the complexity of the issue at hand.
Oversimplification of Provider Practices
The CFPB report and hearing primarily portray healthcare providers as self-serving manipulative actors, focused on guiding vulnerable patients towards high-interest credit products. However, they fail to acknowledge the challenges providers and consumers face with routine billing practices nor provide any statistical basis for how prevalent these practices even are. While the panelists acknowledge that the specialty credit offerings at issue first sprouted up in the dentistry and elective surgery markets, the audience was told that the practices have now permeated into primary care, without many surrounding details other than anecdotes. Panelist Wu referred to an NCLC report on medical credit cards to support her position, but our review showed this was based on data from only 35 respondents. And in this study, only one respondent reported that a client was offered a medical credit card in the emergency room. In contrast, the remaining 34 respondents shared that their clients were offered such cards during non-emergency, non-essential healthcare services. These include visits to the dentist’s office, cosmetic surgery, and weight loss procedures, among other things. The findings suggest that medical credit cards are still predominantly offered for non-essential health care services, which does not quite mesh with the contentions made at the hearing.
Lack of Consumer Responsibility
The CFPB report and hearing place a heavy emphasis on the vulnerability of consumers and the alleged lack of transparency surrounding medical debt. While it is crucial to protect consumers from predatory practices, it is equally important to acknowledge the responsibility consumers have in understanding their financial obligations. In some cases, these products might make sense for certain patients. Personal financial literacy and responsibility should be emphasized to promote a more comprehensive approach to addressing medical debt issues and to increase understanding. The CFPB can and should launch a large-scale program, perhaps in tandem with providers, to help educate and empower consumers about some of the various financial products available rather than simply pointing their proverbial fingers at providers and fintechs.
Incomplete Evaluation of Payment Products
The CFPB report and hearing generalize the nature of medical credit cards and loans, primarily portraying them as abusive tools that trap individuals in a cycle of debt. However, they fail to consider that these financial products can also provide accessible options for individuals who may not qualify for traditional forms of financial assistance, along with some key benefits for accounts that can actually be paid off without interest. While caution should be exercised to prevent abusive practices, a more balanced evaluation of payment products is necessary to ensure the availability of viable options for those in need. The report itself, in the Appendix, shows how the terms can vary widely for different cards and financing loans in the space, with some affording more flexibility to consumers than others. Further, Table 2 of the report shows that a significant majority of individuals, 76%, who were offered a promotional 0% interest rate took advantage of this incentive and managed to pay off their medical debt before the promotional period ended. This effectively allowed them to enjoy the benefits of an interest-free loan. The group that most utilized these deferred interest products, the “superprime” debtors, demonstrated even better results, with 90% managing to pay off their debt within the promotional period, thereby benefiting from the 0% interest on the loan. The report and the panelists also highlighted that the medical credit card charges a higher interest rate compared to other financial product. However, current average interest rate on regular credit cards is 24% which is comparable, and in fact higher, than the 23% interest rate on medical credit card mentioned in the Table 3 of the CFPB’s report.
Disregard for the Economic Realities
The report and hearing overlook the serious economic challenges faced by healthcare providers, particularly non-profit organizations. These entities often rely on revenue generated from their accounts receivable to sustain their operations and continue providing crucial services. While the panelists advocated for a full ban on credit reporting and enhanced financial assistance waivers, it fails to propose viable alternatives that would ensure the financial sustainability of healthcare providers.
Ignoring the Importance of Risk Assessment
Blanket criticism of deferred interest and hidden finance charges fails to consider the risk assessment process typically performed by financial institutions. Lenders employ various measures to assess borrowers’ creditworthiness, and the interest rates charged often reflect the associated risks. Overregulation or outright banning of deferred interest could hinder access to credit for individuals who require, and then in turn lack, alternative financing options; and this would extend beyond the confines of medical debt.
Conclusion
While the Bureau’s approach sheds light on some legitimate concerns surrounding medical debt and payment products, it falls short of providing a comprehensive and balanced assessment of the issue. A more nuanced approach is necessary, one that considers the complexities faced by healthcare providers, emphasizes consumer responsibility, and acknowledges the importance of risk assessment in financial practices. It is very possible that by overregulating, CFPB might, unintentionally, suppress the quality of healthcare and innovation in this space. By addressing these limitations, both Bureau and industry can foster a more constructive dialogue and develop effective solutions to the challenges posed by medical debt.
