CFPB urged to abolish deferred interest

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.”