Are Medical Credit Cards a Rip-Off? Let’s Just Say the Feds Aren’t Fans

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Let’s say you’re at a doctor’s office or a dentist’s office or a hospital, and you’re agreeing to some kind of expensive treatment or surgery or procedure. This is going to cost you some serious cash. Who can afford that?

But wait, they say. If you sign up for this medical credit card or installment loan, you’ll have plenty of time to pay it off! In fact, you won’t be charged any interest at all for a whole year.

Sounds like a good deal, right? But watch out. You may end up paying a lot more money in the long run.

CareCredit and Other Medical Credit Cards Face Scrutiny

The feds are pointing the finger at CareCredit and other medical credit cards and financing plans, saying they can put patients deeper in debt, inflating medical bills by as much as 25%. Consumer advocates say that, because of their high interest rates, these products can be even more expensive to use than regular credit cards.

Patients are typically offered these cards or loans in a medical provider’s office even when their insurance may cover the procedure or they qualify for a hospital’s reduced or no-cost financial assistance program, according to the Consumer Financial Protection Bureau.

“Fintechs and other lending outfits are designing costly loan products to peddle to patients looking to make ends meet on their medical bills,” said CFPB Director Rohit Chopra. “These new forms of medical debt can create financial ruin for individuals who get sick.”

The Dangers of Deferred Interest

Medical credit cards have been around for some time. Right now they’re primarily being offered through three financial companies: CareCredit, a subsidiary of Synchrony Financial; Wells Fargo; and Comenity, according to the CFPB’s new report.

More recently, a bunch of financial technology companies have started offering installment loans for medical care.

Medical credit cards typically offer a “promotional period” during which you pay no interest. For example, on a CareCredit credit card, you pay no interest if your balance is paid off within six, 12, 18 or 24 months, depending on the terms of the deal you’re being offered.

This is known as “deferred interest,” and it can be tricky and dangerous.

If you can pay off your debt during the interest-free promotional period, then fine. You don’t pay any interest, making it a good deal.

But you have a problem if any amount of the original purchase price isn’t paid for by the time the promotional period is over. With deferred interest, you could be responsible for high interest payments on the entire purchase price — even if you already paid off most of the bill.

“Many medical credit card users have reported being surprised when they’ve been charged interest on the original amount of their purchase after a deferred interest promotion ends,” the CFPB’s report says.

There’s a similar problem with medical installment loans, which are loans that you repay over time with regularly scheduled payments, usually monthly payments. Missing a payment means you’re suddenly being charged lots of interest.

From 2018 to 2020, Americans used medical credit cards or loans to pay for $23 billion in health care expenses, and they paid $1 billion in deferred interest, the consumer protection agency said.

“The financing terms for medical credit cards and medical installment loans include interest rates significantly higher than traditional consumer credit cards — 26.99% to 16%, respectively,” the CFPB said.

“These products often have deferred interest plans, with all accrued interest potentially becoming due at the end of a defined period, which can prove especially expensive and unaffordable for patients.”

3 Tips to Follow if You’re Offered a Medical Credit Card

We collected some advice from the consumer protection agency, CareCredit and other resources. Here are three things to keep in mind if you’re offered a medical credit card or installment loan:

1. Ask Lots of Questions

Ask questions like, “Is this a credit card?”

The consumer protection bureau got complaints from patients who hadn’t realized they were being enrolled in a payment plan at all.

Ask if there are any alternatives — for instance, do you qualify for a hospital’s reduced or no-cost financial assistance program?

2. Read the Fine Print

The devil is in the details. The particulars of each card or installment loan or payment plan vary widely. Interest rates and the lengths of promotional periods “vary significantly from product to product,” the CFPB said.

You obviously want to understand when the promotional period ends. Check to see if the required minimum payment will be enough to pay off the balance in time. If not, you need to start paying more than the minimum amount.

Another important question: Would you owe interest on all of your original debt if there’s only a little that isn’t paid off after the promotional period?

3. Be Realistic

By this we mean: Be realistic about your ability to pay off this medical or dental bill on time. Can you really do it? If not, those ballooning interest charges will kick in before you know it.

Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder.