Dive Brief:

• From 2018 to 2020, consumers paid $1 billion in deferred interest payments on healthcare credit cards and loans, according to a Consumer Financial Protection Bureau report released Thursday.
• Consumers used credit cards and loans to pay nearly $23 billion worth of healthcare costs ranging from emergency room visits and medications to dental and vision care.
• The CFPB said Wells Fargo, Synchrony Financial subsidiary CareCredit and Bread Financial subsidiary Comenity are the top companies offering medical credit cards.

Dive Insight:

Though the mean annual percentage rate for general-purpose credit cards is about 16%, medical credit cards typically charge an APR of 26.99%, according to the report. Consumers can use the medical credit cards and financing plans to cover bills ranging from as little as $35 to as much as $40,000, the report said.

The medical card industry has grown, the federal agency said, though it provided only one data point at one of the three companies as evidence of that expansion. The number of CareCredit cardholders nearly tripled over a decade, from 4.4 million in 2013 to 11.7 million cardholders this year, the report said. It also noted there has been a proliferation of the types of cards available to consumers.

“Financial institutions and fintech companies are generating a growing number of financing mechanisms for families and individuals struggling to pay their out-of-pocket healthcare expenses,” the report stated.

The market for medical credit cards, which are promoted through healthcare providers, has grown partly because it is sold as a tool for quick medical expense payments, reduced financial risk, potential cost savings and smoother administration, the CFPB said. However, healthcare providers may not be offering patients legally-mandated financial assistance services and zero-interest repayment plans, instead pushing costlier options onto consumers. 

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

On the same day the CFPB issued its report, Synchrony’ said it had teamed with CoFi, a Boston-based patient payments company, to provide CareCredit financing options for vision services, according to a Thursday press release. As part of the deal, CareCredit expects it will integrate its offering across more than 2,000 ophthalmologists, optometrists and surgery centers within CoFi’s network by the end of this year, enabling patients to use CareCredit credit cards to pay for out-of-pocket medical expenses, including deductibles and co-pay amounts. 

“Technology partnerships with organizations like CoFi, with the integration of the CareCredit credit card into their platform, further ease the financial workflows for providers and offer a seamless way for patients to finance their consolidated vision expenses in a way that works within their budget, so they can get the care they want and need," Synchrony Senior Vice President Greg Pierce said in the statement. 

In recent years, more payments companies, particularly buy now, pay later providers, have taken more interest in offering installment payments on medical expenses and other professional services. Companies like Sezzle, Sunbit and Healthcare Finance Direct, have stepped in to provide healthcare payment options for patients managing costly medical bills. 

But as the market for installment payments has grown, including for consumers’ medical expenses, so has the scrutiny of payment companies' lending practices.

Sen. Sherrod Brown (D-OH), chair of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, held a hearing last September regarding the impact BNPL and other fintech firms have on workers. In a statement, Brown said the services can help workers pay for medical costs, but often aren’t well-regulated or transparent about fees and risks, “leading to more and more debt that workers can’t repay.”