Rx for Costly Credit: Deferred Interest Medical Credit Cards Do More Harm Than Good

Abstract: Various health care providers offer patients medical credit cards that charge high rates of deferred interest. As the cost of medical care and patient responsibility for out-of-pocket costs continue to rise, patients have turned to medical credit cards for help footing the bill. Unfortunately, because they fail to pay off their balances before the end of the promotional period, many patients find themselves unexpectedly responsible for deferred interest charges at rates well above those associated with general-purpose credit cards. Medical credit cards fall outside the protection of many federal credit laws regulating consumer credit. This Note argues that the Consumer Financial Protection Bureau (CFPB) should ban deferred interest medical credit cards through the exercise of its rulemaking power. Short of a total ban on deferred interest medical credit cards, the CFPB should use its rulemaking power to expand the reforms it recently levied on GE CareCredit to the entire medical credit card industry.INTRODUCTIONSixty-eight-year-old Alice Diltz, a part-time hospital aide, needed five dental implants.1 The Hillside Dental Care clinic in Queens, New York quoted her a price of $7450 in October 2005.2 Diltz's insurance would only pay $200 towards the bill.3 Diltz and her retired husband lived on $18,000 each year from her part-time job and social security benefits.4 Diltz managed to pay $250 up front for her implants, and signed up for what she thought was a payment plan administered by the clinic.5 Instead, Diltz had signed an application for a GE CareCredit deferred interest medical credit card.6 Although the paper was labeled as a credit card application, the print was so small that Diltz never saw it.7 Clinic employees never told her she was applying for a credit card.8After having her teeth pulled in preparation for the implants, Diltz experienced heavy bleeding.9 Frightened, she left the office and cancelled the implants four days later.10 To her surprise, she received a $7000 bill from GE CareCredit several weeks later.11 Even though Diltz's implants were never completed, GE CareCredit had paid the dental clinic upfront, and wanted to be repaid.12 The bills kept arriving from GE CareCredit, even after Diltz disputed the charge.13 As interest accrued, her debt grew to over $10,000.14 GE CareCredit sued Diltz in state court to recover what it claimed she owed.15 Only after BusinessWeek, a major national publication, inquired into her case did GE CareCredit agree to forgive Diltz's debt and remove it from her credit report.16Diltz's medical credit card experience is replicated in medical, dental, ophthalmology, and audiology clinics across the country.17 Patients who cannot afford necessary treatment are steered by office staff toward deferred interest medical credit cards available right in their health care providers' offices.18 Often, patients do not realize that they are applying for a credit card.19 Even if they do understand what they are applying for, patients are often not sufficiently informed about the terms and conditions of the cards.20 Specifically, they are frequently unaware that the full cost of their treatment will be charged to the card up front or that they will be responsible for interest charges going back to the first day of treatment if their entire balance is not paid in full before the end of the promotional "no interest" period.21 Interest rates of up to thirty percent may then attach to patients' balances; before they realize the gravity of the commitment, these patients are in significant debt with little hope of being able to repay what is owed.22Deferred interest medical credit cards were first introduced to the marketplace in the early 2000s as a way to finance elective and often cosmetic surgery.23 Yet, as patients' out-of-pocket medical expenses for non-elective medical care skyrocketed, deferred interest medical credit cards were marketed to patients and medical providers alike as an easy solution to these out-of-control costs. …