Medical Credit: Preying on the Vulnerable and Uninformed

The medical credit industry in the United States is booming, with a variety of programs offering financing for emergency, routine, and elective procedures. In some cases, clinics actively partner with these programs to offer in-house financing to patients, promising to take care of payment arrangements and administration as long as the patient signs along the dotted line. As with other forms of consumer credit, it’s also an industry rife with exploitation and abuse for anyone who cares to pull back the curtain.

Several factors come into play with medical credit to make it particularly pernicious. One is the urgent nature of the procedures involved. People dealing with sudden expenses in an emergency know that they need to get the procedure or face serious medical problems, and medical credit can seem like a convenient option. Rather than having to apply for a personal loan from a bank, attempt to find some other source of credit, or borrow from friends, the patient can just apply for medical credit to pay for the issue. They’re also lured with things like rapid approval, offers targeted at people with low credit scores, and other favours they think make it the best available deal.

The one-stop shop is also tremendously convenient; when someone at the reception desk hands you a brochure for a medical credit product as you’re reeling over the cost of a necessary procedure, there’s something very calming about it. Your solution lies directly in front of you and you don’t need to take any outside action. You may be able to apply right there in the office and the receptionist can quickly run you through the system to see if you qualify. Medical emergencies or urgent care tend to create tunnel vision and panic because people are so focused on the problem that they have trouble thinking clearly, and this makes them especially vulnerable to exploitation.

Much as funeral directors abuse their positions to take advantage of grieving people, medical credit providers use the patient’s position as leverage. People have limited time and opportunities and seek the first financing they can get. They may not even read the paperwork documenting the terms of the agreement, or they might skim it without really understanding. Plain language credit agreements might help, but even they still require the creditor to actually read and absorb the information, which can be difficult when you’re in the doctor’s office with a seizing child being told a procedure is immediately needed.

These companies also take advantage of low financial literacy. Medical credit products are aimed primarily at low-income people, as they are the most likely to lack insurance, assets, or other options to access funds and credit. They are also the least likely to be educated and informed about how credit works, available alternatives to medical credit, and how to quickly read credit agreements to understand their rights and obligations. As a vulnerable population, they are already preyed on by a variety of other lenders, and it’s not surprising to see medical credit firms entering the mix to take advantage of a particularly captive audience.

Medical credit is commonly used for elective procedures, often through the use of very misleading advertising which involves collusion between medical centers or doctors and credit companies. People are told to get cosmetic procedures on medical credit, for example, and instead of being quoted the cost over time, or the up front price, the patient receives information about the monthly expense for debt service. Unless the patient is willing to sit down and do the math, the real cost of the credit may not be readily apparent. Some patients may lack the capacity to do the math, or the budgeting skills to think about what that monthly fee will mean over time.

Suddenly, people find themselves trapped in terrible financial circumstances, with a credit account that will be difficult to pay off; the interest is high, and the penalties for late or missed payments can be severe. If people start to struggle with the debt, they can quickly find themselves with black marks on their credit records, which will make it difficult to consolidate or negotiate debt to make it more manageable. They may pay the cost for a procedure for years, or the rest of their lives, unaware that there were other options, and unaware that they were pressured into making a terrible choice.

Poor regulatory oversight dogs this as well as other areas of the financial industry. Consumer advocacy groups have targeted medical credit providers as a serious concern that should be receiving more attention, but that hasn’t translated into more direct action. And every time Congress attempts to tighten down on the financial industry and address predatory lending, it’s thwarted by lobbyists and intense pressure from the industry. By the time all the amendments are tacked on and the bill makes it through committee, it’s a watered-down version of its former self. Congress may point to it as an example of action, but really it’s a thin veneer, a band-aid for a gushing wound that won’t stop pumping blood.

One reason I feel so passionately about financial literacy education is that there are pitfalls at every step for people of low income. They are targeted as a vulnerable and easily exploited population, and receive almost no tools to fight back. People empowered with information about credit can start fighting back on their home turf. That combined with regulation might actually force the medical credit industry to reform its ways; because there is no doubt that emergency financing can be incredibly valuable and necessary, and can be a useful service…just not in its current state.