Senators Warn of ‘Predatory’ Medical Credit Cards

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The high cost of medical care is making some parties involved very wealthy. 

When it comes to hospitals, it’s easy to imagine a place where everyone works together to help patients heal and get back to the business of living. Perhaps it’s time to rethink that image.

According to a group of Democratic senators, some hospitals have teamed up with credit card companies to push high-interest debt on those desperate for medical help. Unfortunately, it is those most in need who are being harmed by this practice.

The letter

Sens. Elizabeth Warren, Ed Markey, Bernie Sanders, Chris Murphy, and Sherrod Brown recently sent a letter to the chief executives of Wells Fargo Bank and Synchrony Financial. While they are not the only financial institutions offering medical credit cards, they are two of the largest.

In the letter, the senators expressed concern that these medical credit cards could be predatory. After all, once treated, patients are left with “hefty, high-interest medical debt.”

While the majority of Americans are insured, millions are not. Of those who are fortunate enough to have health coverage, many cannot afford the out-of-pocket maximums, copays, or uncovered services.

How profits are made

Here’s how the system works, step by step:

Someone goes into a hospital in need of care but can’t afford the cost of treatment.The hospital convinces them to open a medical credit card.The credit card offers an introductory “no interest” period.Desperate for the money to pay the bill, the person applies for the card.They’re approved for just enough money to pay their hospital bill.Once they use the card to pay, the card is maxed out. Maxing out the credit card impacts their debt-to-income (DTI) ratio, often lowering their credit score.If the patient is unable to come up with enough cash to pay the credit card balance off in full by the time the introductory period expires, they end up with a large credit card debt, carrying one of the highest interest rates in the industry.

The hospital profits

Once the patient agrees to take out a medical credit card, the hospital is paid upfront by the bank issuing the card. These kickbacks are good for the hospital’s bottom line.

The bank profits

The high interest rate means that many borrowers quickly strain their bank accounts and can afford no more than their minimum monthly payment. This cycle of debt leads to greater profits for the bank that issued the card.

Not their first dance with trouble

In 2013, the Consumer Financial Protection Bureau (CFPB) ordered Synchrony Financial to refund up to $34.1 million to consumers. According to the CFPB, CareCredit, Synchrony Financial’s medical credit business, victimized consumers by using deceptive credit card enrollment tactics.

In December 2022, CFPB hit Wells Fargo with $3.7 billion in penalties for a myriad of abuses. CFPB described Wells Fargo and its Health Advantage medical credit card as “one of the most problematic repeat offenders of the banks and credit unions.”

An unfortunate loophole

Credit reporting agencies recently agreed to remove 70% of negative medical debt remarks from credit reports. While that’s great news for some consumers, the change will not benefit those who took out a medical credit card because it’s considered credit card debt, rather than medical debt.

It’s a race to see who wins. Will it be patients and their advocates or banks who view profiting off a broken medical system too lucrative to give up?

It’s worth noting that more than 100 million people in the U.S. are burdened with medical debt. The collective total owed is around $200 billion. At the same time, the U.S. is the only industrialized country in the world that does not guarantee universal health coverage for its citizens.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Synchrony Financial is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Dana George has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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