The Consumer Financial Protection Bureau (“CFPB”) has signaled a heightened interest in healthcare financing products, indicating that the industry should brace for increased regulatory scrutiny. The CFPB’s focus reflects growing concerns over how medical debts are incurred, managed, and collected.
In a March 2022 report entitled “Medical Debt Burden in the United States,” the CFPB discussed the impact and intricacies of medical debt, highlighting the lack of standardization in billing, collection practices, and insurance coverage disparities. In response to these findings, the national credit bureaus voluntarily adjusted their policies to delay reporting medical debts in collections to consumer reports for a year and exclude debts below $500.
The CFPB’s regulatory efforts kicked off in earnest in May 2023 with the publication of a report titled “Medical Cards and Financing Plans,” which highlighted concerns about the proliferation of medical credit cards and installment loans amid escalating healthcare costs. The report documented a shift from previously common low-cost or no-cost payment plans directly offered by healthcare providers to third-party financed alternatives, spotlighting new use cases that extend beyond elective treatments to encompass more routine healthcare needs. The report also articulated apprehensions about the marketing strategies employed by financing companies that promise administrative relief to medical providers, yet may inadvertently lead to consumer confusion, financial strain due to high interest rates, and questionable practices like unauthorized credit account openings. The report identifies other potential risks including healthcare provider misconduct, such as opening credit accounts without consumer consent, and the overall high cost of medical financing products, noting that many medical financing products carry interest rates significantly higher than more conventional payment options. Finally, the CFPB emphasized what it perceives to be substantial gaps in consumer understanding of certain medical financing products and potential vulnerabilities, particularly in high-stress medical settings where the need for treatment may cloud a consumer’s judgment.
Next, in July 2023, the CFPB—together with the Department of Health and Human Services, and the U.S. Treasury Department— announced a joint inquiry into certain financial products they deemed “high-cost specialty products,” including medical credit cards and installment loans. The inquiry requests information about the specialty medical payment product market, patient experiences and downstream consequences, billing and financial assistance issues, and health care provider incentives. The result of the inquiry is designed to “provide a consumer voice in the agencies’ next steps around these products.” The CFPB contemplates those next steps to be actions regarding the credit origination, debt collection, and credit reporting practices of the financial companies that originate and serve these products.
Finally, on September 21, 2023, the CFPB initiated a rulemaking process with two key objectives related to medical debt: (1) removing medical bills from credit reports; and (2) prohibiting creditors from relying on medical debts in their underwriting decisions. The CFPB convened a Small Business Regulatory Enforcement Fairness Act (“SBREFA”) panel to gather input from small business representatives on the expected compliance requirements and costs of the CFPB’s proposed rules, which it is required to do under federal law. These efforts aimed to tackle the challenges of medical debt reporting, proposing significant changes to Regulation V, which implements the Fair Credit Reporting Act (“FCRA”). The proposals included revisions to prevent creditors from using medical debt collection information for credit eligibility determinations and barring consumer reporting agencies from including medical debt collection tradelines on consumer reports used for credit eligibility purposes. Additionally, the CFPB considered mandating delays in the reporting of medical debt and requiring independent verification of disputed medical debts. This step marked a critical phase in addressing concerns over the reliability and fairness of medical debt reporting and its impact on consumer creditworthiness.
The SBREFA panel issued a report summarizing its feedback and recommendations on the CFPB’s proposed changes to Regulation V in December 2023. Specifically, the report addresses the CFPB’s efforts to better regulate medical debt reporting and usage in creditworthiness assessments, highlighting significant concerns like prohibiting the use of medical debt information by creditors and excluding such debts from consumer reports. It suggests alternatives to address these concerns, such as delaying medical debt reporting and mandating independent dispute verification, aiming to balance consumer protection with minimal burden on small businesses.
The CFPB’s regulatory efforts have also been met with significant pushback from the healthcare industry. In a letter dated October 30, 2023, the American Hospital Association (“AHA”) expressed concerns regarding the CFPB's proposals on medical debt reporting. The AHA highlighted the root causes of medical debt, including the inadequacy of health insurance coverage and the rise of high-deductible plans that shift more costs onto patients, leading to increased financial vulnerability. They advocated for comprehensive health care coverage as the most effective protection against medical debt and cautioned against regulatory actions that might remove incentives for individuals to secure insurance, potentially impacting hospitals’ ability to provide care.
Based on the actions taken by the CFPB and other relevant regulators, there will likely be additional changes to the way that medical financing products are marketed, the terms of these agreements, and the disclosures required before consummating a transaction. Medical financers should be ready to adapt its practices to conform to any future regulatory requirements.
