YONKERS, N.Y., June 9 /PRNewswire-USNewswire/ -- Some of the biggest names in the consumer credit business, including GE Money, Citigroup, and Chase, are pushing risky credit for financing medical procedures, according to the latest issue of Consumer Reports, which describes the new lending practices as akin to subprime mortgages. Plastic is playing an increasing role in covering medical costs: at about $45 billion today, it could more than triple to $150 billion in 2015.
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"OVERDOSE OF DEBT"
CR's July report, "Overdose of Debt," explains how credit cards and finance lines that are "interest free" can easily reach exorbitant rates - up to 27.99 percent retroactively - and they're being pitched to consumers with high pressure sales pitches, often catching them off guard in their doctors' offices or at the hospital. The rise in doctors promoting cards and loans with unconscionable finance terms, says Consumer Reports, is cause for concern, blurring traditional lines of responsibility.
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With consumers already sagging under record debt loads and soaring out-of-pocket medical costs, consumers likely will come under more pressure to pay for these expenses with credit cards or loans. What they may not understand, according to CR, is that many of these financing schemes carry dangerous pitfalls. CR's investigative report, available online at www.ConsumerReports.org, provides several tips for consumers.
BIG MARKET FOR CARD COMPANIES
Lenders tout their offers as a way for patients to cover medical needs or elective procedures and they push risky credit for everything from cancer care to root canals to botox treatment. Meanwhile, the cards and financing are promoted to doctors, dentists, and veterinarians as a way to make more money and get paid promptly. In addition, CR reports, hospitals are checking credit scores of patients and some are even offering their own cobranded credit cards.
But for consumers, these financing plans can turn out to be the medical equivalent of subprime mortgages, according to medical and credit experts CR spoke to. They may appear attractive: Medical credit lines of up to $40,000 are being offered with no interest if the balance is paid off within the promotion time. If consumers fail to pay off some loans within the promotion time or miss a payment, they can be hit with retroactive interest rates of up to 27.99 percent.
DOCTORS OR PARTNERS?
"Consumers have to be wary," said CR senior editor Andrea Rock. "Often they're in a vulnerable position when they receive these sales pitches - in a doctor's office or a hospital - and they don't understand what they're signing up for. Furthermore, some consumers have said that they felt pressured by their medical providers while sedated or recovering from treatment."
By persuading patients to use these financing plans, doctors, dentists and hospitals benefit because they get paid right away. In fact, doctors and dentists have financial incentives under these arrangements to encourage patients to sign up for more expensive treatments and to steer them to extending financing plans that take a smaller cut of the practitioner's fee.
For example, if a patient were to finance $1,000 worth of dental work through GE Money CareCredit, the dentist would be paid by GE Money, minus 13.5 percent of the total as a "processing fee." Usually such fees for merchants are 2 percent or less. But if the patient opted for a two-to-five-year plan, CareCredit would take only 5 percent of the dentist's fee, and the patient would pay an initial annual interest rate of 11.9 percent that could rise to 23.9 percent if he or she failed to pay the balance on time.
When hospitals persuade pat
