Are Doctors Moonlighting as Creditors?

financing healthcareWe comparison-shop for doctors, reading reviews and vetting reputations even when constrained to a list provided by an insurance company.  We also shop around for our loans and credit cards, comparing offers to find the least expensive terms possible.  But what happens when these two worlds collide, when healthcare professionals basically recommend financial products?

First of all, let me say this isn’t just some hypothetical scenario.  It’s actually an important consideration because while you might think the same type of responsible comparison shopping goes on at the intersection of healthcare and personal finance, research shows that’s decidedly not the case.  And the ramifications are quite worrisome for patient-consumers.

You see, doctors are typically viewed as trusted sources of information, who are concerned first and foremost with our physical well-being.  When they endorse financial products and/or companies, either implicitly or directly, patients tend to trust their judgment and often opt for unfavorable terms as a result.

“When you go buy a car and the finance guy comes and talks to you, you know you’re about to get ripped off, so you know you have to have your guard up,” says Jim Hawkins, a professor at the University of Houston Law Center.  “But when you are getting medical advice, I don’t think people are thinking, ‘OK, I need to look out for myself and not trust that everything they’re saying is the best financial decision for me.’”

Hawkins has done considerable research on this dynamic, which is most common when it comes to elective procedures not covered by insurance, such as plastic surgery, certain dental specialties, and fertility treatments.   His paper, “Doctors as Bankers: Evidence from Fertility Markets,” examined the way in which financing information is displayed on fertility clinics’ websites.  He found that many fertility clinics offer credit counseling services, while others promote certain lenders’ products and some even showcase a single lender as if it’s the only option available to patients.

“I was surprised to learn that doctors … team up with one lender a lot of times in order to offer credit to their patients,” Hawkins told Card Hub.  “The doctors [and] staff present information to the patient, they sign up for the credit card right in the doctor’s office, and that’s the end of the deal.  It’s with a third party, so the doctor doesn’t have to do the collection, but the doctors like it because otherwise people can’t afford fertility care or the dental care.  The lenders like it because often the doctors will pay the lender. … It’s not a kickback where the lender is giving money to the doctor; it’s the opposite – the doctor actually pays the credit card company to team up with them.”

It’s not like every doctor out there is party to this phenomenon, but it raises important questions about the rights of patients and consumers alike.  So much has been done in recent years to ensure honest medical care, promote understanding of financial products, and restrict lenders from engaging in predatory practices.  Yet this kind of corporate cronyism is allowed to persist unregulated?

“Federal law in general is intended to make it easier for consumers to compare prices at different lenders” says Jeff Sovern, a professor at the St. John’s University School of Law specializing in consumer rights.  “The whole idea is that that will standardize the way prices for loans are quoted and the way the terms are presented so that consumers can say, ‘well, this deal is the best deal and this deal is not the best deal.’  When you have a situation where somebody is channeling consumers to a particular place, that undermines that goal of permitting comparison shopping.”

In other words, a system whereby medical professionals can overstep their expertise and serve as financial conduits for their patients, using the trust inherent to their profession as a sort of social capital, is a flawed one that takes advantage of consumers when they’re at their most vulnerable.  Still, it’s important to note that Sovern believes doctor-provided financing could be a service to consumers IF it represents the only way they can get the money they need to obtain medical care.

“If the lender would not otherwise provide that service, or if the consumer couldn’t otherwise find some lender to provide the loan, it sounds like the doctor is helping the consumer in that context,” he told Card Hub.

That may be the case in certain situations, but we need to ensure that consumers aren’t led to believe that it’s always one product or nothing.  You know what? This sounds like a job for the Consumer Financial Protection Bureau (CFPB).

“Obviously, there’s a lot of chance for people to misunderstand what’s going on, to think that this lender is the only lender they can get a loan from, or that the doctor and the lender are the same or affiliated,” Hawkins said.  “There’s not a ton of regulation because the Truth in Lending Act doesn’t have specific provisions applying to people who are acting as loan brokers.  So, the doctors don’t have to say, ‘I’ve teamed up with this lender because even though they offer higher interest rates to patients, they charge me less,’ or ‘I want to put you in this one loan product because if I put you in another one, it costs me more.’  None of those things are disclosed.”

So, as the CFPB moves on from cleaning up the credit card market to tackling issues related to prepaid cards and checking accounts, perhaps doctor-endorsed financing will be on the docket as well.  I guess we’ll just have to wait and see.  In the meantime, here are some tips for finding the best possible financing offer, regardless of what exactly it’s for:

  • Tend to your credit standing:  Lenders use our credit standing to evaluate a) whether to lend to us and b) what terms we qualify for.  That means excellent credit pays off and people who don’t have it should work to correct that.  Credit building necessitates infusing positive information into your files with the major credit bureaus.  Credit cards are well-suited to this because they report usage information on a monthly basis, and as long as you make on-time payments, the information will be positive.  However, it’s also important to note that your credit standing takes a temporary dip whenever you apply for a credit card, so it’s important that you refrain from doing so if you need financing in the very near future.
  • Do your homework:  If this article teaches you anything, it should be the importance of comparison shopping for financial products.  With that in mind, make sure to price out options from an array of different lenders, including banks, credit unions, and the financing arms of organizations like car dealerships.
  • Think outside the box:   A traditional loan might seem like the obvious choice when it comes to financing certain expenses, such as an elective operation or an auto purchase.  However, other financial products like credit cards can often meet your needs even better.  For example, you can now get 0% on new purchases for up to 18 months with a credit card or a free balance transfer deal, which means you might be able to save on finance charges using a credit card whether or not the biller accepts plastic.
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