The Problems With CareCredit and LendingClub

CareCredit and LendingClub are two seemingly perfect answers to the difficult problem of patient financing. Or at least it seems that way until you dig a bit deeper...

May 27, 2021
The Problems With CareCredit and LendingClub

A patient arrives in your office and needs treatment they can’t afford. No worries, you think, because your clinic partners with CareCredit and LendingClub, two companies helping physicians get paid for treatments that patients need but can’t afford to pay all at once. It’s seemingly the perfect answer to a difficult problem. Or at least it seems that way–that is until you dig a bit deeper into exactly how those two companies work.

CareCredit

Let’s start with CareCredit. Many folks don’t realize that CareCredit is not a novel solution perfectly tailored to the sensitive and challenging issue of people needing life-altering healthcare treatment. It’s actually just a credit card… CareCredit, or more accurately, the CareCredit credit card, is a master of branding because, for some reason, we see CareCredit as a unique healthcare solution, not the well-branded credit card it truly is.

CareCredit’s true identity as a limited use credit card reveals an ugly truth: Like most credit cards, CareCredit’s business is built on predatory practices. From a strictly business standpoint, it’s genius. They’ve positioned themselves in a sparsely populated area of the credit card market and have offered what appear to be excellent rates on their products. The company sweet talks needy patients with promises of 0% APR financing for their first 24 months, but then if a patient misses a monthly payment or fails to pay off the full debt within the fixed promotional period, CareCredit goes for the jugular. You see, the terms of the credit card dictate that once one of those conditions is triggered, a 26.99% APR kicks in. Suddenly, after one misstep, patients are finally allowed to see CareCredit for what it really is: high-interest debt. And that’s when it gets worse. CareCredit isn’t about to settle for the interest on the loan’s balance; it also charges patients for the interest they would have accumulated if the promotional pricing never applied to the debt. In an instant, the debt can transform from a manageable, no-interest, healthcare payment plan to sky-rocketing, high-interest credit card debt.

LendingClub

LendingClub isn’t much better. The company that made its name as a peer-to-peer lending platform has made a foray into the world of patient financing via its “Patient Solutions” product. Unlike CareCredit, LendingClub is essentially providing patients with a personal loan. The problem is, patients are led to believe that they will be getting a loan from LendingClub, when in reality, LendingClub doles the loans out to its “partner banks.” This means that patients go through LendingClub to obtain a loan, but then if they have a problem, LendingClub will just say, “Sorry, your loan is actually with our partner bank. You’ll have to contact them with your problem.” It’s a terrible customer experience and a highly deceptive business practice.

LendingClub also has minimum loan amounts, meaning patients can’t qualify for the service without needing at least $499 worth of treatment. While their ability to offer loans as high as $50,000 might be helpful to some patients, LendingClub’s minimum loan amount weeds out many of the patients who need their services the most. Consider it from this perspective: If patients are struggling to pay even a relatively small out-of-pocket payment of $200, aren’t they the exact person who would benefit from being able to pay for their treatment in installment payments? It seems that LendingClub isn’t actually aiming to serve your patients, but instead to profit from their misfortune.

Finally, LendingClub also asks too much of doctors. Because LendingClub’s partner banks are financing a specific loan, instead of providing credit as CareCredit does, LendingClub needs to transfer the correct payment amount to doctors, but this is different from swiping a credit card. It requires the doctor’s office to update LendingClub on any billing changes, instead of just swiping the credit card for the correct amount at the correct time. According to LendingClub’s website, “If a patient’s final treatment fee is less than the funded amount, please call LendingClub Patient Solutions. We will help calculate the pro-rated practice fee for the amount of the refund.” It’s simply not a doctor-friendly process.

Three Critical Problems

Beyond CareCredit and LendingClub’s individual issues, these two “solutions” both share three critical problems: (1) they can damage patients’ credit, (2) they require a credit check, and (3) they turn doctors into financial product salespeople.

Damaging Patients' Credit

The ability to damage patients’ credit is often overlooked when discussing the usefulness of CareCredit and LendingClub, as the entire concept of a credit score is mysterious to many. Generally, medical bills do not impact patients’ credit scores as long as they are paid. Even when these bills become delinquent, healthcare providers typically do not report the delinquency to credit bureaus. However, they often sell the accounts to collection agencies that will report the debt to credit bureaus after a 180-day waiting period. This means that unpaid medical bills typically never impact credit scores for at least six months after they become due, giving patients far more leeway to satisfy the debt.

But CareCredit and LendingClub remove this leeway, immediately factoring the patients’ medical bills into their credit report in the form of a new personal loan or credit card. Both products require a credit check, triggering a hard inquiry, which appears on their credit reports. Then, if the patients are accepted, the newly utilized credit is also factored into their score. Finally, the wiggle room for late payments, present with medical bills generally, is destroyed once the bill converts into either credit card debt or a personal loan. Thus, any late payment to CareCredit or LendingClub will hurt patients' credit scores, unlike a late payment made to a healthcare provider. It’s a horribly misleading system that removes all of the forgiving flexibility of medical bills.

Requiring a Credit Check

Even ignoring the negative consequences that CareCredit and LendingClub can have on patients’ credit, it is easy to see that CareCredit and LendingClub’s credit check requirement has one negative consequence for doctors: it limits treatment.

Requiring a credit check means that some patients will not qualify for either CareCredit or LendingClub. It doesn’t take a brain surgeon to understand that fewer patients obtaining treatment will result in less income for doctors. Furthermore, it leads to less healthy patients, something that doctors spend their entire careers working to prevent. CareCredit and LendingClub, at their core, are not providing a solution to the problem that began this whole conversation, that patients often can’t afford to pay for treatment in one lump sum.

Turning Doctors into Salespeople

CareCredit and LendingClub, in reality, are wolves in sheep’s clothing, disguising predatory lending in a “healthcare payment plan” box. These predatory lending practices put physicians in the uncomfortable position of offering financial “solutions” to patients that they know can be harmful. Physicians conscious of their Hippocratic duties may rightfully be uneasy with this arrangement. Doctors are in the business of healing, not credit sales, and shouldn’t be asked to pitch their patients on these exploitative products.

A Better Way

Ultimately, doctors would be wise not to rely on CareCredit and LendingClub to solve their neediest patients’ payment problems. Instead, doctors should explore alternative payment options, including in-house payment plans.

Peachy helps physicians offer in-house payment plans without requiring the utilization of loans, credit cards, credit checks, or minimums. Rather, with Peachy, doctors can offer easy, broken-down payments. Peachy isn’t a collection agency, and it doesn’t charge interest–it simply enables payments directly between patients and doctors. And the cherry on top is that Peachy can also help incentivize patient compliance by offering patients the chance to build their credit with every payment. It’s a solution advantageous to doctors and patients alike.

Payment plans are a compelling alternative to CareCredit and Lending Club. They allow physicians to consider each patient’s personal situation while still providing doctors a means to get paid, without inflicting patients with the negative externalities that accompany "solutions" like CareCredit and LendingClub. To learn more, schedule a demo today!

Appendix
Published on: 
May 27, 2021

Note: This is not to be taken as tax, legal, benefits, health or financial advice. Since rules and regulations change over time and can vary by location, consult a lawyer or financial expert for specific guidance.

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