California legislators this year introduced Senate Bill 639, a consumer protection measure originally aimed at eliminating deferred interest loans for medical treatments. If you’re a healthcare provider offering patient financing in industries like fertility, audiology, or dental, this new law can create confusion for your team. What does Senate Bill 639 mean for your practice? And if it becomes law, how will it affect your ability to provide care and get paid on time?
How Senate Bill 639 Could Affect Your Practice
If California’s Senate Bill 639 becomes a law, your practice may need to change how it presents financing options:
- Treatment date: Loans can’t start more than 30 days before the treatment date (except for incremental fees for orthodontic treatment). That is, the loan term can only begin 30 days before a scheduled treatment. If the date is delayed, the loan beginning date must be adjusted.
- Self-Apply: Patients must completely fill out and sign a loan application themselves. While your team can answer questions about the loan application, they will not be able to fill out the application on their behalf.
- Location Choice: Patients can fill out loan applications on their terms at a location of their choice. That is: Patients are not locked into filling out loan applications only at your office. Instead, they must be allowed to take information with them and do their own research. If a patient decides to apply for the loan, they can return the form to your office.
Can my patients still sign loan applications in my office?
Yes! If Senate Bill 639 becomes law, patients can still sign loan applications in your office, but they must fill the application out themselves. Additionally, patients may fill out the loan application outside of your office and return it to your team for processing.
Will “deferred interest” loans still be allowed?
The bill originally sought to end deferred interest loans in the state. In a fact sheet about Senate Bill 639, California Senator Holly Johnson wrote, “While third-party financing may have a place when patients need services that they cannot immediately pay for, more needs to be done to protect consumers. Products with “gotcha” clauses like deferred interest have no place in medical practice. Consumers should not feel pressured into applying for these products and need to better understand what they are signing up for.” But after some debate and discussion, deferred interest loans can still be processed for California patients.
Although they will still be allowed, deferred interest loans may not be the best option for your office. If a patient takes on a deferred interest loan, it is likely they are unaware that interest on the loan accrues and they will be charged the interest if the loan is not paid off within the promotional period. In fact, only 28% of patients understand how these loans work, according to a survey done by CompareCards.com. When a significantly large balloon loan payment comes due, patients may feel blindsided. This frustrating experience can cost patients a great deal of money and could potentially drive them to change providers.
Instead of offering “deferred interest” loans, consider offering a patient-friendly interest promotion loan. These products offer a tangible incentive for patients to pay-off their loan on time.
Deferred interest or interest promotion: Which is better for your patients?
One of the core problems with deferred interest loans is how patients can be hurt by the terms. Unless your patients make extra payments to pay off the loan during the deferred interest period, they will likely be hit with a balloon payment at the end of the promotional period. This payment not only includes the minimum payment but all the interest they accrued during the deferred interest period – putting them in a financially unstable place.
Unlike “deferred interest” loans, “interest promotion” loans – like those offered by Health Credit Services – have no balloon payments. Instead, a portion of each month’s payment is reserved as part of the interest.
If patients repay their principal balance within the promotional period, the interest paid each month is applied to the loan principal. This gives them an incentive to pay off their bill on time while ensuring they do not pay more than their actual loan balance in the end.
And if patients do not pay off their bill on time, that is ok as well. The reserved interest is applied to their loan, allowing patients to pay on their own terms.
Does Senate Bill 639 have national reach?
Although Senate Bill 639 is on track to become a law, it does not affect practices across the country. The law will only affect practices in California. Regardless, it is important to understand its effects, as California often leads the way in new legislation.
What’s next for Senate Bill 639
As of July 11, 2019, Senate Bill 639 remains in committee, with recommendations to sign it into law. If it passes the California State Assembly, it will go to the governor’s desk to become law. If signed, it would go into law on July 1, 2020.
While California is changing how patients pay for care with Senate Bill 639, the new regulations provide an excellent opportunity to present better financing options. Health Credit Services is on your side by offering health care loans designed with your patients in mind.