After much anticipation, the Canadian federal government finally announced on April 13, 2015 amendments to the Code of Conduct for the Credit and Debit Card Industry in Canada (the “Code”) which, among other changes, will extend the Code to contactless payments and give merchants more rights relating to mobile payments. As previously reported by us, some of these amendments were originally proposed in October 2012 (see here). However, the newly announced amendments extend further than originally anticipated.
Under the amended Code, merchants will be able to reject contactless payments for a payment card network while continuing to accept other types of payment from that network, without penalty. Merchants will also have the right to cancel contracts with acquirers if they do not pass through the full savings from reductions to interchange rates that apply to that merchant. While outside of the original proposed amendments, this latter change is explicitly meant to ensure that the interchange reduction arrangement brokered by the Department of Finance in the fall of 2014 with Visa and MasterCard, which comes into effect this month, will be fully passed on to merchants (see here).
The amendments give further protection to merchants at a time when fees for the growing use of mobile payments are expected to rise. Although the Code does not prohibit payment networks from charging higher fees, it does provide retailers more choice over which types of payments they will accept.
Selected highlights of the amendments include:
- A general requirement for disclosures to merchants provided under the Code to be clear, simple and not misleading. In addition, agreements between merchants and acquirers must include an information box that summarizes key elements of the contract, such as the fees, cancellation rights and any penalties that may apply. This is importing a similar requirement to the information box that federally regulated credit card issuers must also include in their documentation.
- Merchants must receive 90 days’ notice of any reduction in applicable interchange rates. If the savings from the reduced rates are not fully passed through to the merchant, the merchant has the right to terminate its contract on 90 days’ notice, without penalty (including penalties from related service providers, such as terminal lessors or third party processors, that are brokered by the acquirer).
- The existing Code provides that merchants who accept credit card payments from a network are not obligated to accept debit card payments from the same network, and vice versa. The amendments to the Code would extend that same principle to the payment credentials used by mobile wallets or mobile devices. A merchant that accepts a credit payment credential from a network is not required to accept debit payment credentials from that same network, and vice versa.
- Credit and debit payment apps can be stored on the same mobile wallet but must be kept separate. Consumers must have the ability to choose whether they want to use a specific debit or credit payment method on their mobile wallet or device. Credit and debit payment credentials will only be issued to mobile devices that allow consumers complete and unrestricted access to the default settings so that they can quickly change their preferences in a clear and transparent process that is easily accessible.
- With respect to premium credit and debit cards that have different acceptance costs from non-premium cards, issuers must include a prominently featured statement on applications disclosing that these kinds of cards can impose higher costs on merchants.
- Merchants cannot be obligated to accept contactless payments, or to upgrade their point-of-sale terminals to accept contactless payments. A merchant has the right to cancel contactless payments while maintaining all other kinds of payments with a payment network, without penalty. In addition, if fees for contactless payments made with mobile devices increase relative to contactless payments made with a card, networks must ensure that a merchant can cease accepting contactless payments from a mobile device without disabling other forms of contactless payment. This may require technical changes to the point-of-sale equipment.
- The amendments to the Code outline a dispute resolution process for merchants that bring complaints relating to the Code. The substantive elements of the process apply to acquirers and payment card networks. Acquirers must report information about the complaints they receive to the networks, and the networks are obligated to share the information with the Financial Consumer Agency of Canada.
Industry participants will have 30 days to review and adopt these amendments. Once adopted, the amendments will apply within 9 months, except that certain amendments come into force immediately upon adoption and the information disclosure box required by Element 1 will have an additional 9-month grace period (for a total of 18 months from date of adoption).
This announcement delivers on the federal government’s promise to take action and develop measures to enhance the existing Code with respect to mobile payments and further protecting the interests of small business and consumers.