On October 27, 2012, the Department of Finance published proposed Prepaid Payment Products Regulations (Regulations) that will apply to prepaid payment products (PPPs) that are issued by a federally-regulated financial institution. PPPs are defined as physical or electronic payment cards that are – or can be – loaded with funds to make withdrawals or purchase goods or services.
The Regulations outline various disclosure requirements that financial institutions must comply with in the course of issuing PPPs and also set out prohibited practices applicable to PPPs. What follows is an analysis of the requirements in the draft Regulations, which may change before they are brought into force.
Under the PPP regime envisioned by the Regulations, the financial institution issuing the card must make prescribed disclosure when a consumer first applies for a PPP before it is issued. As a general consideration, in order to facilitate consumers’ understanding of PPPs, the Regulations require all of the following disclosure requirements must be made using language, and presented in a manner, that is clear, simple and not misleading.
Prior to Issuance
Before a PPP is issued, the following information must be provided in writing to a person applying for a PPP in any document prepared for the issuance of the product, including on the PPP’s exterior packaging (if any):
- The name of the issuing financial institution
- A toll-free number that can be used to find out about the PPPs terms and conditions
- Any restrictions on the use of the PPP
- All applicable fees, which must be prominently displayed in an information box
- That the PPP will not expire, with the exception of promotional PPPs which are permitted to have a stated expiry date (NB: pursuant to the Regulations, a promotional PPP is purchased by an entity and distributed by that same entity as part of a promotional, loyalty or award program)
As indicated above, a PPP obtained following an application would likely have to satisfy these disclosure requirements in both the documents provided to the potential consumer in response to the application and on the PPP’s exterior packaging, if any, whereas a PPP purchased at retail that has not had any documents prepared for the issuance of the PPP, aside from exterior packaging, would likely only have to ensure these disclosure requirements have been met on the exterior packaging of the PPP, if any.
Upon issuance of a PPP, the following information must be disclosed to the consumer:
- All of the information outlined above
- Any charges that accompany the acceptance or use of the PPP
- The terms and conditions applicable to the PPP
- A description of how to verify the PPP’s balance
- A description of, and the permitted, split payments (NB: the Regulations do not define the term “split payments,” but it arguably refers to a payment for goods or services made partially using the PPP and another method of payment)
On the Product
The following information must be provided directly on the PPP or, if the product is electronic, electronically on the product holder’s request:
- The name of the issuing financial Institution
- The date the PPP expires, if any
- For a promotional PPP, the date on which the right to use the loaded funds expire, if any
- A toll-free number that can be used to make inquiries about the PPP, including the balance and complaints
- A website address where all of the foregoing information can be obtained (including the information outlined under the headings “Upon Issuance” and “On the Product” provided above)
In addition to disclosure requirements, the Regulations also specify certain prohibited practices in relation to PPPs.
Restrictions on Maintenance Fees
After activation, a financial institution is prohibited from imposing a fee in relation to a PPP, other than a fee associated with the holder’s use of the PPP or of any service related to it, for a period of 12 months after activation, unless it is a promotional PPP.
No Expiry of Funds
It is prohibited to impose an expiry date on a PPP holder’s right to use loaded funds, unless it is a promotional PPP. Consequently, it appears that a physical PPP may expire, arguably requiring the holder to obtain a new card that can be loaded with the balance of funds loaded on the expired PPP, whereas the right to use funds loaded on a PPP cannot expire, unless it is a promotional PPP.
No New or Increased Fees without Notice
A financial institution cannot increase an existing fee or impose a new fee, unless, among other things, the financial institution provides the PPP holder with at least 30 days’ notice and a notice is displayed on the financial institution’s website at least 60 days before the effective date of the new or increased fee.
No Overdraft or Interest Charges without Consent
It is prohibited to charge an overdraft fee or interest in respect of a PPP, unless the product holder has provided his/her express consent to such fee or interest. “Express consent” is not defined in the Regulations, as such it is unclear in what manner an organization may satisfy this requirement.
It is interesting to note that maintenance fees are the only type of prohibited fees pursuant to the Regulations (for 12 months), if proper notice is provided for any new or increased fee. Consequently, it appears that, aside from these prohibited fees, financial institutions can apply a broad range of fees to PPPs, including fees disclosed prior to activation, and new fees imposed post-activation associated with the holder’s use of the PPP or any service related to it, as long as such fees otherwise comply with the Regulations, including any disclosure and notice requirements. This is a notable departure from the provincial treatment of “gift cards” where the imposition of fees would not be permitted.