On April 16, 2010, having addressed credit card disclosure and credit card practices involving consumers in 2009, the federal Department of Finance released its Code of Conduct for the Credit and Debit Card Industry in Canada. The Code of Conduct is directed primarily at arrangements that exist among merchants, "payment card networks" (VISA® and MasterCard® being the dominant networks) and "acquirors" (e.g., Moneris), also known as "payment processors." A set of ten policy statements, the Code of Conduct addresses merchants’ concerns, i.e., it strengthens their position and regulates payment card functions by:
- requiring fuller disclosure of fees and rates in statements that acquirors provide to merchants;
- requiring 90 days’ advance notice of fee increases (unless made in accordance with a pre-determined schedule) and new fees, and allowing merchants to cancel contracts with acquirors for unscheduled fee increases or if new fees are charged;
- requiring that payment card network rules not oblige merchants to accept debit card payments from the same payment card network and to permit merchants to provide different discounts for different methods of payment (e.g., cash, debit card, credit card) and for different payment card networks;
- prohibiting "negative option" acceptance of new products or services from payment card networks;
- prohibiting competing debit applications from competing networks on the same debit card; and
- prohibiting debit and credit card functions on the same payment card.
As well, because "premium" credit and debit cards carry a higher interchange fee, the Code of Conduct provides that such cards may only be given to consumers who apply for or consent to them, and only then if such consumers are part of a "well-defined" class.
It also places most of the responsibility for compliance on the payment card networks that are required to supervise the conduct of acquirors (they charge the "interchange fee" to merchants) and card issuers.
While the Code of Conduct is "voluntary," the accompanying press release makes it clear that the credit and debit card industry must adopt it by May 17, 2010 or face a legally enforceable code established under the Payment Card Networks Act. That Act provides the authority to make regulations covering the matters contained in the Code of Conduct. It also provides legal authority for the oversight and compliance powers given to the Financial Consumer Agency of Canada (FCAC) in the Code of Conduct, under which the FCAC will be assuming a much larger role beyond its current mandate, i.e., to supervise compliance with the "consumer provisions" in the Bank Act and other legislation regulating federal financial institutions.
It will be interesting to see whether these measures — primarily intended to redress imbalances in the credit and debit card payment process — will in fact lead to lower fees and therefore better sales margins for merchants, and, ultimately, lower prices to consumers. If it also has the effect of increasing the use of electronic payments, then all participants should benefit.