In the first week of December 2013, the Canadian federal government announced the final publication of the Prepaid Payments Products Regulations (the “Regulations”) concurrent with its launch of consultations on the development of a new financial consumer code (the “Consumer Code”). These announcements follow from the federal government’s promise to take action and develop measures to enhance the consumer protection framework with respect to payment network-branded cards, which it made in the Budget 2011 and its commitment in the Economic Action Plan 2013 to develop a comprehensive financial consumer code to better protect consumers of financial products and ensure they have the necessary tools to make responsible financial decisions.
In our client update entitled Sober Second Thoughts on the Proposed Canadian Prepaid Card Regulations, we reviewed the proposed Prepaid Payment Products Regulations that were published for comment in October 2012. Many of the comments that were received from stakeholders during the comment period were taken into consideration in the development of the final Regulations. However, the changes and clarifications made in the final Regulations are mainly technical in nature and do not address a number of the issues that we identified in our prior client update.
Specifically, as drafted, the Regulations seem to also apply to secured credit cards and the Regulations do not carve-out products issued for business purposes and impose specific requirements for products issued to non-natural persons (which will be of interest to commercial card issuers). Accordingly, in these situations, it is important to take note of the disclosure obligations and prohibitions that are required by the Regulations.
In addition, the Regulations only apply to federally regulated financial institutions and not to other market players operating in this space, the Regulations do not address any requirement for a new legislative framework that is better able to regulate payments practices instead of focusing on participants and the Regulations do not address overlapping provincial legislation and regulation that could apply to federally regulated financial institutions. In our view, these are matters that need to be taken seriously. It may be that the Consumer Code, discussed below, will tackle these issues. For a comparable review of regulatory developments in the payments sphere, please also see our previous client updates entitled A Further Handicap or Levelling the Playing Field and Focus on Canada’s Payments System Heats Up.
To summarize the final Regulations, they require that federally regulated financial institutions (namely, banks, authorized foreign banks, retail associations, “companies” and “foreign companies” under the Insurance Companies Act and “companies” under the Trust and Loan Companies Act):
- Disclose fees in an information box that appears prominently on the exterior packaging and other documentation provided prior to issuance;
- Provide certain information before a prepaid payment product is issued, including a toll- free number to access terms and conditions, any restrictions on the use of the product and a statement if the funds loaded on the product are not insured by the Canada Deposit Insurance Corporation;
- Provide certain disclosure additional disclosure at the time of issuing the prepaid product, including any charges for which a natural person or non-natural person to whom a prepaid payment product is issued becomes responsible by accepting or using the product, the terms and conditions and a description of how to verify the balance of funds loaded on the product;
- Disclose information directly on the prepaid payment product (or if the product is electronic, disclose it electronically on the product holders’ request), including the name of the issuing institution, a toll-free telephone number to make inquiries and a website address where information can be obtained; and
- Ensure that any disclosure referred to in the Regulations is made in language, and presented in a manner, that is clear, simple and not misleading
In addition, the Regulations prohibit certain business practices unique to prepaid payment products that could be detrimental to holders, including increasing or imposing a new fee, expiry of funds that are loaded on a prepaid payment product, charging maintenance fees, overdraft fees or interest (subject to certain exceptions in some cases, i.e. if the payment product is a promotional or reloadable product or with the express consent of the product holder).
The Regulations will come into force on May 1, 2014.
Public Consultation on the Consumer Code
Demonstrating a further focus on consumer protection, over the next 12 weeks, the Government of Canada is conducting consultations on the development of the Consumer Code, seeking to establish “high-level principles for a financial consumer protection framework leading to a Code that will streamline the existing and dispersed mix of legislation and regulations, and take into account the needs of vulnerable Canadians”. Feedback that is received will form the foundation for roundtable discussions across the country in 2014.
The consultation questions focus on the following three areas:
- Establishing a Comprehensive Set of Principles for Consumer Protection – developing and administering standards or principles to achieve a framework that is more adaptable to changes in the marketplace, products and technology.
- Possible Enhancements to the Existing Regime – addressing the needs of seniors and vulnerable Canadians; responsibility of financial institutions to consumers; supervisory powers for accountability and enforcement; digital innovation and emerging technologies and financial products; disclosure about financial products and services; access to financial services for all Canadians; and comprehensively protecting consumers.
- Continuing the Conversation – enhancing engagement from all stakeholders, including individual Canadians, financial institutions and consumer groups.
Comments can be submitted to the Department of Finance up to February 28, 2014.