Many retailers and shopping centre landlords use gift cards to build brand loyalty. These prepaid purchase cards come in a variety of types. They can be reloadable or not. They may be “open-loop” stored-value cards that can be used at any location that accepts network cards (such as Visa or MasterCard). Or, these cards can be “closed-loop” in which case they can only be used at a network of stores of the same brand or at a single location.
Provincial consumer protection regulations across Canada contain specific requirements for suppliers of prepaid cards. Generally, these cards do not expire and fees are strictly limited to replacing or customizing gift cards. Although fees for open-loop cards are possible, these fees are subject to prescribed maximums. In addition to federal regulations, there are federal Prepaid Payment Products Regulations that apply to products issued by federally-regulated financial institutions.
This year is proving to be an important year for prepaid card litigation. Two important decisions have already been rendered in Ontario and British Columbia. In Ontario, the Court of Appeal concluded that it was possible to structure a prepaid services card to expire, notwithstanding prohibitions on expiry in the Consumer Protection Act, 2000 (Ontario) (CPA). On the west coast, the British Columbia Supreme Court concluded that open-loop stored-value cards issued by certain credit unions and others were regulated under the Business Practices and Consumer Protection Act (British Columbia) (BPCPA). However, the court declined to certify a class action regarding alleged non-compliance with the BPCPA for other reasons.
Prepaid services can expire
In Ontario, a “gift card” is any voucher that is issued under a gift card agreement that can be applied towards the purchase of goods or services. A “gift card agreement” is any agreement in which the purchaser pays in full at the time of entering into the agreement for goods or services that will be supplied in the future. Unless the gift card is issued for a specific good or service, or is issued for a charitable purpose, the gift card cannot have an expiry date.
Like many telecommunications carriers, Bell Mobility sells prepaid cards for mobile phone services. Subscribers are able to top-up their accounts when the balance of credits for unused minutes/texts or other services fall below a set threshold or the plan is about to expire. Under the plans, the subscriber would activate the purchased credits for the plan period. While there is no expiry date on the prepaid card used to activate the plan, once activated, the services would only be available for the plan period. The subscriber forfeits any unused minutes unless the subscriber extends the plan by purchasing more credits.
In Sankar v. Bell Mobility Inc., 2016 ONCA 242, the proposed class action plaintiff sought to certify a class action proceeding to challenge the expiry of the plan credits, among other things. The court rejected the plaintiff’s argument that the expiry and forfeiture of credits violated the CPA. The court concluded that the regulations prohibit an expiry date on the prepaid card itself. It was perfectly acceptable under the regulations to impose an expiry date on the goods or services purchased with the prepaid card. The court characterized the purpose of the gift card regulations as prohibiting the expiry of a future performance agreement before the seller has delivered the goods or performed the services promised under the agreement. The services themselves could be time limited. The court gave the example of the use of a gym for 30 days after the activation of a membership. The court concluded that what Bell Mobility had agreed to provide under the agreement was access to the purchased wireless services within a defined period. The card didn’t expire; access to the services did. Bell Mobility had fulfilled its obligations once it made the services available for the defined period.
Open-loop stored-value cards caught by BC Regulations
On March 3, 2016, the British Columbia Supreme Court rendered a decision in Jiang v. Peoples Trust Co., 2016 BCSC 368, which brought good news and bad news for BC credit unions and other financial institutions offering open-loop stored-value purchase cards. The plaintiff was alleging violations of the BPCPA by numerous financial institutions in respect of their stored-value cards. Among the complaints were that the stored-value cards had expiry dates, and the defendants charged fees in excess of limits under the regulations and failed to provide the required information about the cards.
The BPCPA defines “prepaid purchase card” as “a card, written certificate, or other voucher or device with a monetary value that is issued or sold to a person in exchange for the future supply of goods or services to a consumer […].” The regulations made under the BPCPA prohibit an expiry date and state that a prepaid purchase card with an expiry date is “redeemable” as if it did not have an expiry date.
The proposed class representative had purchased a non-reloadable card from a retailer. The card was an open-loop card issued by a financial institution and accepted on the Visa network. The defendants argued that the sale of a stored-value card was not “in exchange” for any future goods or services. It was simply stored value that could be used on the Visa network. Further, the defendants argued that the reference to the word “redeemable” seemed to suggest that the anti-expiry regulations were meant to apply to gift cards for goods and services from a merchant rather than a stored-value card that could be used anywhere the stored-value card was accepted. Indeed, neither the Minister of Public Safety, and Business Practices and Consumer Protection, nor the British Columbia Consumer Protection Authority took the view in their explanation of the law that these types of stored-value cards were subject to the regulations. Moreover, this was consistent with answers given in the Legislature by the government about the regulations.
The motions judge did not accept this argument and held that the plaintiff had a reasonable cause of action. However, ultimately the court held that a class action was not a preferable procedure for handling the dispute because there was no way of determining whether someone acquired one of the defendants’ stored-value cards for personal or business purposes. This individual issue would need to be decided in each case. Ultimately, for this reason, the court refused to certify the class action.
While the Ontario Court of Appeal’s decision on expiry dates for fixed-term services in Sankar is good news for retailers and suppliers, Dentons recommends caution in invoking expiry dates for goods and services made available under a prepaid purchase card. Sankar may be distinguishable. The credits in that case represented maximum usage of a service during a defined period. Retailers and suppliers are well-advised to check with legal counsel before implementing this type of arrangement.
While the defendants in the Jiang case may have avoided the defendants facing a class action, the court’s willingness to sweep in all stored-value cards into the regulations irrespective of whether they are simply general purpose is a strong signal for financial institutions to look carefully at their compliance with gift card regulations across the country.