On April 13, 2015, the Department of Finance announced changes to the Code of Conduct for the Credit and Debit Card Industry in Canada (the “Code”). The Code has been in existence since 2010 and consisted previously of 10 Elements applicable to participants in the debit and credit card industry. The updated Code includes 3 additional Elements which allow merchants to reject contactless payments, require new disclosure requirements for merchant-acquirer agreements and require a dispute resolution process for complaints from merchants. In addition, the updated Code will allow a merchant to cancel their agreement with an acquirer if the reductions in interchange rates announced last November are not passed on in full to merchants, will extend the application of the Code to various aspects of mobile payments and prescribe new branding and disclosure requirements for premium cards, all as discussed in more detail below.
The release of the updated Code was announced concurrently with the release of a consultation paper on the oversight of Canada’s national payment systems, Balancing Oversight and Innovation in the Ways we Pay: A Consultation Paper. This Consultation Paper may in the end have far more far-reaching impact than the changes to the Code itself, as it raises the possibility of regulatory oversight of national retail payment systems, both bank and non-bank.
Participants in credit and debit card networks (which would include debit and credit card issuers and merchant acquirers) have 30 days from April 13 to review and adopt the Code. Once adopted, the changes to the Code will come into effect in stages, as follows:
Changes with immediate effect upon adoption of the Code
- Pass-through of interchange rate reductions (changes to Elements 2 and 3): Payment card networks will be required to provide 90 days' notice of any reduction in applicable interchange rates, and merchants will have 90 days to cancel their merchant-acquirer contract (and the related service contracts) without penalty if the full savings of a rate reduction are not passed on to the merchant. This may prove to be very contentious given that Visa Canada and MasterCard undertook in November 2014 to reduce interchange rates to an “average effective rate” of 1.50%. How this will be applied to individual merchant-acquirer contracts remains to be seen.
- Extension to mobile payments of merchant right to accept only debit or credit card payments from a particular network (changes to Element 4): The extension of Element 4 (which provides that merchants who accept credit card payments from a network are not required to accept debit card payments from such network and vice versa) to mobile payments takes effect upon adoption of the Code. As a result, merchants who accept debit card credentials in a mobile payment context cannot be obligated to accept credit card credentials from the same network, and vice versa.
- Right not to accept contactless payments (new Element 11): Merchants will have the right to cancel contactless payment acceptance with 30 days' notice while keeping other parts of the contract, without penalty. This right of cancellation will also be available in respect of a merchant’s acceptance of mobile contactless payments if fees in respect of mobile contactless payments increase relative to fees applicable to card-based contactless payments.
- Right to provide notice of non-renewal of merchant-acquirer agreement and related agreements (new Element 12): Merchants will be permitted to not renew a merchant-acquirer agreement and any related service agreement with a service provider, by providing notice of non-renewal at any time up to 90 days prior to the expiration date of the agreement.
Changes to be implemented within 60 days of adoption of the Code
- Dispute resolution process (new Element 13): A clear dispute resolution process that adheres to detailed standards prescribed in the Code must be made available to merchants to address complaints related to the Code. Element 13 will also require acquirers to report semi-annually to the payment card networks on complaints that they receive and payment card networks will in turn be required to share this information with the Financial Consumer Agency of Canada.
Changes to be implemented within 9 months of adoption of the Code
- Extension of Code to mobile payments (Elements 6, 7, 8): Competing debit card credentials will need to be represented as separate applets with consumers having full discretion to choose which debit card applet to use at point-of-sale (Element 6), payment card networks will need to ensure equal branding of brands available on mobile devices or in mobile wallets (Element 7) and consumers must be provided with complete control over default settings on their mobile devices and mobile wallets to select debit or credit payment applets (Element 8).
- Premium card disclosure requirements (Element 9): Premium cards that are subject to different acceptance costs than regular cards will need to have clear and prominent branding identifying them as premium products. Payment applets that link to premium card credentials must be similarly branded. Applications for such cards will have to prominently disclose the fact that those higher acceptance costs may be charged to the merchant.
- Renewal period for fixed term merchant-acquirer agreement and related agreements (new Element 12): Fixed term merchant-acquirer agreements and related service contracts will not renew automatically for the same period as the initial term, but instead may be converted to automatically renewable agreements for terms of no longer than 6 months.
Changes to be implemented within 18 months of adoption of the Code
- Specified disclosure requirements for merchant-acquirer agreements (changes to Element 1):Within 18 months of adoption of the Code, acquirers will need to ensure that all new and renewed merchant-acquirer agreements include the additional prescribed disclosure, and that all such agreements contain an information summary box and a fee disclosure box based on the templates attached to the Code. Payment card networks will also be required to make default domestic network assessment fees (not just interchange rates) available on their website and to post any changes to these rates on their website.
Payment card networks will be required to review, at least every 3 years, the market practices of merchant-focused agents, based on the Code, and to report on the results of this review to the Financial Consumer Agency of Canada.
The release of the Code comes as the payments industry is undergoing a period of significant innovation and change, as well as legislative change. The new Code is one of a number of recent or contemplated legal and regulatory reforms affecting the payments industry, including recent reforms to the Canadian Payments Association.