Canada has proposed consumer protection regulations that will apply to all prepaid payment products issued by Canadian federally regulated financial institutions (FRFIs). Prepaid payment products are physical or electronic payment cards that are or can be loaded with funds and used by the card holder to make withdrawals or purchase goods or services, including via a payment network such as American Express, MasterCard or Visa.
While most provinces have consumer protection legislation that applies to the sale of prepaid cards, the Department of Finance maintains that the federal Parliament has exclusive authority under the Constitution to regulate FRFIs and their products and services. The proposed regulations differ from provincial prepaid card regulations in one very important respect: they do not limit the amount of initial fees that FRFIs can impose in respect of the product. FRFIs are free to impose any initial fees provided they are disclosed prominently in an information box on the card packaging to permit consumers to compare fees at a glance.
Prohibition on Expiry Dates and Fee Restrictions
The new regulations will prohibit FRFIs from imposing an expiry date on a product holder’s right to use the funds that are loaded on a product unless it was issued as a promotional product. This provision would allow FRFIs to phase out a product, as long as the funds loaded on it were made available to the product holder.
FRFIs are prohibited from charging overdraft fees or interest in respect of a product without the express consent of the product holder. FRFIs are also prohibited from charging maintenance fees on products other than promotional products within 12 months of the product’s activation. A holder’s express consent is required before new fees can be imposed or existing fees increased.
As with credit cards issued by FRFIs, the proposed regulations require a simplified form of initial disclosure before issuance and a more elaborate form of disclosure upon issuance.
Before issuance, FRFIs must disclose certain information on the exterior packaging of a product or in a document prepared by the FRFI before the product is issued:
- the name of the issuing institution;
- as mentioned above, all fees that are imposed by the issuing institution in respect of the product;
- a toll-free telephone number that can be used to make inquiries about the product’s terms and conditions;
- any restrictions on the use of the product that are imposed by the issuing institution, including whether the product is not reloadable or cannot be used to make withdrawals;
- if applicable, a statement indicating that the funds that are loaded on the product are not insured by the Canada Deposit Insurance Corporation; and
- a statement indicating any expiry date of promotional products, or in the case of non-promotional products, that they do not expire.
Upon issuance, FRFIs must disclose the following:
- the product’s terms and conditions;
- all charges associated with the product;
- a description of how the product holder can verify the balance of the funds loaded on the product;
- a description of split payments and a statement that the product may, in certain circumstances, be used for making split payments; and
- the information referred to above that must be disclosed before issuance.
Additionally, the card itself must disclose the issuing institution’s name, any expiry date for a promotional product, a toll-free telephone number that can be used to make inquiries about the prepaid payment product, and a website address where certain information can be obtained. In the case of an electronic product, the information must be disclosed electronically upon request by the product holder.
The regulations will be officially published in the Canada Gazette on October 26, 2012, and the federal government has provided a 30-day comment period beginning on that date. A copy of the proposed regulations can be found here.
Note that the government is continuing to study the regulation of prepaid products from an anti-money laundering and anti-terrorist financing perspective, as announced in the government’s consultation paper released on December 21, 2011 (read more about that topic in Torys’ bulletin). Canada may well follow the United States and other jurisdictions in regulating the issuance of prepaid products under its anti-money laundering legislation.