Retailers and Financial Institutions in Canada need to be aware of the proposed Prepaid Payment Product Regulations which will apply to both physical and electronic payment cards that are, or can be, loaded with funds and used by a customer to make withdrawals or purchase goods or services (Prepaid Payment Products). The proposed Regulations will augment other Canadian consumer protection laws and regulations, such as the regulations in relation to credit agreements, including lines of credit and credit cards, which came into force in 2010.
When will the Regulations come into force?
Although the Regulations have not yet come into force and are currently open for final review and comment with the Department of Finance until November 26, 2012, they are at the last stage of the regulation-making process and are expected to be finalized and enacted sometime thereafter. Unless there are significant comments or modifications, it could be as early as the end of this month or December when they are made effective. Retailers and financial institutions need to start planning now to ensure their prepaid and loyalty card products in Canada are in compliance with the federal Regulations when they do come into force.
Who do the Regulations apply to?
The proposed Regulations apply to Prepaid Payment Products issued in Canada by Institutions as defined in the Regulations, which include banks, foreign banks, retail associations and insurance, trust and loan companies, both domestic and foreign, as defined under the Canadian Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act and the Trust and Loan Companies Act.
As a Prepaid Card Issuer, what must I do?
The proposed Regulations set out certain information disclosure requirements which must be made prior to issuance of a Prepaid Payment Product and upon issuance of the card, as well as numerous restrictions. As a Prepaid Payment Product Issuer, you must prepare and obtain legal review of the customer application documentation and process, the documents that accompany the prepaid card (e.g., terms and conditions), as well as the card itself and the packaging of the product's exterior, to ensure that you are ready and compliant for when the Regulations come into force. The information being disclosed to the customer must be in a clear, simple, and not misleading language. For cards that are issued across Canada, both national languages English and French, should be used.
What information must be disclosed prior to issuance of the Prepaid Card and how?
Before any Prepaid Payment Product is issued, you will be required to provide certain information in writing to the customer, including on the product's exterior packaging. The proposed Regulations require disclosure of:
- the name of the issuing Institution;
- a toll-free 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 if the product is not reloadable or cannot be used to make withdrawals;
- all fees that are imposed by the issuing institution in respect of the product, which must be presented in an information box and appear prominently on any exterior packaging or other document presented to the customer, subject to certain exceptions;
- 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 that the Prepaid Payment Product will not expire, unless it is a Promotional Product, meaning a Prepaid Payment Product that was purchased and distributed by an entity as part of a promotional, loyalty or award program, not loaded with funds received from the customer, in which case the date of expiry of the Promotional Product, if any, must be listed.
What if a Prepaid Payment Product is issued by telephone?
In the case of applications for Prepaid Payment Products by telephone, all the requisite information required to be disclosed prior to card issuance must be disclosed orally to the customer.
What information must be disclosed upon issuance of the Prepaid Card and how?
In addition, upon issuance of the Prepaid Payment Product, the proposed Regulations require disclosure of:
- any charges for which the customer becomes responsible by accepting or using the product;
- the product's terms and conditions;
- a description of how the customer can verify the balance of funds on the card;
- terms dealing with any split payments; and
- all of the information that was required to be disclosed prior to issuance, as referred to above.
What information must be set out directly on the Card?
The proposed Regulations also specify that the prepaid card must contain the following information:
- the name of the issuing Institution;
- if applicable, the date on which the prepaid card or the funds loaded on it will expire;
- a toll-free telephone number to make inquiries about the prepaid card, its balance and any complaints; and
- a website address where the required information that was disclosed prior to issuance of the prepaid card can be obtained.
How will Electronic Prepaid Payment Products such as Mobile Cards be handled?
If the Prepaid Payment Product is electronic, such as in the form of a mobile App, the information that is required to be disclosed on a physical prepaid card under the proposed Regulations may be disclosed electronically at the request of the customer. Note that this does not exempt the electronic product issuer from providing any of the other documents, information or packaging which must be provided in writing prior to product issuance and upon issuance.
Can fees be charged for Prepaid Payment Products?
An issuing Institution can charge a customer fees for issuing and using Prepaid Payment Products, provided that the fees and charges are disclosed in advance of issuance and again upon issuance, and are otherwise in compliance with applicable law. However, the proposed Regulations state that fees must not increase or be imposed after issuance to a natural person, unless certain conditions are met.
In addition, the proposed Regulations contain explicit restrictions on fees that are charged after the product has been purchased (Maintenance Fees). Maintenance Fees do not include fees associated with the customer's use of the product or any service related to it. Promotional Products may have Maintenance Fees applicable at any time from the date of activation. All other Prepaid Payment Products cannot impose Maintenance Fees on customers until at least 12 months after the date of product activation. The proposed Regulations also prohibit the charging of interest or overdraft fees, unless express consent of the customer is obtained in advance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.