Just in time for the holidays, most of the provinces in Canada have expressly regulated prepaid cards and gift cards to restrict suppliers from charging various fees and using expiry dates.
Public demand sparks swift consumer protection legislation
The gift card marketplace has emerged from its infancy within the last five years. The popularity of these cards is surprising; in the US, gift cards are now ranked as the second most popular gift item after clothing. In 2006 Canadians purchased an average of nearly five gift cards per year with each card usually worth C$67.00 in 2006. However, gift cards are not necessarily redeemed for goods and services. Statistics from 2006 indicate that in the U.S., 10% of gift cards' value had not been redeemed and 19% of Americans who received gift cards during the 2005 Christmas season had still not used at least one of their gift cards.*
The realization that these cards expire and involve substantial fees prompted a public backlash in Canada. Ontario led the charge, responding to public outcry and amending its consumer protection legislation to expressly regulate the actions of gift card suppliers. British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, and Nova Scotia have followed suit, each passing gift card consumer protection legislation or amending their existing legislation to specifically include gift cards. Quebec is considering implementing similar legislation and has a consultation paper to that effect. At this point, Newfoundland, Prince Edward Island and the territories do not have plans for similar legislation.
As a result of the provincial regulation, some of which only came into effect in November 2008, gift card suppliers need to be aware of a few key general rules.
Gift cards and Prepaid cards are subject to consumer protection legislation
In general terms, the provincial legislation applies to any voucher in either electronic credit or written certificate form, where a supplier issues the voucher under a gift card agreement and that the holder is entitled to apply towards purchasing goods or services covered by the voucher. The specifics vary by provinces, but the following are some of the general rules that will now apply to gift cards in Canada.
- No expiry dates are permitted, although some limited exceptions are set out below; and any expiry date on a card will be ineffective.
- Fees are restricted:
- Open-loop or multi-supplier cards are permitted to charge two types of fees; most commonly, these fees are (1) a one-time initial fee of up to $1.50, and (2) after 15 months, up to $2.50 charged as a monthly maintenance fee (in some provinces this must be deducted from the card balance). If a consumer requests an extension by the 15th month, these fees cannot be charged until 18 months have passed.
- In many provinces, suppliers may also charge fees to customize cards by adding personalized elements, and may charge fees to replace lost or stolen cards.
- Most provinces require suppliers to disclose certain information. In some provinces this disclosure has prescribed requirements. For example, in Ontario any maintenance fee must be described on the card in 10-point font and any other general limitation must be clear to the consumer.
Where a supplier fails to comply with the rules, consumers are provided with remedies. These remedies are consistent with the existing consumer protection framework. For example, in Ontario, where a consumer pays a fee that is not permitted by the legislation, he or she may demand refund within one year of the date the fee was paid. Suppliers are required to provide a refund within 15 days of such notice.
In addition to the usual remedies, in some provinces, failure to comply with these rules may also result in administrative monetary penalties. For example, in Manitoba, a first contravention of the gift card rules can result in a $1000 penalty. Second infractions can cost $3000 and any infraction there after can result in a $5000 penalty.
Exceptions to the rules:
Some of the gift card legislation offers certain exceptions from the general rules above. For example where a gift card is issued for charitable or marketing purposes, or where the consumer pays less than full value for the card, some or all of the above rules may not apply.
In addition, some provincial governments have taken the policy position that the legislation does not apply to cards issued by business under federal jurisdiction. In some cases, the policy position has been taken that these rules would not apply to prepaid phone cards or cards issued by financial institutions, although the propositions are not reflected in the statutory language.
If you would like to know more about how these rules may apply to your business, or have any questions regarding this topic, please do not hesitate to call or write to any member of the BLG Financial Services Regulatory Group.
* Various 2006 media sources
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.