Canada Gazette, Part I, Volume 146, Number 43: Prepaid Payment Products Regulations

October 27, 2012

Statutory authorities

Bank Act, Cooperative Credit Associations Act, Insurance Companies Act and Trust and Loan Companies Act

Sponsoring department

Department of Finance

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues and objectives

Canadians benefit from one of the best-regulated banking sectors in the world. A strong and efficient banking sector is essential to economic growth and prosperity. A legislative framework that enables banks to compete effectively and be resilient in a rapidly evolving marketplace, taking into account the rights and interests of depositors and other consumers of banking services, contributes to stability and public confidence in the financial system. It is also important to the strength and security of the national economy.

It is desirable and is in the national interest to provide for clear, comprehensive, exclusive, national standards applicable to banking products and banking services offered by banks. The Constitution Act, 1867 confers on Parliament exclusive jurisdiction in relation to banking and the incorporation of banks. In this regard, the Bank Act constitutes the complete and exclusive charter applicable to each bank and its products and services.

Canadians rely heavily on non-cash-based payment products. Market players continue to develop new payment products targeted to satisfy complex consumer and business needs while facilitating safe, convenient and cost-effective transactions.

Relatively new to the Canadian market, payment network–branded prepaid products (prepaid payment products) are used to access funds that a customer has prepaid to a financial institution. The funds are accessed by the cardholder to make purchases or withdraw funds via a payment network such as American Express, MasterCard or Visa. While a credit product is a “pay later” product and a debit product is a “pay now” product, a prepaid product is a “pay before” product. Some prepaid payment products are available through financial institution branches; others, although they are issued by financial institutions, are sold at retail commercial outlets.

Existing legislation, regulations and public commitments afford a framework of consumer protection for consumers of other payment products. However, many of these existing protections do not apply to prepaid payment products. Canadian consumers have raised concerns regarding some features of prepaid payment products issued by federal financial institutions. The terms, conditions, fees and limitations associated with some products are not always made available prior to purchase and can be cumbersome, unclear or even unfair.

In Budget 2011, the Government of Canada proposed to take action to develop measures to enhance the consumer protection framework with respect to payment network–branded prepaid cards. The proposed Prepaid Payment ProductsRegulations (the Regulations) would act on this commitment by allowing consumers to have the information they need when making financial decisions, as well as limiting certain business practices that may not be beneficial to consumers and affording consumers increased access to their prepaid funds.

Description and rationale

To support informed financial decision making, the proposed Regulations would require disclosure of fees in an information box to appear prominently on the exterior packaging and other documentation provided prior to issuance. This would allow for easy product comparison while encouraging market efficiency and competition. The proposed Regulations would also require that information pertinent to continued usage be available on the product, including where to access the full terms and conditions of usage and a toll-free number to access the remaining balance. In order to maximize consumers’ understanding of the product, the proposed Regulations would also require that all disclosure be made and presented in a manner that is clear, simple and not misleading.

The proposed Regulations would also limit certain business practices, unique to prepaid payment products, that could be harmful to consumers. For instance, the proposed Regulations would, with one exception, prohibit fund expiry to allow consumers full access to their prepaid funds. They would also, with one exception, prohibit federal financial institutions from imposing a dormancy or maintenance fee for at least one year after activation. This would give the consumer a healthy time frame to make use of a prepaid payment product. Finally, the proposed Regulations would prohibit fees and interest charges with respect to overdraft without the express consent of the product holder.

The enhanced disclosures and business practice limitations afforded by the proposed Regulations would be beneficial to a broad spectrum of Canadian consumers. More and better information would be provided to consumers to allow for better product choice. Further, limitations on expiry and maintenance fees would give consumers increased access to their prepaid funds.

Federal financial institutions may have to incur minor compliance costs to make some changes to their systems to implement the new requirements, as would be possible for any new regulatory requirement. Further information from federal financial institutions on the time required to make these changes is sought during the prepublication stage.

Consultation

Throughout the development of the proposed Regulations, the Department of Finance consulted key stakeholders, including individual federal financial institutions, industry associations, payment network operators and consumer groups.

Stakeholders were consulted early on in the policy development process: written comments were received, and the Department subsequently made adjustments to the approach.

Implementation and enforcement

The proposed Regulations would not require any new mechanisms to ensure compliance and enforcement. The Financial Consumer Agency of Canada already administers the consumer provisions in the federal financial institutions statutes, and would be able to ensure compliance with the new requirements using its existing compliance tools, including notices of violations, compliance agreements, and administrative monetary penalties.

Contact

Jane Pearse
Director
Financial Institutions Division
Department of Finance
L’Esplanade Laurier, East Tower, 15th Floor
140 O’Connor Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-992-1631
Fax: 613-943-1334
Email: finlegis@fin.gc.ca

PROPOSED REGULATORY TEXT

Notice is given that the Governor in Council, pursuant to sections 454 (see footnote a), 458.3 (see footnote b), 459.4 (see footnote c), 572 (see footnote d), 575.1 (see footnote e), 576.2 (see footnote f) and 978 (see footnote g) of the Bank Act (see footnote h), sections 385.21 (see footnote i), 385.252 (see footnote j), 385.28 (see footnote k) and 463 (see footnote l) of the Cooperative Credit Associations Act (see footnote m), sections 485 (see footnote n), 488.1 (see footnote o), 489.2 (see footnote p), 603 (see footnote q), 606.1 (see footnote r), 607.1 (see footnote s) and 1021 (see footnote t) of the Insurance Companies Act (see footnote u) and sections 440 (see footnote v), 443.2 (see footnote w), 444.3 (see footnote x) and 531 (see footnote y) of the Trust and Loan Companies Act (see footnote z), proposes to make the annexed Prepaid Payment Products Regulations.

Interested persons may make representations concerning the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part Ⅰ, and the date of publication of this notice, and be addressed to Jane Pearse, Director, Financial Institutions Division, Department of Finance, L’Esplanade Laurier, East Tower, 15th Floor, 140 O’Connor Street, Ottawa, Ontario K1A 0G5 (tel.: 613-992-1631; fax: 613-943-1334; email: finlegis@fin.gc.ca).

Ottawa, October 4, 2012

JURICA ČAPKUN
Assistant Clerk of the Privy Council

PREPAID PAYMENT PRODUCTS REGULATIONS

INTERPRETATION

Definitions

1. The following definitions apply in these Regulations.

• “institution”
  « institution »
• “institution” means any of the following:
  • (a) a bank, as defined in section 2 of the Bank Act;
  • (b) an authorized foreign bank, as defined in section 2 of the Bank Act;
  • (c) a retail association, as defined in section 2 of the Cooperative Credit Associations Act;
  • (d) a company, as defined in subsection 2(1) of the Insurance Companies Act;
  • (e) a foreign company, as defined in subsection 2(1) of the Insurance Companies Act; or
  • (f) a company, as defined in section 2 of the Trust and Loan Companies Act.
• “maintenance fee”
  « frais de tenue de compte »
• “maintenance fee” means a fee in relation to a prepaid payment product that is charged after the product has been purchased, other than a fee associated with the holder’s use of the product or of any service related to it.
• “prepaid payment product”
  « produit de paiement prépayé »
• “prepaid payment product” means a payment card, whether physical or electronic, that is — or can be — loaded with funds and that can be used by the card holder to make withdrawals or purchase goods or services.
• “promotional product”
  « produit promotionnel »
• “promotional product” means a prepaid payment product that is purchased by an entity and distributed by that entity as part of a promotional, loyalty or award program.

APPLICATION

Issued in Canada by institution

2. These Regulations apply to prepaid payment products that are issued in Canada by an institution.

MANNER OF DISCLOSURE

Clear and simple language

3. Any disclosure referred to in these Regulations must be made in language, and presented in a manner, that is clear, simple and not misleading.

INITIAL DISCLOSURE

Manner and content

4. (1) For the purposes of subsections 452(1.1) and 570(1.1) of the Bank Act, subsection 385.18(2) of the Cooperative Credit Associations Act, subsections 482(1.1) and 601(2) of the Insurance Companies Act and subsection 438(1.1) of the Trust and Loan Companies Act, the following information must, before a prepaid payment product is issued, be provided in any document that the issuing institution prepares for the issuance of the product, including on the product’s exterior packaging, if any, and be provided in writing to any person applying to the institution for the product:

• (a) the name of the issuing institution;
• (b) a toll-free telephone number that can be used to make inquiries about the product’s terms and conditions;
• (c) 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;
• (d) all fees that are imposed by the issuing institution in respect of the product;
• (e) if applicable, a statement indicating that the funds that are loaded on the product are not insured by the Canada Deposit Insurance Corporation; and
• (f) a statement indicating
  • (i) in the case of a promotional product, either that the product holder’s right to use the funds that are loaded on the product will not expire or the day on which that right will expire, as the case may be, or
  • (ii) in the case of any other prepaid payment product, that the product holder’s right to use the funds that are loaded on the product will not expire.

Presentation of fee information

(2) The information referred to in paragraph (1)(d) must be presented in an information box and appear prominently on any exterior packaging or other document referred to in subsection (1).

Exception — application by telephone

5. Despite section 4, if a person applies for a prepaid payment product by telephone, the information referred to in subsection 4(1) must, before the product is issued, be disclosed to them orally instead of in writing.

ADDITIONAL DISCLOSURE

On issuance

6. (1) For the purposes of subsections 452(2) and 570(2) of the Bank Act, subsection 385.18(3) of the Cooperative Credit Associations Act, subsections 482(2) and 601(3) of the Insurance Companies Act and subsection 438(2) of the Trust and Loan Companies Act, any charges for which a natural person who is issued a prepaid payment product becomes responsible by accepting or using the product, as well as the following information, must be disclosed to that person on issuance of the product:

• (a) the product’s terms and conditions;
• (b) a description of how the product holder can verify the balance of the funds loaded on the product;
• (c) a description of split payments and a statement that the product may, in certain circumstances, be used for making split payments; and
• (d) the information referred to in subsection 4(1).

Other than natural persons

(2) An institution must, on issuance of a prepaid payment product to a person other than a natural person, disclose to them any charges for which they become responsible by accepting or using the product as well as the information referred to in paragraphs (1)(a) to (d).

On product

7. For the purposes of subsections 452(2) and 570(2) of the Bank Act, subsection 385.18(3) of the Cooperative Credit Associations Act, subsections 482(2) and 601(3) of the Insurance Companies Act and subsection 438(2) of the Trust and Loan Companies Act, an institution must disclose the following information by setting it out directly on the prepaid payment product or, if the product is electronic, by disclosing it electronically on the product holder’s request:

• (a) the name of the issuing institution;
• (b) the date on which the prepaid payment product expires, if any;
• (c) if it is a promotional product, the date, if any, on which the person’s right to use the funds that are loaded on the product will expire;
• (d) a toll-free telephone number that can be used to make inquiries about the prepaid payment product, including balance inquiries and complaints; and
• (e) a website address where the information referred to in paragraphs 4(1)(a) to (e) and section 6 can be obtained.

PROHIBITIONS

Fee changes

8. An institution must not increase any fee, or impose a new fee, associated with a prepaid payment product that is issued to a natural person unless

• (a) a person has, in their capacity as holder of the product, provided the institution with their name and mailing or email address;
• (b) the product holder has been given the opportunity to modify the information referred to in paragraph (a); and
• (c) the institution discloses the new or increased fee by
  • (i) sending a notice to the most recent address provided for the product holder at least 30 days before the effective date of the new or increased fee, and
  • (ii) displaying a notice on the institution’s website for a period of at least 60 days immediately before the effective date of the new or increased fee.

Expiry of funds

9. An institution must not impose an expiry date on a prepaid payment product holder’s right to use the funds that are loaded on a prepaid payment product unless it is a promotional product.

Maintenance fees

10. An institution must not impose a maintenance fee on a prepaid payment product holder for a period of twelve months after the day on which the product is activated unless it is a promotional product.

Overdraft

11. An institution must not charge overdraft fees or interest in respect of a prepaid payment product without the express consent of the product holder.

COMING INTO FORCE

Registration

12. These Regulations come into force on the day on which they are registered.

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