Vol. 147, No. 25 — December 4, 2013
SOR/2013-209 November 25, 2013
COOPERATIVE CREDIT ASSOCIATIONS ACT
INSURANCE COMPANIES ACT
TRUST AND LOAN COMPANIES ACT
Prepaid Payment Products Regulations
P.C. 2013-1280 November 25, 2013
His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, 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), makes the annexed Prepaid Payment Products Regulations.
PREPAID PAYMENT PRODUCTS REGULATIONS
1. The following definitions apply in these Regulations.
« 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.
« 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.
« produit promotionnel »
“promotional product” means a prepaid payment product that is purchased by an entity and distributed as part of a promotional, loyalty or award program.
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.
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) the following restrictions on the use of the product, if imposed by the issuing institution:
- (i) the fact that the product is not reloadable,
- (ii) the fact that the product cannot be used to make withdrawals, and
- (iii) any other restriction that could reasonably be expected to affect a person’s decision to acquire the product;
- (d) all fees that may be imposed on the product holder by the issuing institution in respect of the product;
- (e) if the funds that are loaded on the product are not insured by the Canada Deposit Insurance Corporation, a statement to that effect; 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 paragraphs 4(1)(a) to (f) must, before the product is issued, be disclosed to them orally instead of in writing.
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 to whom a prepaid payment product is issued becomes responsible by accepting or using the product, as well as the following information, must be disclosed in writing to that person on issuance of the product:
- (a) the product’s terms and conditions, including the product holder’s rights and responsibilities with respect to a lost or stolen product;
- (b) a description of how the product holder can verify the balance of the funds loaded on the product;
- (c) a description of how the product holder may, in certain circumstances, use funds loaded on the product towards partial payment of a purchase; and
- (d) the information referred to in paragraphs 4(1)(a) to (f) unless the product is issued in person and that information was disclosed under subsection 4(1) immediately before the issuance of the product.
Other than natural person
(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).
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.
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.
Use 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.
10. An institution must not impose a maintenance fee on a prepaid payment product holder for a period of 12 months after the day on which the product is activated unless it is
- (a) a promotional product; or
- (b) a reloadable product and the product holder has given their express consent to the imposition of the fee.
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
May 1, 2014
12. These Regulations come into force on May 1, 2014.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
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 and exclusive national standards applicable to banking products and banking services. 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 federally regulated 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 Prepaid Payment Products Regulations (the Regulations) 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.
To support informed financial decision making, the Regulations require disclosure of fees in an information box to appear prominently on the exterior packaging and other documentation provided prior to issuance. This allows for easy product comparison while encouraging market efficiency and competition. The Regulations 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 Regulations also require that all disclosure be made and presented in a manner that is clear, simple and not misleading.
The Regulations also limit certain business practices, unique to prepaid payment products, that could be harmful to consumers. For instance, the Regulations, with one exception, prohibit fund expiry to allow consumers full access to their prepaid funds. The Regulations also, with some exceptions, prohibit federally regulated financial institutions from imposing a dormancy or maintenance fee for at least one year after activation. This gives the consumer a healthy timeframe to make use of a prepaid payment product. Finally, the Regulations prohibit fees and interest charges with respect to overdraft without the express consent of the product holder.
The “One-for-One” Rule does not apply as the Regulations do not impose any new administrative burden on federally regulated financial institutions.
Small business lens
The small business lens does not apply as there are no costs to small business.
Following publication of the Regulations on October 27, 2012, in Part I of the Canada Gazette, comments were received from a wide range of stakeholders representing financial institutions, payment network operators, consumer groups, and industry associations. These views were taken into consideration in the development of the final Regulations.
Overall, comments supported regulations to protect consumers of prepaid products. Comments recommended fine-tuning of the Regulations in order to achieve high standards of consumer protection and preserve consumer choice. These comments have been addressed through technical clarifications and other adjustments.
The majority of stakeholders commented that, while the prohibition on imposing maintenance fees in the first year is appropriate for the majority of prepaid products on the market, consumer choice is diminished when the prohibition is applied to reloadable products. Given that reloadable prepaid products tend to be more sophisticated products (e.g. personalized, higher-value) and intended for frequent usage, consumers may prefer to pay a flat monthly maintenance fee as opposed to per-transaction fees. In order to enhance consumer protection while maintaining consumer choice, the final Regulations allow for monthly maintenance fees on reloadable prepaid payment products with the express consent of the product holder.
Technical changes were made to fine-tune some elements of the Regulations. These include changes that remove duplicative disclosure requirements when both the initial disclosure and additional disclosure documents are received simultaneously. Changes were also made to further clarify the type of product restrictions required to be disclosed, namely, those restrictions that could reasonably be expected to have an impact on a consumer’s decision to acquire a card.
Industry stakeholders commented that time would be needed to make some changes to their systems to implement the new requirements. Accordingly, a coming-into-force date of January 2, 2014, was chosen.
Some stakeholders requested a clarification to the RIAS regarding the expiry of physical prepaid cards. To clarify, while funds loaded onto a prepaid card cannot expire, this prohibition does not prevent a physical prepaid card from expiring for security purposes, as is the case with credit cards.
Other broader issues were raised that fall outside the scope of the Regulations. These include applicability of Canada Deposit Insurance Corporation insurance and applicability of the unclaimed balances provisions to prepaid products issued by federally regulated financial institutions. As prepaid products increasingly penetrate the Canadian marketplace, these issues will be examined in greater depth in order to provide the soundest protection for consumers going forward.
Finally, some comments have not been reflected in the final Regulations. For instance, there were mixed views on whether products issued to Canadians for the purposes of social benefits should be covered by the Regulations. By extending the consumer protection framework to all prepaid payment products, Canadians can be assured that they benefit from high standards of protection when using any prepaid product issued by a federally regulated financial institution.
The enhanced measures afforded by the Regulations are beneficial to a broad spectrum of Canadian consumers. More and better information will be provided to consumers to allow for better product choice. Limitations on expiry and maintenance fees will give consumers increased access to their prepaid funds. This broadens protections for the increasing number of Canadians who frequently use prepaid products.
As with any new regulatory requirement, federally regulated financial institutions may have to incur minor compliance costs to make some changes to their systems to implement the new requirements. The coming-into-force date was chosen to minimize this burden.
Implementation, enforcement and service standards
The Regulations do 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 is able to ensure compliance with the new requirements using its existing compliance tools, including notices of violations, compliance agreements and administrative monetary penalties.
Financial Institutions Division
Department of Finance Canada
L’Esplanade Laurier, East Tower, 15th Floor
140 O’Connor Street
- Footnote a
S.C. 2012, c. 5, s. 44
- Footnote b
S.C. 2012, c. 5, s. 47
- Footnote c
S.C. 2012, c. 5, s. 51
- Footnote d
S.C. 2012, c. 5, s. 68
- Footnote e
S.C. 2012, c. 5, s. 70
- Footnote f
S.C. 2012, c. 5, s. 72
- Footnote g
S.C. 2010, c. 12, s. 2092
- Footnote h
S.C. 1991, c. 46
- Footnote i
S.C. 2012, c. 5, s. 113
- Footnote j
S.C. 2012, c. 5, s. 115
- Footnote k
S.C. 2012, c. 5, s. 117
- Footnote l
S.C. 2005, c. 54, s. 208
- Footnote m
S.C. 1991, c. 48
- Footnote n
S.C. 2012, c. 5, s. 135
- Footnote o
S.C. 2012, c. 5, s. 137
- Footnote p
S.C. 2012, c. 5, s. 139
- Footnote q
S.C. 2012, c. 5, s. 149
- Footnote r
S.C. 2012, c. 5, s. 151
- Footnote s
S.C. 2012, c. 5, s. 152
- Footnote t
S.C. 2005, c. 54, s. 364
- Footnote u
S.C. 1991, c. 47
- Footnote v
S.C. 2012, c. 5, s. 173
- Footnote w
S.C. 2012, c. 5, s. 175
- Footnote x
S.C. 2012, c. 5, s. 178
- Footnote y
S.C. 2005, c. 54, s. 449
- Footnote z
S.C. 1991, c. 45