On October 24, 2012, the Minister of Finance and the Financial Consumer Agency of Canada (FCAC) announced the Prepaid Payment Products Regulations (Regulations). “Prepaid payment product” is defined as a payment card, whether physical or electronic, that is – or can be – loaded with funds and that can be used by the cardholder to make withdrawal (“prepaid card”). The Regulations will apply to prepaid cards that are issued in Canada by federally regulated financial institutions (FRFIs).
The Regulations aim to protect prepaid card consumers by establishing rules that require information disclosures and limit business practices of issuing FRFIs.
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;
- 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.
The Regulations require disclosure of fees in an information box to appear prominently on the exterior packaging
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.
Furthermore, the prepaid card itself must disclose the issuing institution’s name, any expiry date for a promotional product, a toll-free telephone number for inquiries about the prepaid card, 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.
All disclosures must be made in a way that is clear, simple and not misleading.
Card Issuer Business Practice Limitations
The Regulations also limit certain business practices related to prepaid cards, that could harm consumers. For example, the Regulations generally prohibit the expiration of funds to allow consumers full access to their prepaid funds (except in the case of promotional products). FRFIs will also not be able to impose a dormancy or maintenance fee for at least one year after activation. Card holders will thus have a reasonable amount of time to fully access their prepaid funds in accordance with the consumer protection goals of the Regulations. Finally, the Regulations prohibit fees and interest charges related to overdraft without the express consent of the consumer.
The Regulations were published in the Canada Gazette on October 27, 2012 for a 30-day comment period.