New Canadian Prepaid Regs to Take Effect in May (Dec. 3, 2013)
Starting May 1, 2014, prepaid cards will be subject to new regulations in Canada, including a ban on expiration dates and account maintenance fees during the first year a card is in use, among other measures. Canada’s Department of Finance has issued a final publication of the rules, which were finalized after reviewing industry input on the department’s October 2012 proposal.
The new regulations, which cover all open- and closed-loop prepaid products issued by a federally regulated financial institution, require cards to display fee disclosures “prominently on the exterior packaging and other documentation provided prior to issuance,” among other disclosure requirements. Expiration of funds loaded onto prepaid cards is banned by the new rules, which do allow for the expiration of the physical card for security purposes. Finally, monthly account maintenance fees are barred for the first year after a card is issued. However, holders of reloadable prepaid cards may grant express consent to pay a monthly maintenance fee as opposed to a per-transaction fee. “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,” the Finance Department said. The maintenance fee exception for reloadable products was added in response to input during the comment period from industry stakeholders, many of whom noted that banning all first-year maintenance fees on reloadable cards would diminish consumer choice, according to the Department.
The final-version prepaid regulations “now recognize the differences between reloadable cards and non-reloadable cards and the inherent costs to issuers in offering reloadable products,” notes Jacqueline Shinfield, partner with the Toronto office of law firm Blake, Cassels & Graydon LLP. However, Shinfield tells Paybefore that providers could face practical difficulties in obtaining consent for monthly maintenance fees in some cases. “While express consent can be easily obtained in the electronic environment, it may be more challenging to implement processes to obtain express consent where prepaid products are purchased on a face-to face basis,” she says.