Archived - Frequently Asked Questions—Prepaid Payment Products Regulations
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Which prepaid payment products are covered by these Regulations (“the Regulations”)?
These Regulations cover prepaid payment products issued by federally regulated financial institutions including banks. These products are used to make purchases or withdraw funds via a payment network such as American Express, MasterCard or Visa. The Regulations do not apply to prepaid payment products issued by provincial entities. Consumers use prepaid payment products to make purchases or cash withdrawals as needed using funds preloaded onto the products. Prepaid payment products are available through federally regulated financial institutions or at retail commercial outlets.
What do the Regulations do?
To help consumers make informed financial decisions, the Regulations require that institutions disclose fees in an information box that appears prominently on the exterior packaging. The Regulations require that information pertinent to the prepaid payment product’s use be available on the product, including where to access the full terms and conditions of use and a toll-free number to make a balance inquiry.
The Regulations limit certain business practices unique to prepaid payment products that could be costly to consumers. For instance, the Regulations prohibit fund expiry of customer purchased products to allow consumers full access to prepaid funds. The Regulations prohibit federally regulated financial institutions from imposing dormancy fees or maintenance fees during the first 12 months after activation except for promotional products or where holders of reloadable prepaid payment products have given express consent. The Regulations come into force on May 1, 2014.
Why is the Government Implementing these Prepaid Payment Products Regulations?
Existing legislation, regulations and public commitments have created an effective framework of consumer protection for users of other payment products. However, many of these protections did not apply to prepaid payment products. Canadian consumers have raised concerns regarding prepaid payment products issued by federally regulated financial institutions that had unclear, cumbersome terms and unfair fees.
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 payment products. These Regulations deliver on this commitment.
What is the size of the prepaid payments product market?
In 2011, the size of the payment network-branded prepaid payment product market (or open loop) was estimated to be worth $850 million. This represents the best industry information attained at the point at which Finance undertook its assessment of the market
What kind of disclosure will be provided on the prepaid payment product packaging?
The new Prepaid Payment Products Regulations require that fees be disclosed to consumers in an information box displayed prominently on the product’s exterior packaging.
Other information regarding these products must be provided prior to issuing the prepaid payment product in a manner that is clear, simple and not misleading. This includes the name of the issuing institution, a toll-free telephone number to make inquiries about the terms and conditions, restrictions on the use of the product and information about expiry dates.
The Financial Consumer Agency of Canada (FCAC) will work with federally regulated financial institutions that offer prepaid payment products to ensure the regulations are implemented in the best interest of consumers.
When will the new Regulations come into force?
The new Regulations will come into force on May 1, 2014. The coming-into-force date was determined by the Government to enhance consumer protection while responding to industry needs for adjusting to the Regulations.
Where can I find more detailed information about the different types of prepaid payment products, fees, disclosure requirements, applicability, and recourse if the rules are not being followed?
The Financial Consumer Agency of Canada (FCAC)’s website has information to help consumers make informed financial decisions. Consumers can visit FCAC’s website for more information on prepaid payment products and FAQs.
Once the Regulations come into force, the FCAC will be responsible for ensuring that federally regulated financial institutions comply with the Regulations. Consumers will be able to report concerns to the FCAC.
What is the intent of these Regulations?
The intent of the Regulations is to ensure that financial institutions providing prepaid products to consumers treat consumers fairly. Consumers should have full access to their funds without unnecessary and unknown fees being applied. Funds should not expire. The Government of Canada expects that federally regulated financial institutions will be compliant with the Regulations on May 1, 2014. The Government expects federally regulated financial institutions will work to adopt the spirit of the Regulations in advance of May 1, 2014.
The Financial Consumer Agency of Canada will be responsible for working with the industry in advance of the Regulations coming into force to ensure these Regulations are implemented to the best interest of Canadian consumers.