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MasterCard International Submission in Response to Finance Canada's 2006 Review of Financial Sector Legislation:
2006 Review of Financial Sector Legislation Response from MasterCard Canada
MasterCard Canada is pleased to respond to the consultation initiative surrounding the 2006 Review of Financial Sector Legislation. MasterCard Canada is committed to acting as an information resource to Government decision makers on payment card issues and this consultation process is an opportunity to continue in that role.
Our response is divided into three sections:
- an overview of MasterCard Canada and its operations;
- our response to those issues raised in the consultation document that are relevant to our concerns;
- our suggestions on moving forward with the White Paper.
I. MasterCard Canada
MasterCard Canada is a division of MasterCard International Incorporated, a global payments company with one of the most recognized and respected brands in the world. Canadian MasterCard holders take advantage of this global payments system every day to purchase goods and services around the globe. Similarly global visitors to Canada are secure in the knowledge that they can rely on the convenience of using their MasterCard to pay for goods and services purchased here in Canada.
Internationally, MasterCard has over 15,000 member financial institutions, serving consumers in 210 countries and territories. In Canada, Canadian financial institutions increased the number of MasterCard cards issued by 22 percent in 2001 and 11 of the new card issuers that entered the Canadian market in the last four years chose to issue MasterCard.
In 2004, cardholders across Canada used MasterCard-branded cards for 625.5 million transactions worth $50.5 billion. Our member financial institutions had issued 28.5 million MasterCard-branded cards at the end of 2004. There are fourteen Canadian financial institutions that issue our cards.
With approximately 30% of the dollar volume spent on credit cards in Canada, MasterCard has momentum in the Canadian payments industry. No other payment card is accepted in more locations than MasterCard.
With MasterCard Canada being the brand of choice for so many of the new financial institutions offering credit card services, we are proud of our role in stimulating greater consumer choice in the credit marketplace. MasterCard issuers have brought many innovative product offerings to Canadian credit card consumers, including a greater range of loyalty programs, innovative fee features and retail branded MasterCards.
To put our comments on the review of financial sector legislation into perspective, it is important to clarify the role of MasterCard versus the role of our members. MasterCard maintains standards and procedures for the acceptance and settlement of member transactions on a global basis; provides a global communications network for the electronic transfer of information and funds among our issuing financial institutions; and enhances and supports marketing activities and operational functions of our member financial institutions in connection with MasterCard Canada's programs and services. For example, MasterCard requires that members verify and process transactions within 4 seconds no matter where the transaction is taking place across the globe.
As part of our responsibilities to enhance and support the marketing activities of our member financial institutions MasterCard Canada has launched an extensive credit education campaign, with a particular focus on first-time cardholders. Our website, www.mastercard.ca, provides an interactive credit education seminar that is available to anyone who visits the site. There is also a section specifically geared to first-time cardholders that outlines how to use credit responsibly. Each fall, we distribute over 200,000 of these materials across college and university campuses.
MasterCard does not: issue cards, set annual fees on cards, determine annual percentage rates, solicit merchants to accept cards or set their discount rates. MasterCard member financial institutions manage the relationships with consumers and merchants.
II. Issues Raised in the Consultation Document
Liability for Loss Arising from Electronic Transactions
As the consultation document correctly notes, our payments system is increasingly electronically-based. The discussion about liability in the event of loss arising from electronic transactions is therefore a timely one. We are pleased to report that credit card companies have been at the forefront of addressing this concern.
As part of MasterCard Canada's role to maintain standards and procedures for the acceptance and settlement of member transactions, we require that all MasterCard issuers offer a Zero Liability policy to cardholders in the event of the unauthorized use of a Canadian-issued MasterCard. Zero liability will apply as long as:
- the account is in good standing;
- the cardholder exercised reasonable care in safeguarding his or her card;
- the cardholder has not reported two or more unauthorized events in the past 12 months.
If such criteria are met, the card issuer will assume the loss. What this means, in simple terms, is that if there is an unauthorized purchase made using an individual's MasterCard card number, that individual will not be required to pay for the purchase. This policy extends to any purchase made, whether in a store, by phone, or over the internet. Our members must offer this policy to all their cardholders.
The Zero Liability policy is featured prominently on our website and credit card issuers in general outline zero liability in their cardholder agreements.
The Zero Liability policy does not apply to commercial cards.
It is worth noting that our main competitors, VISA and American Express, hold similar policies. Given that the credit card market already voluntarily provides zero liability policies to their cardholders, MasterCard Canada does not believe there is any policy basis for further government regulation. Credit card companies are already protecting consumers against liability in the event of loss arising from electronic transactions.
A second consumer issue raised in the consultation document relevant to MasterCard is the issue of disclosure provisions. The Federal Government already regulates the disclosure of information to consumers for credit cards under the cost of credit disclosure regulations. All credit card issuers in Canada are required by MasterCard to follow these regulations. At the same time MasterCard Canada believes that efforts can be made separate from regulation to enhance consumer understanding of their rights and obligations that come with the use of their credit card.
In an effort to ensure that consumers are more fully aware of their rights and obligations in acquiring a MasterCard credit card, we have engaged in a credit education campaign. The aforementioned interactive seminar on our website covers all such topics. We have also signed a Memorandum of Understanding with the Financial Consumer Agency of Canada (FCAC) to develop a Plain Language Credit Card Agreement. The purpose of this initiative is to explore the possibility of developing template credit card agreements that can be written in a manner that is easily understood by the average consumer.
Like the Zero Liability policy, we feel this is another example of MasterCard Canada working voluntarily to enhance the interests of consumers.
Increasing Legislative and Regulatory Efficiency
Generally speaking, we would suggest that Canada's financial services industry works best in a competitive atmosphere. We noted with interest the statement that it is the Government's role "to provide a legislative framework where dynamic and innovative financial institutions can grow, prosper and be competitive in the global marketplace, with due regard to the safety and soundness of the sector." MasterCard Canada could not agree more, and would suggest that new legislation or regulation is only needed if specific problems in the industry are not being addressed through the dynamic of market competition.
Competition and consumer choice should be the primary concerns, and MasterCard is confident that both are already being met in the credit card marketplace. Not only do consumers have a wide variety of credit card options between brands (such as MasterCard, Visa, or American Express), they also have a great deal of choice within brands. MasterCard Canada alone has fourteen different issuing partners, each of whom offer an array of credit card options to meet a range of consumer needs.
On a broader level, the government must not lose sight of the fact that the Canadian financial services industry is but a part of a larger international system. We must always be weary of any legislation or regulation that risks putting Canada at a competitive disadvantage. In this regard, we welcome the government's smart regulation initiative, and in particular efforts to establish mechanisms with other countries to develop standards jointly. Likewise, we welcome the government's recognition that regulation imposes significant costs on citizens and businesses. Therefore, the government's stated intention under the smart regulation initiative to focus regulatory attention on areas that pose the greatest risk is in line with our earlier comments.
Adapting the Framework to New Developments
An area of concern not addressed in the discussion paper is anti-money laundering and terrorist financing (AMLTF) regulations and their impact on credit products. We would note that current AMLTF customer identification provisions relating to non-face to face account openings are not workable for credit products. These existing regulations are at odds with the evolving nature of the credit card business. We are aware that many MasterCard issuers are working directly with the Department of Finance to address this issue and we would encourage a co-operative solution. Ultimately, if this issue is not addressed, consumer choice will be negatively affected.
The comments throughout this submission keep returning to a simple theme: Canada's financial services industry, or at least that part of it that MasterCard Canada is involved in, functions best when government works with the industry to find solutions to emerging problems.
With our Zero Liability Policy, we are already ahead of the government. Our credit education campaign and work with the FCAC demonstrate that MasterCard Canada responds proactively to emerging consumer issues without legislation or regulation.
It is our strong recommendation that government consider avenues other than additional legislation or regulation to address issues in the credit card market. Given the existence of zero liability policies, for example, there does not seem to be any evidence that additional regulation is required. Implementing regulation only when there is a demonstrated need is consistent with the government's smart regulation strategy, and would help ensure Canada's financial system continues to offer choice and competition to consumers. Lastly, such an environment will help solidify Canada's position in the larger global financial industry.