Frequently Asked Questions—Proposed Prepaid Payment Products Regulations

What are prepaid payment products?

Relatively new to the Canadian market, 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. Some prepaid payment products are available through financial institution branches; others, although they are issued by financial institutions, are sold at retail commercial outlets.

Why is the Government proposing the Prepaid Payment Products Regulations(the Regulations)?

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 proposed Regulations would deliver on this commitment.

What would the proposed Regulations do?

To support informed financial decision making, the proposed Regulations would require disclosure of fees in an information box to appear prominently on the exterior packaging and other documentation prior to issuance. The proposed Regulations would 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.

The proposed Regulations would also limit certain business practices unique to prepaid payment products that could be harmful to consumers. For instance, the proposed Regulations would prohibit fund expiry of customer purchased products to allow consumers full access to their prepaid funds. They would also prohibit federally regulated financial institutions from imposing a dormancy or maintenance fee for at least one year after activation for customer purchased products.

To whom would the proposed Regulations apply?

The Regulations would apply to all federally regulated financial institutions that issue prepaid payment products.

Why will the imposing of dormancy or maintenance fees only be prohibited for one year after activation?

Based on research and consultation with stakeholders, prohibiting federally regulated financial institutions from imposing a dormancy or maintenance fee for at least one year after activation would give the consumer a healthy timeframe to make use of a prepaid product.