Prepaid credit cards seem like the perfect gift – an infusion of spending power, without the risk of wrapping up cash, and conveniently packaged as slick plastic. I certainly thought so when I received one last holiday – and relished the thought of putting that payment toward the rare indulgence of a fancy dinner out. When it came time to pay, however, my never-been-used credit card kept coming up declined – despite repeated confirmation that my balance was adequate. After being forced to rely on my own funds to foot the bill, I called the customer service hotline in a huff, only to be informed that a full 15 per cent gratuity fee was automatically added to all restaurant purchases. My response… “well, that’s a bit sneaky.” And it was, with no mention of the fee on the card, the packaging – anywhere.
Consumer Backlash Inspires Change
It’s clear my experience isn’t an isolated one. In response to growing customer concerns, the government has stepped in with new restrictions for prepaid card providers, banning expiry dates and hidden fees.
As outlined by Finance Minister Jim Flaherty in an announcement on Wednesday, prepaid credit card packaging must clearly display all fees, and customers are to be informed in advance if and when fee structures change. The call for transparency is paired with the government’s current efforts for widespread financial literacy. Many customers may not be aware of the effect these fees can have on the face value of their card, such as ATM usage costs or monthly fees – even the risk of losing their money should the card expire.
New Provider Restrictions
The new rules, which will be governed by the Financial Consumer Agency, include:
- No monthly fees and dormancy fees within the first year of the card’s activation
- Clear breakdown of fees on package, without the use of ambiguous language
- No expiry dates
- No fee increases permitted without notification to the customer
Providers who fail to adhere to the new guidelines will be subjected to fines from the FCA, and will be forced to refund their customers.
Transparency And Financial Literacy Team Up
It’s good news for the target market for prepaid cards, who also happen to be among the most financially vulnerable. Long hailed as a learning tool by parents teaching teens about responsible spending, or as an option for those not qualified for conventional credit, the new responsibility placed on prepaid cards will prevent the nickle and diming of these often restricted financial resources. It’s good news for consumers and sure to take the frustration out of a favourite stocking stuffer.