Prepaid credit cards offer a no-hassle way to make purchases. Simply preload funds and start spending immediately – no credit check required – but convenience has its cost. Prepaid cards often come with hidden fees that can drain your card’s balance. To address this, the Department of Finance has introduced new regulations on prepaid credit cards to better protect consumers.
The New Rules for Prepaid Credit Cards
Here is an overview of the new consumer-friendly rules for prepaid credit cards:
- a ban on maintenance fees for the card for at least one year after the card is activated
- a ban on assigning an expiry date to prepaid cards
- a requirement that federally regulated financial institutions disclose a list of all the fees associated with the card in an information box that is printed in a visible location on the card’s packaging
- a requirement that all other key information be given to the consumer before the card is issued in a manner that is “clear, simple and not misleading”
Types of Prepaid Cards
Not all prepaid credit cards are created equal, and there are two main variations: promotional and non-promotional.
Non-promotional cards, including employee incentives and gifts in lieu of increased payroll, fall under the new rules and cannot have an expiry date. Meanwhile, promotional cards (i.e. gifts as an incentive for doing something) can still come with an expiry date.
New Rules in Response to Consumer Frustrations
The Regulatory Impact Analysis Statement published by the federal government sheds some light on what lead to the new 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 federal 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.”
Key Information to be Displayed on Card Package
Key information will no longer be hidden in the fine print. “The Regulations require that the product’s exterior packaging prominently display an information box disclosing the fees,” says Natasha Nystrom, communications manager at Financial Consumer Agency of Canada (FCAC). “If the consumer applies for the card or product by telephone, the fees must be disclosed verbally.”
The information that must be displayed 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
- all fees that may apply
- a statement that the funds are not insured by the Canada Deposit Insurance Corporation (when that is the case)
- information about fund expiry dates.
How Will the FCAC Enforce the New Rules?
The FCAC will take an active role in enforcing compliance with the new regulations for prepaid credit cards. “FCAC has been working, and will continue to work with federally regulated financial institutions that offer prepaid payment products to ensure that the new requirements are implemented in the best interest of consumers,” says Nystrom.
“We encourage consumers who feel that a federally regulated financial institution that issued a prepaid card is not respecting their rights to contact FCAC. We review and monitor the nature and number of consumer complaints we receive to determine whether there is a possible breach of the law, code of conduct or public commitment. FCAC has the authority to impose a number of compliance measures, including monetary penalties in certain circumstances.”
You can reach FCAC by calling toll-free 1-866-461-3222 or by visiting its website.
Benefits of the New Rules for Consumers
“With the new regulations, more information will be provided to consumers, allowing them to make an informed decision when choosing a prepaid product,” explains Nystrom. “The regulations also limit certain practices that may not be beneficial to consumers, such as fund expiry and maintenance fees, giving consumers increased access to their prepaid funds.”