In late October 2012, the Canadian government published its Prepaid Payment Products Regulations proposal via the Canada Gazette. The document spells out program disclosure requirements and fee prohibitions that would need to be met by providers of prepaid products in Canada, namely banks. The proposal is focused primarily on the regulation of Canada's network-branded, general-purpose reloadable card market.
Mirroring the movement to standardize fee disclosures by U.S. providers, the Canadian proposal mandates what information must by provided to consumers, such as fee schedules, toll-free customer service phone numbers and how to verify the balances in prepaid accounts. The proposal would also abolish expiration dates on cards that are not promotional in nature; mandate that institutions could not charge overdraft fees; and limit the imposition of maintenance fees to only after cards have been in use for 12 months.
The Canadian Department of Finance attached a regulatory impact analysis statement to the proposal which lays out the government's case for the regulation of the prepaid market in Canada. The department said the consumer safeguards applied to credit and debit products in Canada should be extended to prepaid – a similar argument is made by consumer advocacy groups in the United States.
"Canadian consumers have raised concerns regarding some features of prepaid payment products issued by federal financial institutions," the department said. "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."
The department believes the regulations would be beneficial for a "broad spectrum of Canadian consumers" and not costly for banks to implement. It also stated that the Financial Consumer Agency of Canada would enforce the regulations, so no new government agency would need to be created. In the United States, passage of the Durbin Amendment to the 2010 Dodd-Frank Act mandated the creation of the Consumer Financial Protection Bureau to oversee the entire financial services industry, including prepaid.
In November 2012, Canadian news outlets reported on another proposal that targets prepaid. This effort involves the Royal Canadian Mounted Police, which wants to add the inspection of prepaid cards at border crossings. As in the United States, Canadian law enforcement is worried about the possibilities of criminal organizations employing prepaid cards to smuggle and launder illicit funds.
The reports said RCMP Commissioner Bob Paulson pitched the idea at a June 2012 meeting of law enforcement representatives from Canada and its allies, including the United States. The reports quoted from a note of Paulson's proposal that said law enforcement in Canada, as well as its counterparts in allied countries, cannot check prepaid cards because they do not fall under the definition of monetary instruments in anti-money laundering (AML) legislation.
For more information about the issue from the United States' perspective, see "FinCEN pushes for cross-border prepaid enforcement," SellingPrepaid, Nov. 16, 2012, issue 12:11:A.
Debate has begun in Canada about the regulation of prepaid from consumer protection and law enforcement standpoints. On the legal news site, Lexology, attorneys from the Toronto-based law firm of Borden Ladner Gervais LLP wrote in an analysis of the consumer protection regulatory proposal that the definition of prepaid is too vague and may include products not intended to be regulated, such as secured credit cards.
On the law enforcement side, Canadian Privacy Commissioner Jennifer Stoddart reportedly is concerned that broadening AML policies to include prepaid cards will impinge on law abiding prepaid cardholders, such as students studying abroad who receive funds from parents via prepaid cards. The regulations also raise privacy concerns as they involve the collection of more personal information about legitimate prepaid cardholders, Stoddart said.
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