Feds move to regulate pre-paid credit cards
OTTAWA—Ottawa is stepping in with new rules for the largely unregulated pre-paid credit card market.
Finance minister Jim Flaherty announced yesterday that in the future, issuers of pre-paid cards will not be able to impose expiry dates and must be up front about hidden fees and conditions.
“We have done a lot of regulation with respect to debit and credit cards,” Flaherty noted.
“We haven’t done much with respect to pre-paid cards.”
While still a small segment of the market, pre-paid plastic has become an option for consumers without conventional credit or debit cards, young adults, and for parents who want to introduce their children to using credit while limiting the risk of theft and over-spending.
But the sector also has faced criticism for exorbitant hidden fees that reduced their face value and fooled customers.
These can include monthly or annual fees, maintenance costs, as well as ATM charges.
“In our view, it was inappropriate for financial institutions to have cards go dormant,” Flaherty said.
“For example, people would get cards as gifts for their birthdays or whatever, not realize that the $200 on the card would expire over a certain period of time,” he said.
“We’re addressing that kind of thing so that it’ll be more like currency to have a pre-paid card, just as it is to walk around with a debit card or a credit card.”
The new regulations in Canada would require an information box disclosing the fees displayed prominently on the exterior package and other documentation prior to issuance.
“We have to make sure we give the agencies, like the Financial Consumer Agency of Canada, the . . . regulatory tools they need so that they can enforce reasonable disclosure and actually eliminate some things that are clearly, in my view, quite unfair,” Flaherty said.
A government official said the measures are in response to concerns about some features of pre-paid cards issued by large financial institutions, adding that in some products, “terms, conditions, fees, and limitations” were not always made clear.
The official said the government wants to make sure consumers know what they are agreeing to before making the purchase.
Glenn Thibeault, the NDP’s consumer protection critic, called the new rules a “small step in the right direction,” but said Flaherty still was ignoring the issues of sign up, usage, and reload fees which could cost between $1 and $40.
“Conservatives make these minor announcements when they’re feeling the heat in an attempt to distract from other issues,” he charged.
“The fact is the Conservatives refuse to stand up against the banks and credit card companies,” he said.