RBC first to move on pre-paid gift cards
TORONTO—With an eye to the holiday shopping season, the Royal Bank has become the first major financial institution to move on upcoming regulations to make the fees and conditions for pre-paid plastic cards more transparent.
RBC said it is dropping expiry dates on its pre-paid Visa gift cards, which run in value from $25 to $500, and all fees beyond the initial $3.95 activation charge.
Koski said a survey conducted by the bank found more than four-in-10 respondents said the existence of an expiry date, after which any unspent funds are forfeited, was a reason not to purchase the cards.
RBC said its pre-paid cards will continue to show an expiry date but a new card can be requested at no charge if a balance remains after that date.
Last month, federal Finance minister Jim Flaherty announced his intention to make expiry dates illegal on the cards and to demand upfront disclosure on any hidden fees.
Flaherty’s press secretary, Kathleen Perchaluk, issued a statement welcoming RBC’s early response.
Other institutions are expected to follow suit, before or after new regulations are issued—likely in January.
The Bank of Montreal said it does not issue gift cards, but does offer pre-paid travel credit cards whose funds do not expire.
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, as well as for those buying them for gifts.
Koski said the cards are especially popular in the weeks before Christmas as gifts to children, who can use them as they would cash—or to shop online.
But the sector has faced criticism for hidden fees that reduce the face value of pre-paid credit cards. These can include monthly or annual fees, maintenance costs, as well as ATM charges.
The Financial Consumer Agency of Canada offers a tip sheet on its webpage about the pre-paid cards, advising consumers to be aware of hidden costs.
The agency points out that a $4.95 activation fee on a $50 card represents almost 10 percent of the pre-paid value.