Finance Minister Jim Flaherty announced new regulations for the prepaid credit card market Wednesday, October 24, 2012, requiring what the finance minister called “reasonable disclosure” and eliminating some things about the cards the finance minister says are “quite unfair”.
The Canadian government has done a lot to regulate credit and debit cards, it hadn’t done much on the prepaid credit cards, Flaherty said.
Originally, prepaid cards included an expiry date. Now, issuers of prepaid cards will no longer be able to impose expiry dates. Also, more clarity is required about previously hidden fees and conditions.
Some cards carry fees that reduce their face value, including monthly or annual fees, maintenance costs and ATM charges. This is misleading to consumers as many are not aware of such fees and costs and are shocked to learn the value of their card is much less than originally understood.
New Rules
Prepaid credit card issuers are now required to prominently disclose the card’s fees on the card box packaging. Any conditions and other important information about using the card must now be provided in “clear, simple and unambiguous language”, according to Flaherty.
“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.
Under the card rules, cards will no longer expire. Financial institutions will not be able to impose maintenance fees or dormancy fees within the first year of the card’s activation.
Fee increases or new fees for the card will require advance notice to consumers.
According to Flaherty, the proposed regulations for prepaid cards will be published shortly. The announcement of the new rules was strategically planned as it precedes Financial Literacy Month, which starts in November.
Flaherty said the changes were motivated by the fact that young people are big users of prepaid credit cards. Some parents use these cards to introduce their children to using plastic credit for purchasing goods, while limiting the risk of theft and over-spending. Other big users of prepaid credit cards are consumers who are unable to get conventional credit or debit cards.
It is the expectation that these new rules will protect Canadian consumers and make them fully aware of all fees and conditions that may apply to prepaid credit cards.
To view the official announcement, click here.
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