The Canadian federal government is taking action to impose new rules on prepaid credit cards that Ottawa says is hurting the average consumer. Some of the measures the government announced Tuesday were the end to expiry dates to their value as well as ending charges for high fees just to keep the card active.
According to Minister of State for Finance Kevin Sorenson and Minister of State for Small Business Maxime Bernier, the new rules will be applied to all prepaid credit cards across the country, but will only take effect in May of next year. This means that any prepaid credit card that will be sold during the holiday season will not have to abide by the new rules.
The prepaid credit cards, which are often sold by either retailers, are given as gifts, but many customers complain that, for instance, $50 cannot go very far in value because all of the exorbitant fees that come with maintaining one ($5 activation fee, $5 annual maintenance fee and a $3 transaction fee).
It should be noted, however, that there are no interest charges. However, prepaid credit users cannot allow their balances to go below zero so cards can only be used once they are topped up by the account holder(s).
On top of the new rules, Ottawa plans to initiate an initiative that would establish a national financial code to modernize regulations and consumer rights.
“A Consumer Code will help Canadians make more informed financial decisions today, and in Canada’s rapidly changing, increasingly digital financial marketplace in the future,” said Minister Bernier in a statement. “In line with the goals set out in the Speech from the Throne, these new prepaid card regulations are a timely and effective addition to the consumer toolkit.”
The prepaid card industry in the Great White North is still new but is already worth an estimated $850 million. Prepaid credit cards were established in order to end many of the concerns that come with owning a traditional credit card, such as interest charges, spending money that isn’t theirs and purchasing goods or services that they can’t afford.
Of course, despite the growing popularity of prepaid credit cards, consumers are still signing up for the average credit card offered by their respective banks. In the United States, for instance, an infographic highlights that nearly three-quarters (72 percent) of consumers have at least one credit card and 20 percent has four or more cards.
Debt is a tremendous problem for both nations. In the U.S., the average credit card debt per adult is more than $8,000, while in Canada that same figure is just less than $4,000. Although Federal Reserve Chairman Ben Bernanke has been quite mute on consumer debt, the Bank of Canada and Finance Minister Jim Flaherty have urged Canadians to begin addressing their own debt matters.
“We cannot grow indefinitely by relying on Canadian households increasing their borrowing relative to income. Nor can residential investment remain near a record share of GDP, particularly given signs of overbuilding and overvaluation in segments of the real estate market,” said former Bank of Canada head Mark Carney in May.
Ahead of the federal election in early 2015, the Conservative government has adamantly stated that it has taken the necessary actions to enhance consumer rights.