Canadian Government Imposing New Rules on Prepaid Credit Cards

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.

credit-card-statistics

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.

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3 Responses to Canadian Government Imposing New Rules on Prepaid Credit Cards

  1. A consumer code will help the government in initiating good spending practices among Canadian public. The more knowledge people will have about their rights as a prepaid credit card holder. Good spending practices will maintain a good cash flow coming from the card holders.

  2. Russell, I feel that apart from creating a Code of Conduct, it is the responsibility of Government to teach people how to use the code for their benefit. On the consumer’s part, the Canadians are also required to make an informed decision every time they take their prepaid card out for shopping.

  3. This decision to regulate pre-paid spending has come too late for me. I already have spent thousands through this card and don’t know how to control my expenditures. I feel the extra charges and the minimum activation fee are just a wastage for people who don’t even pick the card twice after getting it from big retail chains.

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