May 1, 2016 marks two years since new regulations were established to address Canadians' concerns about prepaid payment products.
The regulations, which were designed to make it easier for consumers to evaluate prepaid options and pricing, put the onus on Canadians to understand what prepaid products are, and how they differ.
But consumer sentiment around the Ontario Court of Appeals' recent dismissal of a $200M class action suit that alleged Bell's prepaid card system was unlawful shows confusion about prepaid cards still lingers, particularly around what constitutes a gift card.
Here's a recap of the 4 things you should know about prepaid cards and gift cards in Ontario.
1. Different rules apply to different gift card products
The class action suit against Bell sheds light on the confusion surrounding different gift card products, and attempts to lump prepaid calling cards, purchased by consumers who don't have subscription cell phone plans, into the category of gift cards.
These prepaid phone cards are not gift cards, nor are they prepaid Mastercard or Visa cards (many times referred to as prepaid credit cards). Prepaid calling cards do not fall under the same regulations as gift cards or prepaid credit cards.
Here's how the different card products break down in Ontario:
Sources: Consumer Protection Ontario, "Buying or Using Gift Cards." Date Modified: 2014-04-29.
Financial Consumer Agency of Canada, "Your Rights Under the Prepaid Payment Products Regulations." Date Modified: 2014-04-29.
2. Prepaid MasterCard or Visa cards come in two flavours
It's important to know that prepaid payment cards (sometimes referred to as prepaid credit cards since they run on Visa or MasterCard networks) are not all treated the same under Canadian regulations. Prepaid cards come in two flavours: promotional cards and non-promotional cards. Non-promotional prepaid products are the most widely used by consumers. These are the cards you can purchase at retailers like Shoppers Drug Mart or Wal-Mart, or purchase at bank branches for personal use or gifts. These non-promotional cards:
- Must have clearly disclosed information about the card and the card fees
- Have funds that do not expire
- Cannot levy maintenance fees for at least 12 months
Note that the funds on the card cannot expire, but the card itself can expire. Expiration dates are printed on the front of the card, and the card can be reissued if you call the phone number on the back of the card. Promotional cards differ because they are purchased by businesses or organizations as part of reward, incentive, loyalty, or rebate programs. These cards are funded by businesses (rather than consumers), and given out for a specific purpose, typically with limitations on how, when, and for how long the card can be used. Think rewards you receive from work, or rebates from cereal box contests or electronic products. Businesses prefer using prepaid cards because recipients (like employees and customers) prefer them for their ease of use and versatility since they can be used at millions of locations around the world and online. Since the recipient is not "entitled" to these funds, the fee structure on promotional cards tend to have more variability than non-promotional cards.
3. Hidden Fees are Not Allowed
In Canada there are many different kinds of prepaid credit cards, each with varying fee schedules. The regulations were established in 2014 partly because of a lack of clear and simple language, and the lack of disclosure for these fees. Prepaid MasterCard and Visa cards now require clear information on product packaging so that consumers know exactly what they're purchasing, and can better compare prepaid products. Because fees are generally levied on all gift card and prepaid products, always check the fees and compare products before you buy.
4. Businesses Prefer Issuing Prepaid Cards for Rebates, Promos, and Giveaways
Promotional prepaid MasterCard and Visa cards are growing in popularity. Studies show that promotional prepaid cards are widely accepted and preferred by marketing agencies and consumer packaged goods (CPG) companies when used as part of rebate, reward, incentive, or loyalty programs. In fact, the 2015 Canadian Incentives and Rewards Trends Study finds that consumers prefer prepaid cards two times more than store bought gift cards and 16 times more than company-branded merchandise. Businesses also prefer using prepaid credit cards because they provide payment flexibility, and they offer significant advantages over traditional payment products like paper cheques. Card functionality is variable as well: prepaid cards can be reloadable, one-time-use, restricted access, ATM-enabled, or even be personalized and branded for promotional purposes.