OTTAWA – Ottawa is stepping in with new rules for the largely unregulated prepaid credit card market.
Finance Minister Jim Flaherty is to announce Wednesday that in the future, issuers of prepaid cards will not be able to impose expiry dates and must be up front about hidden fees and conditions.
The move is part of the government’s expanding code of conduct measures to govern credit and debit transactions, that had previously not applied to the relatively new prepaid market.
While still a small segment of the market, prepaid 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.
But the sector has also faced criticism for exorbitant hidden fees that reduced their face value and fooled customers. These can include monthly or annual fees, maintenance costs, as well as ATM charges.
The most notorious example occurred two years ago when Hollywood celebrity Kim Kardashian backed away from endorsing a prepaid card bearing her name after a public outcry over the card’s usage fees, including a close to $60 activation fee.
The card even grabbed the attention of the attorney general of Connecticut.
The new regulations in Canada would require an information box disclosing the fees displayed prominently on the exterior package and other documentation prior to issuance.
A government official said the measures are in response to concerns about some features of prepaid cards issued by large financial institutions, adding that in some products, “terms, conditions, fees and limitations” were not always made clear.
The official said the government wants to make sure consumers know what they are agreeing to before making the purchase.