TORONTO – Canada’s largest banking group has dropped expiry dates and most of the fees on its prepaid Visa cards in the wake of Finance Minister Jim Flaherty announcing plans to introduce new rules for the cards.
RBC Royal Bank (TSX:RY) said Wednesday it will continue to charge a one-time flat fee of $3.95 to issue the prepaid card but all the money loaded will remain available to make purchases. Its prepaid cards will continue to show an expiry date but a new card can be requested at no charge if a balance remains after that date.
Flaherty said last month that the government believes it’s not appropriate for consumers to lose money if a gift card expires after a period of time. He said the government wants better disclosure of the terms of conditions of prepaid credit cards.
Flaherty’s press secretary, Kathleen Perchaluk, issued an email statement saying the government would continue a “pro-consumer agenda.”
“We’re pleased to see some financial institutions pre-emptively apply our government’s new rules to protect consumers, we will continue to push a robust pro-consumer agenda on pre-paid credit cards,” Perchaluk said.
RBC said there will be no usage, maintenance nor inactivity fees for its prepaid cards, which come in denominations ranging from $25 to $500.
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 faced criticism for exorbitant hidden fees that reduced the face value of prepaid credit cards. 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.
The Opposition has called the new rules a “small step in the right direction,” but charged that Flaherty was still ignoring the issues of sign up, usage and reload fees which could cost between $1 and $40.