Saturday , September 30, 2023

The Canadian Government Updates Its Code of Conduct for the Payments Industry

By Jim Daly

Canada’s Finance Minister, Joe Oliver, on Monday issued an update to the government’s 5-year-old Code of Conduct for the credit and debit card industry. The update adds consumer protections, addresses the growth of mobile payments and premium cards, and makes other changes intended to give merchants more information about and control over their payment-card acceptance costs.

The updates come after government officials conferred with retailers, small businesses, payment card networks and merchant acquirers. “Following consultations with stakeholders, these new changes will make the Code even stronger by addressing unfair business practices and improving transparency for merchants and consumers, including new provisions that apply specifically to mobile payments,” the Department of Finance said in a news release.

A key change requires merchant acquirers to fully pass through to merchants the interchange reductions Visa Inc. and MasterCard Inc. announced last November, or else merchants can cancel their acceptance contracts without penalty. Those reductions will bring average card-acceptance fees down to about 1.5%, according to the Toronto Globe and Mail. Canadian merchants have complained about increasing interchange costs in recent years as banks issued higher-cost premium credit cards and major-brand debit cards.

Other changes will impose new premium-card branding requirements on issuers so that merchants can more easily identify such cards at the point of sale. Issuers also must inform cardholders about the costs premium cards may impose on merchants.

Much of the update extends the Code’s reach to mobile payments and includes new consumer protections. For example, consumers are to have full control over the default settings of mobile wallets.

Related provisions try to ensure that the strict separation of different payment types on the same card continues. In addition to banning credit and debit functions on the same card, the current code does not allow a debit card to have both PIN and signature authentication, which is typical of U.S. debit cards. That issue first arose when the first Visa-branded debit cards appeared in Canada.

The revised code will allow debit and credit functions to reside in the same mobile wallet, “provided that they are clearly separate payment applets, and consumers can select which payment applet shall be used for contactless payments,” the new language says. It adds that credit and debit credentials can be included only on wallets that do not have pre-set default preferences that cannot be changed.

New merchant-related provisions include a complaints-handling process for Code-related issues; enhanced acquirer disclosure requirements that will require plain-language statement of key contract terms, conditions and merchant fees in information summary boxes on merchant contracts; greater flexibility for merchants to exit their contracts without penalty, and limitations on the automatic renewal of contracts.

Two business groups that were invited to join Oliver for Monday’s announcement—the Retail Council of Canada and the Canadian Federation of Independent Businesses—praised the revisions, according to the Globe and Mail. Another trade group, however, the 98,000-member Small Business Matters Coalition, said it welcomed the updated rules but that Visa and MasterCard fees are still too high.

The Code originally was described as voluntary, although the government’s clear expectation in 2010 was that networks, acquirers and issuers would abide by it.

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