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Canadian Case Could Have Implications for Open-Loop Prepaid

Canada_maple_leafA recent decision by the Supreme Court of British Columbia could have implications for the network branded prepaid card industry in Canada. Although the provincial court denied certification of the class action in Jiang v. Peoples Trust Company, it came to a preliminary conclusion that network branded prepaid cards are subject to the Business Practices and Consumer Protection Act (BPCPA), a British Columbia statute that includes restrictions on prepaid card expiration dates and fees.

Legal experts note that most provinces have consumer protection laws governing prepaid cards but conventional wisdom and some minister guidance previously suggested that those laws were intended to apply to retail gift and shopping mall cards. Only a few of the provincial laws, for example in Quebec and Alberta, specifically exclude bank-issued products. The decision opens the door for network branded prepaid providers to have to comply with a patchwork of provincial prepaid card rules in addition to federal requirements. While this could present complexity for national programs, it also could affect the economics of programs, depending on their fee schedules.

For example, the BPCPA prohibits expiration dates and restricts fees to a CA$1.50 purchase fee and permits replacement and customization fees, and post-purchase fees after 15 months or 18 months not to exceed CA$2.50 per month.

During the bulk of the time period the Jiang case covers—November 2008 to July 2014—there were no Canadian federal statutes governing bank-issued prepaid cards, so arguments that provincial laws were constitutionally inapplicable to cards issued by banks could not be made. (A few of the defendants in the case aren’t federally regulated.) The federal Prepaid Payments Products Regulations went into effect in May of 2014. But the court’s decision in Jiang and an earlier decision of the Supreme Court of Canada regarding credit card foreign currency conversion charges—though not cited by the court here—seem to suggest that bank issuers are subject to provincial consumer protection laws, at least in certain circumstances.

Sharissa Ellyn, of counsel at Norton Rose Fulbright Canada LLP and a legal adviser to the Canadian Prepaid Providers Organization, explains that in the credit card decision, Bank of Montreal v. Marcotte, the Supreme Court of Canada considered in depth whether provincial consumer protection disclosure requirements apply to credit cards issued by banks. “Although the Supreme Court of Canada in Marcotte decided on the facts of that case that the Quebec consumer legislation did apply, it did not close the door on constitutional arguments to be made by federally regulated financial institutions, particularly where there is both federal and provincial legislation that address the same or a similar activity,” Ellyn wrote in a recent blog. While the court in the Jiang case stated that general purpose prepaid cards fall under British Columbia’s law, Ellyn believes more legal analysis—and perhaps another court case—are needed before there is certainty across Canada for federally regulated prepaid issuers. In the meantime, issuers of prepaid cards should continue to track provincial consumer protection laws, she says.

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