CG-10 Code of Conduct for the Credit and Debit Card Industry in Canada - Increased Disclosure in Sales and Business Practices and Cancellation of Contracts without Penalty

Ove​rview

As part of its monitoring activities, FCAC observed two industry practices that do not comply with Elements 1 and 3 of the Code of Conduct for the Credit and Debit Card Industry in Canada (the Code). The following guidance addresses these practices by providing direction to the PCNOs and their Participants on FCAC’s compliance expectations. Footnote 1

Who this gu​idance is for 

This guidance applies to payment card network operators (PCNOs) that operate in Canada and their participants, including card issuers and acquirers, independent sales organizations (ISOs) and other service providers such as terminal leasing firms (“Participants”).

In this guidance

  1. Details and History
  2. Background
  3. Purpose
  4. Relevant Elements of the Code
  5. Practice #1: Sales and business practices
    1. Commissioner’s Guidance-Sales and business practices
  6. Practice #2: Multiple contract cancellation penalties, costs or fees
    1. Commissioner’s Guidance — Multiple contract cancellation penalties, costs or fees
  7. Conclusion

1. Details and history

Publication date: February 13, 2013
(Effective date: November 12, 2013)
Consulted: Public consultation from March 15, 2016, to April 15, 2016
Amendment effective date: November 13, 2016 - 
Read previous version​

2. Bac​kground

In April 2010, the Government of Canada introduced the Code of Conduct for the Credit and Debit Card Industry in Canada (the Code). Developed with the industry, the Code promotes greater transparency for credit and debit cards users, and enhances fairness, clarity and choice within the credit and debit card industry. The Code applies to payment card network operators (PCNOs) that operate in Canada and their participants including card issuers and acquirers, independent sales organizations (ISOs) and other service providers such as terminal leasing firms (“Participants”).

The Financial Consumer Agency of Canada (FCAC)’s Supervision and Promotion Branch (SPB) monitors PCNOs' adherence to the Code. FCAC works proactively with PCNOs as they implement the Code’s elements, and monitors complaints and concerns it receives from merchants and consumers.

3. Purp​ose

As part of its monitoring activities, FCAC observed two industry practices that do not comply with Elements 1 and 3 of the Code. The following guidance addresses these practices by providing direction to the PCNOs and their Participants on FCAC’s compliance expectations. Footnote 1

4. R​elevant Elements of the Code

Element 1 – Increased Transparency and Disclosure by Payment Card Networks and Acquirers to Merchants​

The payment card networks and their participants will work with merchants, either directly or through merchant associations, to ensure that merchant–acquirer agreements and monthly statements include a sufficient level of detail and are easy to understand.

All merchant–acquirer agreements will include a cover page containing an information summary box that provides key elements of the contract in a consolidated fashion and a fee disclosure box, using the templates in Addendum I.

Acquirers must also disclose all other fees (e.g., monthly minimums, administration fees, etc.) charged to the merchant.

Payment card networks will make all applicable standard interchange rates and acquiring network assessment fees easily available on their websites. In addition, payment card networks will post any upcoming changes to these rates and fees on their websites once they have been provided to acquirers. Payment card network rules will ensure that merchant statements include the following information:

  • effective merchant discount rateFootnote2 for each type of payment card from a payment card network that the merchant accepts;
  • interchange rates and, if applicable, all other rates charged to the merchants by the acquirer;
  • the number and volume of transactions for each type of payment transaction;
  • the total amount of fees applicable to each rate; and
  • details of each fee and to which payment card network they relate.

Element 3 – Pa​yment card network rules will ensure that, following notification of a fee increase or the introduction of a new fee, merchants will be allowed to cancel their contracts without penalty.

By signing a contract with an acquirer, a merchant will have the right to cost certainty over the course of their contract. As a result, in the event of a fee increase or the introduction of a new fee, merchants will be allowed to opt out of their contracts, without facing any form of penalty, within 90 days of receiving notice of the fee increase or the introduction of a new fee.

Merchants may not cancel their contracts without penalty in relation to fee increases made in accordance with pre-determined fee schedules, such as those based on merchant sales volume, provided that the schedules are included in the merchant’s contract.

5. Practice #1: Sales and business practices

FCAC received complaints regarding the sales and business practices of some Participants. Specifically, merchants were complaining of not clearly understanding their merchant-acquirer agreements as a result of these practices which included, but are not limited to, the following:

  • failing to provide merchants with complete copies of the merchant–acquirer agreements or terms incorporated in them by reference (e.g., not providing in a timely manner a copy of applicable transaction and processing fees and rates at the time merchant–acquirer agreements are entered into);
  • unilaterally altering or modifying merchant–acquirer agreements without adequate notice (e.g., 30 days or more before the changes);Footnote 3
  • advertising and promising merchant rates and fees that Participants are not honoring;
  • inconsistent disclosure between the merchant–acquirer agreement and the merchant’s monthly statements (i.e. different terminology used to describe fees and rates or different fees/rates in agreements and statements); and
  • misrepresenting the terms of the merchant–acquirer agreement.

In many cases, the sales and business practices resulted in merchants not being aware of all of the costs related to their merchant–acquirer agreements, contrary to the Code.

a. Comm​issioner’s Guidance — Sales and business practices

PCNOs will work directly with their Participants to ensure that their sales and business practices meet the requirement of providing information in a manner that is clear, simple and not misleading, in accordance with Element 1.

PCNOs will work with their Participants to develop processes to ensure that merchant concerns related to sales and business practices are addressed in a timely manner.

PCNOs will also work with their Participants to ensure that appropriate remedies are available in a timely manner, including amending or voiding contracts that were entered into in violation of Element 1.

6. Prac​tice #2: Multiple contractsFootnote4 cancellation penalties, costs or fees

The Code does not prevent a Participant from entering into an agreement with another Participant when selling payment services to merchants. While monitoring compliance with the Code, FCAC encountered situations where merchants had signed a merchant–acquirer agreement with a Participant and later discovered they had entered into an additional agreement with another Participant stipulating different cancellation clauses and related penalties, fees or costs.

In situations where merchants had entered into additional agreements (related service contracts), they were able to cancel their contract with the primary Participant without penalty following a fee increase or a new fee as permitted under Element 3. However, merchants often faced additional costs or penalties to terminate their related service contracts with the additional Participants. In some cases, the penalties were significant enough to deter merchants from invoking their right to cancel all contracts without penalty as required by Element 3.

a. Comm​issioner’s Guidance — Multiple contracts cancellation penalties, costs or fees

Element 3 applies to the merchant–acquirer agreements and any related service contracts (including renewals) with Participants. In situations where there is a business connectionFootnote5 between Participants, services are deemed to be related and considered as part of a single service package.

Consistent with Element 3, merchants will be permitted to cancel the merchant–acquirer agreement and all related service contracts without penalty, following notification of any new or increased fees by any Participant or related Participants.

In a situation where a merchant, on its own initiative, enters into separate contractual arrangements with unrelated Participants, the contract(s) with the separate Participant(s) constitute(s) a separate agreement(s).

7. Con​clusion​

This Commissioner’s Guidance is complementary to, and should be read in conjunction with, other FCAC Commissioner’s Guidance documents:

Each PCNO is responsible for ensuring full compliance with the Code by its Participants. FCAC may follow up with PCNOs to ensure that requirements have been met.

Footnotes

Footnote 1

Guidance should be read in conjunction with the Code of Conduct for the Credit and Debit Card Industry, and works in tandem with the various elements of the Code.

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Footnote 2

The effective merchant discount rate is calculated as the total fees paid by the merchant to an acquirer, related to the processing of a specific type of payment card from a payment card network, divided by the total sales volume for that type of payment card.

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Footnote 3

For clarity, as per Element 2 of the Code, any fee increases or the introduction of a new fee related to any credit or debit card transactions requires a minimum of 90 days’ notice prior to changes taking effect.

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Footnote 4

Multiple Participants agreements are agreements where more than one participant provides the tools or services required to accept, transmit and process payment transactions or facilitate the electronic transfer of information and funds concluded with merchants by one or more Participant.

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Footnote 5

For example, contractual arrangements between the parties or business linkages (e.g., holding company or affiliate relationship), or where financial incentives and/or payments can be confirmed through the PCNOs and their Participants.

Return to footnote 5 referrer

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