In April 2010, the Government of Canada introduced the new Code of Conduct for the Credit and Debit Card Industry in Canada (the Code), which was developed with the industry to promote greater transparency for merchants and Canadian consumers who use credit and debit cards, as well as to enhance 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 respective participants (e.g. card issuers and acquirers).
The Financial Consumer Agency of Canada (FCAC) has the mandate to monitor PCNOs' adherence to the Code and does so through the supervisory work of its Compliance and Enforcement Branch (CEB). This involves both proactive engagement with PCNOs to work with them to encourage a complete implementation of all elements of the Code, as well as the ongoing monitoring of complaints and concerns brought to FCAC by merchants and consumers.
In monitoring compliance with the Code, FCAC has observed three issues within the payment card industry which it believes are not in line with the key principles set out in Elements 1 and 3 of the Code. The following Guidance sets out these issues and the principles that should be adhered to by PCNOs and their participants, including independent sales organizations (ISOs) and other service providers (e.g. processing, terminal leasing) (“service providers”). FCAC expects PCNOs and their participants to take measures to promptly address these issues to ensure that merchants are able to benefit fully from the key principles set out in Code1. The FCAC will conduct ongoing monitoring to determine compliance.
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. Payment card networks will make all applicable interchange rates easily available on their websites.
In addition, payment card networks will post any upcoming changes to these fees once they have been provided to acquirers.
Payment card network rules will ensure that merchant statements include the following information:
This information must be presented in a manner that is clear, simple and not misleading.
Element 3 - Payment 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 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.
FCAC has received a number of complaints related to sales practices that did not promote increased transparency and as such are not in accordance with Element 1 of the Code. These practices created greater confusion and less transparency, and often misled merchants regarding the terms of the merchant-acquirer agreement. Examples of the types of practices include, without limitation, the following:
In many cases, the sales practices resulted in merchants not being aware of all of the costs associated with the contract.Sales or business practices that do not ensure the provision of information to merchants in a manner that is clear, simple and not misleading fail to comply with the Code.
PCNOs will work directly with their participants to promptly address sales or business practices within their networks that are inconsistent with the requirement to provide clear and simple disclosure to merchants or that may be misleading to merchants.
PCNOs will work with their participants to establish appropriate timeframes within which to address concerns raised by merchants in connection with sales or business practices within a participant’s network and to develop appropriate processes to address such issues within a reasonable time period. PCNOs will also work with their participants to ensure that appropriate remedies are implemented in a timely manner, including amending or voiding contracts that were entered into through such sales practices.
FCAC’s oversight work on the Code has shown that merchants often find multiple service provider agreements3 opaque and difficult to understand in part because of the many different but interconnected payment services they require. As a result, it is often difficult for merchants to make reasonable and informed decisions about the payment card network services they choose to receive, whom they agree to receive them from, what their rights and obligations are in the context of those relationships, and whom they need to contact in the event that something goes wrong.It is therefore incumbent on PCNOs and their participants to work together to ensure that merchants receive clear information about the services being offered in a multiple service provider context before the merchant enters into an agreement or agreements for those services.
PCNOs will work with their participants to improve the clarity of disclosure to be provided to merchants before they enter into a multiple ISO / service provider agreement or agreements where there is a business connection between the participant and ISO / service providers, by requiring that key information be presented in a manner that is easy for merchants to find and understand.
Specifically, PCNOs and their participants will work together to ensure that the following information is provided to merchants, in a consolidated fashion, such as a cover page to the multiple service provider agreement or agreements, before they are entered into by the merchant:
The Commissioner strongly encourages participants to adopt an “information summary box” cover page format in their disclosure (see Appendix 1).
In monitoring compliance with the Code, FCAC has encountered situations where merchants have signed a merchant-acquirer agreement with a participant4, to later discover that in addition to the contract with the participant, they had actually entered into additional contracts for related services (“related service contracts”) that each contained different cancellation clauses and related penalties, fees or costs.
In such situations, when a merchant sought to cancel the merchant-acquirer agreement without penalty following a transaction fee increase or the introduction of a new fee, as permitted under Element 3 of the Code, the merchant was able to cancel the contract with the participant without penalty, but often faced additional costs or penalties to terminate related service contracts. In some cases, these penalties were enough to deter a merchant from invoking his or her right to cancel all contracts without penalty under Element 3 of the Code.
The Code does not prevent the practice of a service provider (e.g. ISO) acting on behalf of a participant and/or service provider when selling payment services to merchants. However, where merchants choose to cancel their contracts with a participant or service provider due to any new or increased fees, the exposure of merchants to cancellation costs or penalties contained in other related service contracts, where there is a business connection with the payment services being provided to the merchant by the service provider, undermines Element 3 of The Code.
The principal of Element 3 should not only apply to the merchant-acquirer agreement, but also to any related service contracts with service providers. In situations where there is a business connection5 between the participant and the service providers, services should be considered related and as a single service package.
PCNOs will work with their participants to ensure that, consistent with Element 3 of the Code, 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 service providers.
The only exception is in a situation where a merchant, on its own initiative, enters into separate contractual arrangements with unrelated service providers. In such situations, the contract(s) with the separate service provider(s) should be treated as separate agreement(s).If the participant or one of the related service providers introduces or increases a fee, the merchant may terminate the contracts with the participant and any related service providers without penalty, in accordance with Element 3 of the Code. However, any agreement separately entered into between the merchant and an unrelated service provider would not be covered by Element 3 of the Code, and as such, the merchant could be subject to a cancellation penalty if it wished to cancel this contract.
FCAC expects that all PCNOs will publicly commit to this Guidance and incorporate the required amendments into their operating rules within 90 days of the date of this guidance.
FCAC expects that all participants will comply with this Guidance and will incorporate any required changes to improve documentation, processes or approaches within 180 days of the date that PCNO operating rules are amended.
This Commissioner’s Guidance is complementary to, and should be read in conjunction with other FCAC Commissioner’s Guidance:
Each PCNO is responsible for ensuring full compliance of participants with The Code. CEB may follow up with PCNOs to ensure that requirements have been met.
Note : This Sample (Information) Summary Box is for illustration purposes only. It should be adapted as necessary by participants to ensure that disclosure of the key information set out in any package of contracts between merchants and participants and any related service providers is provided to merchants in a manner that is clear, simple and not misleading.
The Summary should clearly state that it is provided for the merchant’s information only and DOES NOT provide all information pertinent to the merchant’s Application and Agreement for Processing Debit and Credit Transactions. It should also advise merchants to thoroughly review their contract(s) and to contact their Acquirer if they have questions.
Effective date of the contract(s): XX, XX, XXXX
(Please list other effective dates, if applicable)
|Acquirer||ABC Acquirer Inc.
694 Poplar Avenue
Toronto, ON M5X 1V8
Services provided: Describe primary services provided (e.g. credit processing, debit process, point-of-sale equipment)
|Cancellation of contract(s)||The processing contract(s) and terminal services can be cancelled without penalty within X days of a fee increase or new fee.
There is a fee to cancel the contract for any other reason. Information can be found on page X of the contract, under the heading Cancelling the Contract.
List of main fees and rates under this contract :
|Complaint handling procedures||This information can be found on page X of the contract under the heading Dispute Resolution.|
|Statements||Merchant can opt to receive paper statements or view them online by enrolling at www.abcacquirer.com.|
|Debit Card Processor||ABC Acquirer Inc.
694 Poplar Avenue
Toronto, ON M5X 1V8
Services provided: Processing debit card transactions
|Expiry & renewal||
Contract with the Debit Card Processor expires X years from date of contract. Merchant must advise processor in writing at least X business days before contract expiry date if they do not wish to renew, otherwise contract is automatically renewed for X years.
This information can be found on page X of the contract under heading Contract Renewal
|Credit Card Processor||CC Processing
48 Fifth Avenue
Ottawa, ON K2A 1B9
Services provided: Processing credit card transactions
|Expiry & renewal||Contract with the Credit Card Processor expires X years from date of contract. Merchant must advise processor in writing at least X business days before contract expiry date if they do not wish to renew, otherwise contract is automatically renewed for X years.
This information can be found on page X of the contract under heading Contract Renewal
|Payment Terminal||MNO Leasing Corp.
100 Adanac Road
Burlington, ON L3R 2Y2
Services provided: Point-of-sale terminal leasing Terminal is:
|Expiry & renewal||Terminal Leasing contract expires X years from date of contract. Merchant must advise terminal leasing company in writing at least X business days before expiry date of the contract if they do not wish to renew, otherwise contract is automatically renewed for X years.
This information can be found on page X of the contract under heading leasing renewal.
Footnote 2 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 changes taking effect.
Footnote 3 Multiple service provider agreements are agreements where more than one participant provides the tools or services required to accept, transmit, process payment transactions or facilitate the electronic transfer of information and funds concluded with merchants by one or more participant.
Footnote 4 For example, where a sales representative signed up a merchant for several different services, such as processing, terminal leasing, etc., some of which may be offered by a different service provider.
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.