Effective date: October 18, 2011
In August 2010, the Government of Canada announced the introduction of the new Code of Conduct for the Credit and Debit Card Industry in Canada (the Code), which was developed to promote greater transparency for business owners 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, organizations that are members of those networks and their participants (e.g. card issuers and acquirers). The Financial Consumer Agency of Canada (FCAC) was given the mandate to monitor PCNOs' adherence to the Code. FCAC's Compliance and Enforcement Branch (CEB) conducts that monitoring.
During monitoring of the implementation of the Code by members of the credit and debit card industry, CEB encountered several situations where merchants received a notice of a change affecting the fees related to their acceptance of credit and debit payments; however, the notice did not include information that would allow the merchants to fully understand the impact the changes may have on their costs for accepting these payments. Moreover, in certain cases, by the time the merchants understood the impact of the changes (typically only after the fee changes were implemented), they would not have been able to benefit from the 90-day opportunity to cancel their contracts without penalty, as set out in the Code.
Payment card network rules will ensure that merchants will receive a minimum of 90 days notice of any fee increases or the introduction of a new fee related to any credit or debit card transactions. Payment card networks will provide at least 90 days notice to acquirers for rate and/or fee changes and at least 180 days notice for structural changes.
Notification is not required for fee changes made in accordance with predetermined fee schedules, such as those based on merchant sales volume, provided that the schedules are included in the merchant's contract.
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.
The Code was developed to ensure that merchants are made aware of the costs associated with accepting credit and debit card payments, thereby allowing them to reasonably forecast their monthly costs related to accepting such payments.
Among its elements, the Code stipulates that payment processors will provide merchants with at least 90 days notice of any fee increases or the introduction of new fees. The intent of this element is to give merchants sufficient time to assess the impact of fee changes on their costs and 90 days to decide whether they wish to cancel their contracts, without penalty.
Merchants cannot reasonably assess the impact of the change and decide whether they wish to cancel their contracts until they have been provided with sufficient information that allows them to fully understand the impact of the fee change in relation to their specific business.
As such, a notification provided to merchants which notifies of an upcoming fee change or increase, but which does not contain information to allow merchants to reasonably assess the implications of the change to their costs, would meet the requirement of Element 2 but would not satisfy the intent of Element 3.
FCAC's Commissioner expects that PCNO rules will ensure that the 90-day period during which merchants will be able to cancel their contracts without penalty should begin only after the merchants are able to reasonably assess the impact of the fee changes on their businesses. Furthermore, merchants must be allowed to cancel contracts without any penalty within 90 days of actually being able to assess the cost implications.
In light of this interpretation, rules should also stipulate that if a merchant can only reasonably assess the impact of a fee change or increase at some point after the provision of the change notification, then the 90 days to cancel a contract without penalty should only start at that point and not at the time of the original notification.
This would allow merchants to reasonably forecast their monthly costs associated with accepting network payments, and would ensure that merchants have the information they require to make informed and appropriate decisions for their businesses.
Each PCNO is responsible for ensuring full compliance with the Code. Where changes are required to improve documentation, processes or approaches, FCAC expects that all PCNOs will incorporate the required amendments within 90 days of the date of this guidance. CEB may follow up with PCNOs to ensure that requirements have been met.