Proposals to Strengthen the Code

of Conduct

For discussion at the FinPay meeting of

January 9, 2014

Proposals to Strengthen the Code

of Conduct

For discussion at the FinPay meeting of

January 9, 2014

Overview

Issues to be addressed

Criteria for assessing options

Overview of the Code

Options

Next Steps

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Issues to be addressed

Merchants concerned about:

• the high cost of credit card acceptance, due partially to growth in use of premium cards.

• questionable sales practices of some card processors.

Competition Tribunal found that Visa’s and MasterCard’s rules have an adverse affect on competition, resulting in higher fees/prices.

Minister of Finance committed to develop options to address the competition Tribunal’s finding.

2013 Speech from the Throne: “Canadians deserve to know the real cost of paying by debit and credit card”.

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Criteria for assessing options

Solutions to be assessed against the following criteria:

Enhancing choice and competition in the Canadian credit card market;

Enhancing transparency and disclosure of the costs and benefits of payment cards;

• Cost of credit card acceptance should be balanced, transparent and predictable

Minimizing impacts on consumers;

Minimizing complexity and cost;

Enhancing merchant and consumer understanding of the payment products they accept/use; and

Maintaining Canada’s ability to develop a digital and innovative economy.

Code of Conduct for the Credit and Debit Card Industry (The Code)

The Code sets out 10 elements to promote fair business practices in the credit card market, including:

Element 1: acquirer agreements and merchant monthly statements must present information in a manner that is clear, simple and not misleading.

Element 2: merchants receive minimum of 90 days notice for any fee increases or the introduction of a new fee.

Element 3: allows merchants to cancel contracts without penalty should fees rise or new fees be introduced.

Element 7: requires clear branding of cards so that merchants know the network(s) available on the payment cards.

Element 9: restricts the issuance of premium credit cards on spending and income thresholds.

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Merchant Concerns with the Code

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The Financial Consumer Agency of Canada (FCAC) is responsible for oversight of the Code. Since the Code’s inception, the FCAC has received 1139 enquiries and initiated 409 investigations.

The FCAC investigations revealed the following concerns:

Transparency and disclosure of information in merchant-acquirer contracts remains a concern (e.g., notification of cancellation fees); and

Merchants do not receive notice from acquirers regarding the expiry of contracts, leading to contracts being automatically renewed, or payment of cancellation penalty fees.

Merchant associations have identified the following issues:

Transparency and disclosure of fees could be further strengthened;

Improve dispute settlement procedures with service providers; and

The growth of premium cards has contributed to higher acceptance costs for merchants.

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Options for strengthening the Code

Proposal 1Add new Code element on dispute resolution

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Issue Description Proposed Solution Questions for DiscussionDispute resolution process

While FCAC guidance (CG-10) recommends that contracts should include a complaint handling process, there is no requirement in the Code for PCNOs or their participants to have a formal complaint handling process.

There are concerns that merchants have difficulty in escalating code-related complaints with their service providers and that they do not hear back when a solution has been reached.

The Code could include a requirement for PCNOs to ensure that they and their participants have a formal and fully integrated (from the acquirer to the PCNO) complaint handling process, and make this process publicly known to merchants.

1. What internal dispute resolution processes are in place now?

2. What is the process for responding to a merchant complaint? Should an extra requirement be given so that the merchant is contacted once the dispute has been settled?

3. Is it necessary to establish a third party dispute resolution process?

Proposal 2Amend Element 1 to enhance disclosure of fees on merchant contracts

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Issue Description Proposed Solution Questions for ConsiderationImproved disclosure of fees on all merchant contracts

Disclosure of fees on merchant contracts is not always clear.

Key information and how it is disclosed varies between acquirers making comparability of fees difficult for merchants.

Building on recent FCAC guidance (CG-10), a summary box be required on merchant-acquirer contracts, which would contain key information providing meaningful and easier-to-read information, including a list of core fees, expiry date, any cancellation fees, list of other entities involved in the contract (see example of a summary box on the next slide).

1. What information should be included in the summary box?

2. How long would acquirers need to implement (e.g. amend their contracts)?

3. When should this information be provided to merchants who sign up for contracts over the phone?

Proposal 2 (continued)Example of summary box

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Item DetailsDate of contract(s) Effective date of the contract(s)

Acquirer Name of acquirer and contact information

Cancellation of contract(s) Date the contract can be cancelled without penalty; page in contract with information on cancellation. 

Fees/ Rates List of main fees and rates under this contract, including: Monthly minimum fee Qualified rate (credit cards) Mid qualified rate Non qualified rate Credit card assessment fee Card fee per transaction Terminal leasing monthly fee Penalty to cancel prior to expiry date Paper monthly statements

Complaint handling procedures Refer to page with detailed information. 

Statements Information about how to access statements. 

Information about Credit and Debit Card Processor

Name and contact information; expiry of contract with provider.

Information about Payment Terminal Name and contact information regarding terminal leasing company and whether terminal is rented, leased or purchased. Details about the expiry of the contract with provider.

Proposal 3Amend Element 1 to require notice before automatic contract renewal

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Issue Description Proposed Solution Questions for ConsiderationNotice before automatic renewal of merchant agreements

Most merchant agreements are multiple-year contracts (3-5 years) and the majority of these agreements require merchants to advise its service provider 6 months prior to the end of the agreement if they wish to renew the agreement. Failure to do so automatically renews the agreement for the same term as originally agreed or the merchant may incur cancellation penalty fees.

Require acquirers to notify merchants in advance of when their contracts are coming due and process/procedures to cancel contract.

Would provide merchants with opportunity to do price comparison with other processors to ensure best contract.

Could help to minimize payment of cancellation penalty fees.

1. When and how should notice be given to merchants?

2. How long would it take for acquirers to implement?

3. Would this be costly for acquirers to implement?

Proposal 4Amend Element 1 to enhance disclosure of card acceptance fees

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Issue Description Proposed Solution Questions for DiscussionEnhanced disclosure of card acceptance fees.

While the networks are required to publish interchange rates charged to merchants, this information is sometimes difficult to find and does not fully capture all the fees that merchants are charged.

Require that credit card issuers and acquirers post the network’s fee schedules on their websites.

Require merchant contracts to include a summary of all key fees. This information could be included in the proposed information summary box.

1. Would this be easy for acquirers/issuers to implement on their website? Would it be costly to maintain?

2. Would this information be better presented in a single website? Who would be best placed to provide this information?

Proposal 5Amend Element 3 to provide for contract cooling off period

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Issue Description Proposed Solution Questions for DiscussionMandatory contract cooling off period

Many acquiring contracts are negotiated over the phone. There are concerns that the terms of written agreements are not fully consistent with what the merchant believes he/she agreed to.

Provide merchants with the ability to terminate a contract without penalty up to 60 days after receiving the first statement.

1. Should there be criteria before a merchant could opt-out of a contract?

Proposal 6Amend Element 1 to enhance disclosure of flat fee pricing models

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Issue Description Proposed Solution Questions for DiscussionDisclosure of flat fee pricing models

The Code is unclear about transparency requirements for flat-rate processing packages (e.g., $100/month to process all cards, regardless of brand or type).

PCNOs and their participants should be allowed to offer monthly flat fee packages to merchants. This option would modify language in element 1 to clarify transparency requirements related to flat rate pricing.

1. Do members feel the current Code language hinders them from providing a flat fee option?

Proposal 7Amend Element 2 to enhance notification of fee increases

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Issue Description Proposed Solution Questions for DiscussionEnhance notification of fee increases

The Code requires that merchants receive 90 days notice from the network/acquirer in advance of new fees or fee increases.

However, networks and acquirers are not required to give notice once the fee is implemented. For some merchants find this is confusing as they expect a change in their prices once the fee increase/new fee is announced.

Require that networks and acquirers provide notice of any fee increase or new fee 90 days in advance of implementation and again when the new fee/fee increase is introduced.

1. Would this create confusion for merchants?

2. Does this help merchants better anticipate their costs?

3. Would this be costly for networks/acquirers to provide additional notice?

Proposal 8Amend Element 9 to restrict migration to premium cards

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Issue Description Proposed Solution Questions for DiscussionRestricting migration to premium cards

Element 9 sets out that premium cards can only be issued to a well defined class of cardholders based on individual spend or income thresholds.

There are concerns that as the market adjusts, more and more consumers will be eligible for premium cards, increasing the availability and use of premium cards. Tighter parameters need to be considered.

Index income and spend thresholds with inflation.

Further consideration can be given to define income and spend thresholds.

1. Does this option go far enough to address the concerns that premium cards continue to increase in the market?

2. Should consideration be given to placing tighter controls on premium card issuance (e.g., setting specific income and spend limits)?

Proposal 9Amend Element 7 to require the identification of cards

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Issue Description Proposed Solution Questions for DiscussionRequire identification of cards

Merchants are unable to identity the different types of cards (regular or premium) accepted at the point-of-sale.

Require identification of card products so that merchants can identify the different types of credit cards (i.e. standard or premium card). For example, consideration could be given to making card art clearer (e.g. better identification on the face of the card).

1. What does this option achieve for merchants?

2. What is the best way to identify the different types of cards?

3. How long would it take for issuers to implement?

4. Should this only be required as new cards enter into the market or require re-issuance of current cards?

5. How would this be achieved in a mobile payments environment?

Proposal 10New Code element on the disclosure of fees at POS

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Issue Description Proposed Solution Questions for DiscussionDisclosure of fees at the point-of-sale

In the 2013 Speech from the Throne, the Government committed to empower consumers by requiring disclosure of the cost of different payment methods.

Most consumers are unaware of the fees merchants pay to accept credit card payments.

Merchant terminals could be programmed such that the fee charged to the merchant for credit card acceptance is displayed on the merchant terminal. As well, this information could be printed on the customers’ receipt following a purchase.

1. What does this option achieve for merchants?

2. Should the information provided be the static or dynamic fee? What technology upgrades would be required?

3. How long would it take to implement this option?

4. What are the costs be associated with this option? Who should bear the cost?

Next Steps

We encourage members to provide written comments on the options for our consideration.

We are also interested in any other additional options members may have for consideration.

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