CPPO Policy Positions
Prepaid as a Method for Government Disbursements
The CPPO is committed to supporting a payments ecosystem that is accessible, advanced, and meets the needs of Canadians. For this reason, we believe that the Government of Canada should adopt the use of prepaid products as an alternative to paper cheques to improve the distribution of funds to Canadians. Prepaid products have the efficiency and security needed to make them ideal for government disbursements.
The functionality of open loop prepaid cards would provide the government with flexibility and control over the allocation of funds. The funds can be restricted to specific merchant categories, locations, and point of sale (POS) terminals, and can also be programmed for a predetermined timeframe for usage. The government can also track how the funds are spent, and prepaid cards can be reloaded for subsequent disbursements, presenting this as a sustainable option. Prepaid technology can offer recipients an alternative to the costs, inconvenience, and limitations associated with paper cheques, whilst saving the government time, money, and resources.
Prepaid and the Retail Payments Activities Act (RPAA)
The CPPO supports the Retail Payments Activities Act (RPAA) as a mechanism to safeguard Canada’s financial system. There are aspects of the RPAA, however, that are overly prescriptive and do not reflect the operational realities of Canada’s prepaid ecosystem.
The RPAA is important for CPPO members, given that many members act as intermediaries between card networks, financial institutions, fintechs, and consumers. The CPPO stands firmly committed to adhering to all necessary regulations and ensuring the highest standards of compliance.
In order to better reflect the operational realities of the prepaid ecosystem, the CPPO maintains that the RPAA supervisory framework should be adjusted to prescribe a 48-72 hour timeline for holding funds before the end-user safeguarding requirements take effect. Since prepaid payments products typically settle on a 48-72 hour basis, placing these funds in a prescribed safeguarding account could be challenging at a practical level without this proposed extended timeline.
As it stands now, the RPAA has a disproportionate impact on small payment service providers, particularly prepaid program managers, who play a distinct role in the value chain. Program managers provide services to federally regulated financial institutions (FRFIs) as a third-party, and are as such already subject to existing reporting requirements. FRFIs are responsible for performing due diligence on their suppliers and monitoring them to ensure they meet adequate service levels and provide sufficient operational resilience.
This change would better reflect the operational realities of managing a prepaid program in Canada, and ensure that the RPAA is proportional to the level of risk associated with different payments activities, and the entities connected to core payments infrastructure.
Provincial Harmonization
The CPPO advocates for the harmonization of provincial consumer protection frameworks as it relates to prepaid products. As it stands, not all provinces distinguish between open and closed loop prepaid products, which creates regulatory friction and a lack of consistency. Provincial harmonization would facilitate the development of national prepaid card programs, increasing competition, and making Canada an epicentre for a thriving innovative prepaid payments industry.
More specifically, the regulatory frameworks that do not account for the difference between open and closed loop prepaid cards (i.e., those that regulate both types of cards in the same way) prohibit fees from being charged. This approach creates a challenge for open loop prepaid card issuers as there is a cost associated with running a prepaid program (e.g., fraud protection, cybersecurity, and card network expenses, to name only a few).
These program costs protect and benefit the consumer, and are assumed entirely by the issuer, who cannot offset them by driving increased sales of goods and services. Thus, for provinces that do not distinguish between open and closed loop card types, the regulatory scheme has a disproportionate and negative impact on issuers of open loop prepaid cards. Consumer protection would not be sacrificed since open loop cards are subject to the federal regulatory regime and the consumer protection measures that it provides.
In Ontario, where the legislation does distinguish between open and closed loop prepaid products, federally regulated financial institutions (FRFIs) are allowed to charge limited fees in the context of prepaid cards. This is a positive step toward acknowledging the unique and distinct role played by open loop prepaid cards and their issuers within the broader payments ecosystem. In response to innovation in the payments ecosystem, the CPPO is proposing regulatory amendments that would exempt all open loop cards from the fee restrictions, provided that any such fees comply with the federal regulatory regime governing prepaid payment products. These regulatory amendments would create a level playing field for all open loop card issuers in Ontario, without compromising the protection of consumers.
Financial Services Innovation
As our members are trailblazers within the payments ecosystem, the CPPO is committed to advocating for the conditions that encourage financial services innovation in Canada. The prepaid industry offers solutions and products that respond directly to the needs and behaviours of Canadian consumers.
As the popularity of digital wallets and other forms of digital payment continues to grow, the prepaid industry remains on the cusp of innovation, partnering with fintechs and financial institutions to offer Canadians ways to accept payments and pay for goods and services that align with the realities of today’s technological age. Additionally, within the context of the growing prevalence of digital technology in everyday life, the use of prepaid products protects Canadians from fraud and financial scams, especially with respect to online purchases.
Small businesses also stand to benefit greatly from the prepaid industry, where prepaid products present an opportunity to increase innovation, competition, and economic prosperity within the Canadian market. Of these innovative solutions, there is the ability for employers to give workers immediate access to their paycheques, which especially benefits the many Canadians working in the gig economy. E-commerce applications, such as Instacart, utilize prepaid products every day to ensure workers are compensated seamlessly and without delay.
In this context, the CPPO maintains that the regulatory environment must balance consumer protection and innovation to encourage the growth of Canada’s prepaid industry. Ultimately, open loop prepaid products and platforms are ensuring access to the digital economy, bringing down the cost of banking and payments, and promoting financial health and equitable access to the financial system.
Recent CPPO Wins for Our Members
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Anti-Money Laundering (AML) - Successfully advocated for adjusted FINTRAC guidance reducing KYC requirements for prepaid corporate rewards programs.
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Retail Payments Activities Act (RPAA) - Secured improvements to the RPAA to reflect how intermediary PSPs are required to safeguard end- user funds and remained an active participant in Finance Canada and Bank of Canada consultations on the regulatory framework and associated guidelines.
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Consumer Protection- Advanced a review process of Saskatchewan's gift card regulations, with a current advocacy into Ontario's Consumer Protection Act modernization consultations and engaged New Brunswick on its new consumer protection regime, all with a view of advocating for provincial harmonization of consumer protection regimes.
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Disbursements- Advocated for the broader use of prepaid products as an alternative method for government disbursements, which has facilitated support for the launch of new Request for Information (RFI) from Indigenous Services Canada and several new Provincial inquiries.