The Consumers Council of Canada is working to represent Canadian consumers, alone and in concert with the Canadian Consumer Initiative, concerning electronic payments and electronic funds transfer, a rapidly changing area of service to consumers. The Council is active in representing consumers within the Canadian Payments Association and is seeking to obtain adequate consumer representation before the currently active Payments System Review Task Force, established by the federal government. The Council is concerned that consumer perspective representation and research form part of the work of the task force. To that end, the Council has sought to obtain the necessary resources to do the research it requires to support a fact-based approach to the subject.
The Council has developed a joint statement of principles with other members of the Canadian Consumer Initiative to help guide its representation of consumers:
Principles for a reform
- universality: the broadest range of payment technologies should be regulated;
- neutrality: all technologies should be regulated by similar rules;
- accountability: risk should be supported by the party which creates it;
- security: payment technologies should be secure;
- transparency: rules, roles and prices should be transparent to all parties;
- liberty: payors should be allowed to choose the payment technology they prefer;
- enforceability: all should be able to ensure the framework is effectively enforced.
Some overarching issues
- Effectiveness of payments Consumers need to be able to make payments in ways that are consonant with modern practices and that also effectively liberate them from their obligations. In order to be a legal tender, an offer of payment currently has to be made in coins or notes as determined under s. 8 of the Currency Act. This antiquated regime should be replaced by one where an electronic payment offering adequate guarantees should also be deemed a legal tender. In addition, new rules should establish when an electronic payment becomes irrevocable, with exceptions as described below. These solutions flow from the principles of universality, neutrality, transparency and liberty.
- Choice of payment solutions Consumers need to be able to opt for the payment mechanism that they consider the most appropriate in terms of effectiveness and cost.The current rule is that the creditor can determine how he will be paid, notwithstanding the ability of the consumer to use such means or the cost and risk incurred by the consumer. Improving on s. 1564 of the Québec Civil Code, the ability to choose should rather be provided to the payor. A new regime should also ensure that the consumer will be made aware of the costs and rules applying to a payment mechanism, so that he can make an enlightened choice. These solutions flow from the principles of universality, neutrality, transparency and liberty.
- Fund accessibility Consumers need to be able to access their funds in an expedited manner, and not to have their savings appropriated without warning by their financial institution. There are currently no rules governing fund availability and deposit-taking institutions can establish the “fund freezing” periods they wish, as long as they post their policies. Deposit-taking institutions can also set off account balances against debts owed them or combine accounts without any warning to the consumer. A new regime should follow the example provided in the United States by the 1987 Expedited Funds Availability Act and establish mandatory fund availability rules; it should also provide a limitative framework for set-off, including prior notice. These solutions flow from the principles of universality, neutrality, transparency and enforceability.
- Risk allocation Consumers need to be able to trust payment mechanisms and providers and they must not shoulder risk that they do not generate. Consumers should be made aware of risks specific to various payment methods. Payment mechanisms currently deployed, such as those using magnetic stripes on cards and personal identification numbers, are not very secure from a technological and practical standpoint. Stored-value cards raise issues such as the solvency of the issuer. Such risks are routinely passed on consumers through contractual agreements or other mechanisms, even though consumers have not created them and are not equipped to understand or manage them adequately. There are currently no rules preventing payment providers in effect to use their customers as insurance for risks they have created. A new regime should limit consumer liability, following the example set in the United States in 1978 through the Electronic Fund Transfer Act. Such a solution flows from the principles of universality, neutrality, accountability, security and transparency.
- Risk mitigation and recourse Consumers need to be able to obtain effective redress when payments are mishandled or payment facilities are abused. While there are currently redress mechanisms associated with some electronic payments, such as the 90-day recourse regarding pre-authorized debits under CPA Rule H-1 or charge-back policies implemented by credit card issuers, such mechanisms vary widely in scope, are not well-known and often remain dependent on the will of service providers. A new regime should establish mandatory, uniform rules governing redress. Such a solution flows from the principles of universality, neutrality, accountability, transparency and enforceability.