Consumer-friendly electronic payments
Consumers Council of Canada works to represent Canadian consumers, concerning electronic payments and electronic funds transfer, a rapidly changing area of service to consumers. The Council actively represents consumers at Payments Canada, which operates Canada’s payments system, and on the Payments System Review Task Force, established by the federal Department of Finance.
The Council has developed a joint statement of principles along with other consumer groups to help guide its representation of consumers:
Electronic payments are now used more often by Canadian consumers than notes and coins. Direct debit transactions are commonplace, even for trifling sums. Credit card operations are almost always electronic, and are increasingly performed without the need to physically present the card. Cheque imaging is around the corner (or part of some existing consumer services). New services, such as stored-value cards or facilities offered by a provider such as PayPal, are popular.
Many actors are involved in the economy – deposit-taking institutions, card issuers, transaction acquirers, networks, switch operators and other intermediaries involved in the processing of run-of-the-mill payments.
Some operate outside Canada. And while paying seems simple to the consumer, the systems in place require complex technology which those processors choose, deploy and manage, and which most users do not understand. So, numerous issues arise, involving risk allocation, security, redress, currency and legal tender, freedom of choice, evidence or prudential regulation of payment processors.
Canada’s legal framework for electronic payments lags behind the United States or the European Union. Canadian consumers, merchants and other parties make do with an obsolete legislative framework, codes of conduct or rules which are too often observed in the breach and contractual provisions dictated by the strongest parties.
Electronic payments can make the economy more efficient. But consumer confidence is vital to their success, and to the economy in general.
A risk exists that an inadequate legal framework for the most common electronic payment mechanisms will come to erode confidence in such systems. Therefore, Canada needs to adopt a fair set of rules governing electronic payments.
Principles for a reform
The design of a legal framework for electronic payments in Canada should include these fundamental principles:
- 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.
Of course, all principles may not apply in all cases. For instance, a consumer cannot compel a merchant to accept a credit card payment if that merchant does not participate in its credit card network. That consumer, however, should not be compelled to pay through one specific process, to the exclusion of all others, as happens now with businesses that take only pre-authorized debits to the exclusion of cash or cheques, for example.
The design of a legal framework for electronic payments in Canada will also need to take into account the distribution of powers between Parliament and the provinces and territories.
Some larger issues
A number of considerations arise with electronic payments. Here is a description of some them:
- Effectiveness of payments Consumers need to be able to make payments in ways aligned with modern practices and with fewer and simpler obligations.
- 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.
- 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.
- 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.
- Risk mitigation and recourse Consumers need to be able to obtain effective redress when payments are mishandled or payment facilities are abused.