B-9 Applying interchange rate changes when converting standard credit cards to premium credit cards
This Compliance Bulletin sets out the expectations of the Financial Consumer Agency of Canada (FCAC) with respect to the obligations of payment card network operators (PCNOs) to ensure compliance with the requirements of the Code of Conduct for the Credit and Debit Card industry in Canada (the Code) by card issuers.
FCAC is aware of the practice whereby premium interchange rates are triggered, upon the conversion of standard credit cards to premium cards, prior to cardholders receiving and activating their new premium cards. This prevents the premium card from being identified as required by Element 9 of the Code.
Specifically, Element 9 of the Code states:
Payment card network rules will require that premium credit and debit cards may only be given to consumers who apply for or consent to such cards. Premium cards, and the payment applets that link to premium card payment credentials, should clearly indicate that they are premium products (e.g. display clear and prominent branding used by the payment card networks to identify them as premium products). In addition, premium payment cards shall only be given to a well-defined class of cardholders based on individual spending, assets under management, and/or income thresholds and not on the average of an issuer’s portfolio.
Premium payment cards have a higher than average interchange rate. They must be targeted at individuals who meet specific spending, assets under management and/or income levels.
For payment card networks that have differential acceptance costs for premium cards, payment card network rules will require issuers to include a statement on all cardholder applications for premium cards disclosing that these premium cards can impose higher card acceptance costs on merchants. This disclosure should be featured prominently on the cardholder application.
To ensure Code effectiveness, PCNOs must not only actively monitor and enforce participant compliance but must also take steps to prevent non-compliance.
As a result, FCAC expects PCNOs and card issuers to:
- ensure that premium cards, and the payment applets linking to premium card payment credentials, clearly indicate that they are premium products (e.g. display clear and prominent branding to identify them as premium products).
- ensure that premium interchange rates are charged to merchants only once consumers present an activated premium card (e.g. ensure that interchange rates charged match with the physical card presented to the merchants).
- review, and update as required, internal procedures relating to the activation of premium cards.
We request that you communicate this information with relevant parties, including both Code and non-Code participants.
Thank you,
Teresa Frick, Acting Managing Director
Supervision and Promotion Branch