Walker Guidance

The payment processing industry in Canada is about to undergo significant changes with the updated Code of Conduct for the Payment Card Industry, set to roll out on October 30, 2024, and some provisions extending into 2025. These revisions are designed to improve transparency and fairness for merchants, ensuring they are better informed about the costs and terms associated with processing credit and debit card payments. Below is an analysis of key changes, their respective timelines, and the anticipated impact on the industry.

Cost per Transaction Disclosure (Effective October 30, 2024)

Previously, there was no requirement for payment processors to provide merchants with a breakdown of costs per transaction. This will change on April 30, 2025, when processors will be required to disclose cost-per-transaction details during the card processing application, quoting, and proposal stages. The code is silent about the effective date for merchant agreements. Therefore, the effective date for such disclosure is October 30, 2024.

For merchants, this means they will be able to compare offers more easily and avoid unexpected charges, particularly beneficial for small businesses that need to track operational expenses closely.

Fee Disclosures (Effective October 30, 2024)

Under the old code, fee disclosures were mandatory but lacked specificity. Beginning on October 30, 2024, payment processors will need to include detailed fee breakdowns in all merchant agreements. This will help merchants clearly understand the total cost of processing transactions, including any ancillary fees, service charges, and other costs.

This enhancement provides better financial clarity, reducing confusion about fee structures and helping businesses plan their expenses with greater precision.

Legal Counsel for Opt-Out of Disclosures (Effective October 30, 2024)

Previously, there was no formal process for merchants to opt out of disclosure requirements. Under the new rules, starting on October 30, 2024, merchants and acquirers must both consult legal counsel if they wish to waive any disclosure requirements. This provision adds a layer of protection for merchants, ensuring they fully understand the legal implications of opting out.

Merchant Statements and Fee Reporting (Effective April 30, 2025)

In the past, merchant statements were limited in detail, often aggregating costs without much transparency. By April 30, 2025, merchant statements will be required to include a detailed breakdown of transaction costs, including interchange rates, processing fees, and other associated charges. This shift is aimed at helping merchants better track their payment processing expenses and identify any discrepancies in their fees.

This change enhances accountability and ensures that merchants have a clearer understanding of their monthly charges, enabling better financial management and dispute resolution.

Currently, merchants must be given 90 days’ notice for any changes in processing fees. As of April 30, 2025, payment card network operators (PCNOs) will be required to provide at least 120 days’ notice for non-structural fee changes. This extended notice period gives merchants more time to adjust to changes in pricing and, if necessary, negotiate better terms or switch providers.

Notice Requirements for Fee Changes (Effective April 30, 2025)

Previously, payment card network operators (PCNOs) were required to provide 90 days’ notice for fee changes. Under the updated code, effective April 30, 2025, this notice period will be extended to 120 days for non-structural fee changes and at least 210 days for structural fee changes. This gives merchants additional time to adapt to any impending fee changes, negotiate terms, or switch providers if necessary, helping them manage cash flow more effectively.

Merchant Cancellation Rights (Effective April 30, 2025)

Previously, merchants were allowed to cancel within 90 days of being notified of a fee change. As of April 30, 2025, this cancellation period will be shortened to 70 days.

Non-Renewal Notice Period (Effective October 30, 2024)

Under the old code, merchants were required to provide a notice of non-renewal of their contracts 90 days in advance. The updated code, effective October 30, 2024, shortens this notice period to 45 days.

Fixed-Term Contracts (Effective October 30, 2024)

The provisions around fixed-term contracts remain largely the same. Fixed-term contracts cannot be renewed for the full initial term. They can convert into renewable extensions of 6 months or less. Merchants can provide a non-renewal notice up to 45 days before the end of the extension term. Please note that the previous and amended code do not limit the period of the initial term.

Related Service Agreements (Effective October 30, 2024)

The updated code now provides clearer guidelines for related service agreements. Beginning October 30, 2024, any related service agreements cannot exceed the term length of the main agreement. This ensures consistency across all services tied to the payment processing contract, preventing merchants from being locked into agreements longer than intended.

PCNO Core Fee Reductions (Effective October 30, 2024)

A new provision has been introduced regarding PCNO core fee reductions. As of October 30, 2024, any core fee reductions passed on by the PCNO must also be passed down to merchants or a detailed explanation provided if reductions are not passed on in full.

Limited Acceptance – Merchant Choice (Effective October 30, 2024)

The revised code strengthens the ability of merchants to exercise their choice when accepting payment card types. From October 30, 2024, merchants can now choose to accept either credit or debit cards from a given brand without being forced to accept both. This gives merchants greater control over the types of payments they accept, allowing them to better manage processing fees and customer payment preferences.

No Negative Option Acceptance (Effective October 30, 2024)

The prohibition on negative option acceptance remains in place, meaning that merchants cannot be automatically opted into accepting new products or services without their express consent.

Premium Cards (Effective October 30, 2024)

The updated code introduces stricter criteria for the issuance of premium cards. Beginning on October 30, 2024, premium cards—often associated with higher interchange fees—can only be issued to individuals who meet specific qualification criteria. This change is intended to limit the issuance of premium cards to consumers who are more likely to benefit from the associated rewards, reducing overall processing costs for merchants who may otherwise face higher fees from widespread use of premium cards.

Complaint Handling Process (Effective October 30, 2024)

The complaint-handling process has been significantly restructured under the updated code. Previously, the process was less formal, but starting on October 30, 2024, acquirers will be required to adhere to a more structured process when handling merchant complaints. This includes clearer guidelines and timelines for resolving disputes, ensuring merchants have access to a fair and efficient mechanism for addressing concerns related to payment processing.

These additional provisions within the updated Code of Conduct reflect a comprehensive approach to fostering fairness, transparency, and accountability in the payment processing industry, ensuring that merchants in Canada are better protected and equipped to manage their relationships with acquirers and payment card networks.

Conclusion

These revisions to the Code of Conduct for the Payment Card Industry will bring increased transparency, enhanced protection for merchants, and clearer guidelines in contract management. Merchants, particularly small businesses, will benefit from greater clarity in fees, extended notice periods, and enhanced rights to make informed decisions regarding their payment processing services. The updated code promotes a fairer, more competitive environment in Canada’s payment processing landscape.

For more detailed information on the upcoming changes to the Code of Conduct, please refer to the official guidelines here.