Virtual debit cards and consumer protection


Karine Robillard, Alexandre Plourde


Option consommateurs




Visa and MasterCard are currently getting into the Canadian debit card market. With a virtual debit card offered by three financial institutions, you can make debit purchases remotely via the Visa system, just like with a credit card. However, to carry out a transaction in person, at a retailer’ or through an ATM, the consumer still has to use the Interac system.

Canada provides practically no legal protection for consumers who conduct transactions with such cards. There is no legislative framework for debit cards or for electronic payment systems in general at either the federal or the provincial levels. Until now, apart from the rules of the payment card systems themselves, or those of the CPA system, it is a mainly voluntary approach, with its advantages but mostly its disadvantages, that has been favoured by the competent authorities. Today, it is still the credit card that offers Canadian consumers their best legal protection.

In the absence of binding rules, it is most often the provisions of the cardholder agreement that must serve as law for the parties. However, these cardholder agreements are often weighted against consumers. They give the issuer broad discretion regarding the protection afforded to consumers in the event of fraud or theft of a card. Nor is there a clear commitment that the issuer will make a chargeback in cases of dispute with a merchant, even if the consumer has legally cancelled the purchase.

Many consumers and even some merchants are inadequately informed about this new product. While Visa and MasterCard are well known in Canada as issuers of credit cards, there is considerable confusion about debit cards that use these networks. More importantly, many consumers are unaware of their rights and responsibilities when it comes to virtual debit cards; some, demonstrating great confidence in their financial institution, believe they have equivalent protection regardless of the type of payment card concerned.

As a solution, Option consommateurs proposes the adoption of a legally binding framework for debit cards that would establish rules that stipulate the extent of liability in cases of unauthorized use and dictate the obligations of the issuer in the event of a dispute between the merchant and the consumer. Option consommateurs also recommends that the whole range of issues raised by the proliferation of payment instruments in Canada be addressed by establishing a harmonized legislative framework that is able to adapt to new technologies.

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OCA Funded Research
This research received funding support through the Office of Consumer Affairs' Contributions Program.

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Source: Consumer Policy Research Database

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