Managing legal risk in the canadian retail electronic payment system


Public Interest Advocacy Centre (PIAC)




Payments are essential to a modern economy, as they facilitate the exchange of value between market participants. Left on their own, they are inherently risky. It is necessary to mitigate those risks, and legal mechanisms are frequently used in order to do so. This report posits that such is currently the case in the Canadian retail payment ecosystem. In this area, the law falls short of expectations, with adverse consequences for all participants, and in particular for consumers.
Legal risk can result from the absence of a legal norm, from its ambiguity, from its inadequacy or from its unenforceability. Parts of the regulatory framework target payment mechanisms, such as currency and cheques, but eschew for the most part more recently developed types of instruments. Nor can consumers necessarily rely on the contractual terms and policies of their banks and financial institutions to protect them, as these terms often bolster asymmetries between banks and customers and disrupt the market to the banks’ very significant advantage. Customers’ terms and conditions also make the market less efficient, and they allow banks to take operational and other risks without caring for the potential legal consequences, by purporting to shift legal risk squarely onto consumers’ shoulders.
PIAC sets out the following recommendations in order to lay a foundation for a strong regulatory framework for retail payments: Firstly, to use the United Nations Guidelines for Consumer Protection as the basis for developing the principles governing a regulatory framework for retail payment mechanisms. Secondly, to adopt the “least cost avoider” approach in all regulatory and policy development. Thirdly, reform all external regulatory complaint bodies to ensure they are well-resourced, have effective authority and enforcement powers, and include mandatory participation of financial institutions. Finally, to establish a universal and mandatory federal financial consumer protection framework that applies to all transactions in Canada.

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

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Public Interest Advocacy Centre (PIAC)
285 McLeod Street, Suite 200
Ottawa, ON   K2P 1A1
(613) 562-4002
(613) 562-0007

Source: Consumer Policy Research Database

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