Credit unions and changes to the Canadian Payments Act

Q&A with Joshua Lerner

This article was originally published on prairiepayments.com on October 11, 2024.

Recent changes to the Canadian Payments Act will give credit unions more options to influence and participate in Payments Canada’s governance and systems. We chat with Joshua Lerner, Manager of Policy and Government Relations at Payments Canada, about what that could mean for credit unions.

Josh Lerner, Manager of Policy and Government Relations at Payments Canada, says credit unions are drivers of competition and consumer access to financial services.

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Q: You mentioned at the 2024 LEAD Conference that credit unions are major players and have an important voice in the payment ecosystem in Canada. Could you elaborate on that?

JL: Credit unions are an important driver of competition in the banking sector and consumer access to financial services. Across Canada, there are nearly 400 credit unions and caisses populaires serving about 10 million members.

More specifically, two things come to mind related to payments. The first is the payment services credit unions offer their members. There are standard services, such as wires, electronic funds transfers and cheques. But credit unions have also been innovative. Credit unions were some of the first institutions to offer mobile cheque deposits and they created the Exchange Network, which allows members to connect to credit union ATMs across the country, surcharge-free.

The second is how credit unions have accessed Payments Canada’s clearing and settlement systems. For decades, credit unions have worked with their centrals to not only access the nation’s clearing and settlement system, but also influence their development. With membership changes occurring in the Canadian Payments Act, credit unions who are members of a central will have more options to influence and participate in Payments Canada’s governance and systems.

Q: What are some of the key developments credit unions need to be aware of in relation to recent changes to the Canadian Payments Act?

JL: Credit unions need to be aware that on June 20, 2024, amendments to membership in the Canadian Payments Act received royal assent. This means that at some point in the future (determined by the Governor in Council), credit unions who are members of a central and who meet the necessary requirements, will be eligible to become members of Payments Canada for the first time.

This is big news, as historically, credit unions who are members of a central were not allowed to be members of Payments Canada. Being a member of Payments Canada is one of the requirements to directly participate in our systems.

For those who may not be aware, Payments Canada owns and operates Canada’s national clearing and settlement systems, which include our wire system, Lynx and our retail batch payment system, the Automated Clearing Settlement System (ACSS). Payments Canada is currently building the Real-Time Rail, which will support instant, final and irrevocable data-rich payments.

This is big news, as historically, credit unions who are members of a central were not allowed to be members of Payments Canada.

Q: Given the developments on membership changes to the Canadian Payments Act, what are some practical things credit unions need to start doing today to be prepared?

JL: First, determine whether Payments Canada membership or system participation is in the best interest of your credit union and its members. This means understanding the benefits as well as the commitments associated with membership and system participation.

Some of the potential benefits of membership are participation in our ancillary services (i.e., Financial Institutions File or Corporate Creditor Identification Number), eligibility for board seats and other committees as well as access to member reports and research. Direct system participation can also result in greater control, visibility and speed of payments.

It’s important to recognize that being a member of Payments Canada is only one requirement to participate directly on our systems. Other requirements include extensive technical, operational and other risk-related commitments, as well as obtaining a settlement account from the Bank of Canada.

Each credit union will need to assess these benefits and commitments and decide whether direct membership and system participation make sense versus their status quo.

Then, it’s time to start communicating. Early on, I would reach out to your regulator and your central to share with them your thinking. Of course, contact Payments Canada to understand requirements related to membership and system participation.

Q: How should credit unions be using their voices? What are the key issues or opportunities where credit unions should be making themselves heard?

JL: Credit unions do a great job leveraging the Canadian Credit Union Association and their centrals to advocate as a group. I believe credit unions should also feel confident in individually advocating for their needs, doing things such as responding to public consultations, speaking in public forums and influencing the development of policies.

There are many opportunities where credit unions should be making themselves heard. Of course, from a Payments Canada perspective, it will be things such as membership changes to the Canadian Payments Act as well as potential by-law or rule changes. We are consulting the ecosystem on our proposed policy direction for system participation for the new membership entities, and credit union feedback will be critical for developing and refining these proposed policies.

Outside of Payments Canada, what comes to mind is credit union continuance to the federal framework, consumer-driven banking and access to federal liquidity facilities.

Q: What are some of the ways credit unions can engage Payments Canada in terms of information and support?

JL: Our website, payments.ca, is full of information covering our organization, its history as well as legislation, by-laws and rules. If you need to contact Payments Canada, your first step should be emailing us at info@payments.ca and we will set you up with the right person.