Pre-authorized debit | Payments (2024)

Pre-authorized debits (PADs) are a convenient way to pay bills and make other payments automatically. Instead of sending a payment, a company withdraws funds from your bank account. It's a great way to pay bills like your mortgage, utilities, donationsand insurance premiums.PADs are also used to transfer funds from a bank account to a Registered Retirement Savings Plan (RRSP).But giving someone permission to withdrawfundsfrom your bank account is serious business, and you need to understand your rights and responsibilities.Payments Canada and its participant financial institutionsestablishedterms and conditions to make surethatPADs are properly authorized and protect against improper withdrawals.

If you need detailed information,Rule H1(which applies toPADs) is available in Rules and documentation.Recurring charges to your credit card aren't consideredPADs and aren't governed by Payments Canada. If you have questions about credit card charges, contact the credit card company.

Signing up to pay by PAD

You can sign up for PAD if the organization you want to pay offers this option. You should contact them.

To get started, you'll complete a PAD agreement with the organization, also known as the biller, you want to pay. Agreements can be on paper or electronic (online or by telephone, for example).

The biller should provide you with a confirmation of the PAD details (which may be in the form of the PAD Agreement or a summary of the key terms of that agreement according to Appendix IV of the Rule) at least 10 days prior to the first PAD. The 10-day confirmation period may be waived or reduced if you and the biller agree.

As part of the PAD agreement, you will provide your banking information. Check with your financial institution for your correct banking information.

Keep a copy of the PAD agreement or confirmation for your reference.

Remember to check your bank account regularly to make sure the withdrawals match what you approvedin the PAD agreement.

What should be in your PAD agreement

There are mandatory elements that need to be in each PAD agreement.

They are:

1. The date of the agreement and your signature
2. Your authorization
3. The PAD category
   • personal (for example, mortgage, rent)
   • business (used for a business' activities like supplies, lease)
   • funds transfer (for example, registered retirement savings plan contributions)
4. The amount if it's fixed or a statement thatit varies (like a usage-based utility bill) – if the amount varies, the biller must notify you at least 10 days before they withdraw the funds unless you agree to waive or shorten this period.
5. The frequency of the withdrawals – for example it could be at a set date, weekly, monthly, annually. It can also vary, for example, you could be billed each time you make a purchase. If the withdrawals are irregular, you need to approve each one. You can do so using a password or secret code for example.
6. Instructions on how to cancel the agreement
7. The biller's contact information
8. Information on your recourse rights

Some mandatory elements are only included in PAD agreements for specific circ*mstances. They are:

1. State if the PAD is to only occur once
2. State if the PAD will occur sporadically, if so each debit will require your authorization
3. Include that you and the biller have agreed to waive or reduce the confirmation period
4. For Funds Transfer PADs, state whether the PAD will be eligible for recourse or not
5. State if the biller is using a separate payment service provider to debit the funds on their behalf and what that arrangement entails
6. State if the pre-notification of changes to the PAD amount or due date will be waived

For detailed information, seeAppendix IIof Rule H1.

What if something goes wrong

You have 90 days from the withdrawal date to report an incorrect or unauthorized pre-authorized debit to your financial institution.

If you don't have enough funds in your account to cover a withdrawal, the biller can try the same debit one more time. The biller needs to do so within 30 days from the date of the withdrawal and it must be for the exact same amount.

How to cancel a PAD agreement

The agreement should specify instructions for cancellation. If not, notify the biller according to section 30 of Rule H1. You can use the sample cancellation form in Rule H1, but you aren't required to do so.

The biller must cancel the agreement within 30 days of the notice. Once cancelled, check your account to confirm that the withdrawals have stopped. If they continue, contact the biller. You can also seek reimbursem*nt through your financial institution within 90 days.

Cancelling your PAD agreement doesn't cancel your contract for goods or services with the biller, or any amount owed. The cancellation applies to the payment method. You'll need to make arrangements with the biller to pay any amounts owing.

To learn more about pre-authorized debits, check out Module 02 (Automated Funds Transfers) of our educational video series.