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, donations and 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 withdraw funds from your bank account is serious business, and you need to understand your rights and responsibilities. Payments Canada and its participant financial institutions established terms and conditions to make sure that PADs are properly authorized and protect against improper withdrawals.
If you need detailed information, Rule H1 (which applies to PADs) is available in Rules and documentation. Recurring charges to your credit card aren't considered PADs 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 approved in the PAD agreement.
What should be in your PAD agreement
There are mandatory elements that need to be in each PAD agreement.
They are:
- The date of the agreement and your signature
- Your authorization
- 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)
- 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.
- 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.
- Instructions on how to cancel the agreement
- The biller's contact information
- Information on your recourse rights
Some mandatory elements are only included in PAD agreements for specific circumstances. They are:
- State if the PAD is to only occur once
- State if the PAD will occur sporadically, if so each debit will require your authorization
- Include that you and the biller have agreed to waive or reduce the confirmation period
- For Funds Transfer PADs, state whether the PAD will be eligible for recourse or not
- State if the biller is using a separate payment service provider to debit the funds on their behalf and what that arrangement entails
- State if the pre-notification of changes to the PAD amount or due date will be waived
For detailed information, see Appendix II of 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 reimbursement 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.
FAQs
Yes, as long as the biller meets the pre-notification requirements specified in your agreement.
Our rules and standards do not address which payment method(s) organizations must offer to their clients as it is outside of our purview.
You'll need to discuss this with your financial institution. Our rules don't apply to fees charged by financial institutions.
You should immediately inform your biller(s) of any change to your account information. Otherwise, the biller will continue to take payments from the account it has on file.
The procedure to cancel your PAD should be outlined in your Payor’s PAD Agreement (the agreement in which you authorized the Payee to debit your account). If no instructions for cancellation are in the agreement, it is advisable to notify the biller in writing and keep a record of the cancellation request. A sample PAD cancellation form can be found in Appendix VI of Payments Canada Rule H1.
Once the PAD has been canceled with the biller, check your account records to confirm that the withdrawals have stopped. If the PADs continue to be taken from your account, contact the Payee and ask why. If you are not satisfied with the response, you may seek recourse through your financial institution. If any withdrawal from your account is not in accordance with the terms of your agreement or processed after you have canceled the agreement, you should notify the biller immediately. If you are not successful in resolving the issue with the biller, you may request that your financial institution reverse the transaction and return the funds to your account. For personal PADs, you have 90 days from the date of the withdrawal to report the problem to your financial institution and seek reimbursement. Once you have provided the reason for your claim, the funds will be restored to your account.
Canceling your PAD agreements means that you no longer authorize the biller to issue future debits against your account to collect payment. However, this does not cancel any amounts owing or cancel the agreement of goods or services between you and the biller.
More information about your rights and responsibilities when paying by PAD is available above.
To make any changes to your Pre-Authorized Debit (PAD) agreement, including banking account information for future PAD’s processed through your account, we recommend that you contact the organization(s) directly with whom you’ve established the agreement.
Payments Canada Rule H1 (Section 23) addresses the possibility of recourse in certain circumstances.
You may request that your financial institution reverse the transaction to restore the funds back to your account if it is within the allocated time frame.
More information about your rights and responsibilities when paying by PAD is available above.