Pre-Authorized Debits (PADs) in Canada: Agreements, Cancelling and Refunds

A pre-authorized debit (PAD) is a payment a business takes from your bank account under a PAD agreement you authorized: instead of you sending the money, the company withdraws it when a payment is due.

These rights come from Rule H1, the rule Payments Canada set for PADs so that they are properly authorized and to protect against improper withdrawals, and FCAC, the federal consumer agency, adds its own guidance. The sections below give each condition in full.

What is a pre-authorized debit?

With a PAD the biller starts each payment, on the terms you agreed to. FCAC gives mortgage payments, utility payments, RRSP contributions, insurance premiums and credit card payments as examples. Rule H1’s own list of personal PADs adds charitable donations, membership fees, property taxes, lines of credit and loans. The CRA, for example, takes tax payments this way; the site’s page on what to do if you can’t pay your taxes covers that case.

A PAD agreement states one of three categories: personal (a mortgage or rent), business (supplies or a lease for a business’s activities) and funds transfer (for example, contributions to your own RRSP), used to move money from one of your accounts to another. The category matters later, because the claim periods differ. Recurring charges to a credit card are not PADs, Payments Canada says.

A PAD differs from an automatic payment. As FCAC explains, an automatic payment gives the biller no permission to withdraw money: you arrange it from your account, independently of the biller, and you may change or cancel it yourself. An Interac e-Transfer is also money you send through online banking rather than money a biller takes. The other ways to move money are compared on ways to move money.

What must a PAD agreement say?

You make the agreement with the business you are paying (the biller), and it can be on paper or electronic, online or by telephone for example. FCAC says you provide your banking information as part of it, and a blank cheque may be asked for to confirm the account details; see void cheques. FCAC suggests reading the terms carefully before signing and keeping a copy of the signed agreement or its confirmation.

Under Rule H1 the agreement must contain set elements, among them:

• Every PAD must be supported by a PAD agreement that contains the elements Rule H1 requires.
• The agreement is a continuing authority that you can revoke.
• The agreement must state the PAD category (personal, business or funds transfer) and whether the amount is fixed or variable, with any conditions on the amount, and the timing (at set intervals, one-time or sporadic).
• The agreement must say that you may revoke your authorization at any time by giving notice, that the business must set out a notice period of no more than 30 calendar days, and that you can get a sample cancellation form at your financial institution or at payments.ca.
• The agreement must contain a statement that you have recourse rights, including the right to be reimbursed for a debit that is not authorized or not consistent with the agreement (certain funds transfer PADs are the exception).
• The agreement must give the business's contact information so you can make inquiries or seek recourse for any PAD.

What notice does the business have to give you?

For a personal or business PAD, Rule H1 requires the business to give you a confirmation of the agreement before the first debit, and, where the debits recur at set intervals, advance notice of the amount and date before a change and before each variable-amount debit after the first. Some of that notice can be waived or reduced, and a clause that does so has to be displayed prominently in the agreement. The full conditions, with their exceptions:

• For a personal or business PAD, the business must give you a confirmation of the agreement (a copy or a summary of its key terms) at least 10 calendar days before the first debit.
• If you authorize it, the confirmation can be waived or the 10-calendar-day period reduced; if you waive it, the business must give you the confirmation within 5 calendar days after the first debit.
• For a personal or business PAD that recurs at set intervals, the business must give you notice of the amount and date of the next debit at least 10 calendar days before any change in the amount of a fixed-amount PAD or any change to the payment date.
• For a variable-amount PAD at set intervals, the same notice of amount and date is due at least 10 calendar days before every debit after the first.
• No notice is required when the amount falls because a tax was reduced, or, if your agreement provides for it, when the amount changes because you asked the business to change it.
• You and the business may agree to reduce or waive the advance notice, in the agreement or a separate waiver; a clause that does so must be displayed prominently (for example in bold print, highlighted or underlined).
• If the agreement is for sporadic PADs, the business must get your authorization for each debit before it is made, and you cannot waive that.
• If the business's name changes, it must give you at least 10 calendar days' written notice before the next debit.
• If the business assigns your PAD agreement to another business, it must either have displayed an assignment clause prominently in the agreement or confirmation and give you written notice of the full details, including the assignee's identity and contact information, or give you that written notice at least 10 calendar days before any PAD is issued in the assignee's name.

Is there a limit on how much a PAD can take?

The amount is what your agreement sets: a fixed amount, a variable one, or both, with any conditions on it (the agreement’s elements). A change to a fixed amount, and each variable debit after the first, comes with the notice described above. Payments Canada’s guide says charges for extra goods or services can be added to an existing PAD as long as the biller meets the notice requirements in your agreement. A debit that does not match the agreement can be claimed back (getting money back).

If there isn’t enough money in the account to cover a PAD, your financial institution may charge a non-sufficient funds (NSF) fee, FCAC says; NSF fees are covered on what happens when a payment bounces. Payments Canada says its rules don’t apply to fees charged by financial institutions, so an overdraft fee caused by a PAD is a matter for your institution. The business can try the debit one more time, under this condition:

• If a PAD is returned for insufficient funds (or because funds had not cleared), the business may re-present it electronically once, for the same amount as the original debit, within 30 calendar days.

How do you cancel a PAD?

Stopping a PAD can involve three separate steps, with the business and with your own institution.

1. Revoke the agreement with the business. The agreement should set out how to cancel; if it doesn’t, Payments Canada’s guide points to section 30 of Rule H1, and the Rule’s sample cancellation form can be used but isn’t required.
2. Check that the debits stop. FCAC says to check your account records after cancelling and, if debits continue, to contact the biller; a debit taken after you revoked the agreement can then be claimed back.
3. Stop a single payment at your own institution. FCAC says you can ask your financial institution for a stop payment on a single payment, and possibly on recurring ones, and to check how much time it needs to process it. Stop-payment fees are compared on bank fees.

When you change bank accounts, Payments Canada says to tell each biller right away, since otherwise the biller keeps taking payments from the account it has on file. Moving accounts is covered on how to switch banks, and cancelling other kinds of payment on cancelling a payment.

The cancellation conditions:

• When you tell the business to stop, or revoke your agreement, in writing or orally with proper authorization, the business must use best efforts to cancel the debit in the next business, billing or processing cycle, stop issuing new PADs within 30 calendar days of your notice, and not issue more without a new agreement.
• If your agreement clearly sets out a cancellation period of no more than 30 calendar days, the cancellation can take effect at the end of that period.
• A cancellation notice in the form in Appendix VI of the Rule may be used.
• FCAC's guidance is to cancel a PAD agreement by notifying the biller in writing and to keep a copy of the notice.
• Cancelling the PAD agreement does not cancel your contract with the biller or the amount you owe; you tell the biller you want to change your payment method and must arrange to pay what you owe.
• If the agreement does not address it, the business may end the agreement with your authorization or by giving you at least 30 calendar days' written notice before it stops issuing PADs.

How do you get money back from a PAD that broke the agreement?

The reimbursement claim under Rule H1 is made to your own financial institution; Payments Canada’s guide says to raise the problem with the biller first and to ask your institution to reverse the debit if that fails. The grounds, the claim periods (which differ for personal and business PADs) and how to make the claim are below. FCAC adds that if an unauthorized debit led to other charges on your account, for example another payment failing for non-sufficient funds, your financial institution can be asked to reverse them. Federally regulated financial institutions must have a complaint-handling procedure, FCAC says; the steps are on bank complaints.

• Your financial institution must accept a reimbursement claim if the PAD was not drawn in accordance with your PAD agreement, your agreement was revoked, or a confirmation, advance notice or notice of assignment or name change was not given as the Rule requires.
• For a personal PAD (or funds transfer PAD), a claim on those grounds can be made up to and including 90 calendar days after the day the PAD was debited from your account, and your financial institution must on a best-efforts basis reimburse you immediately.
• For a business PAD, the claim period is up to and including 10 business days after the day the PAD was debited.
• You make the claim to your financial institution with a completed, signed Reimbursement Claim (the Rule's sample form), or by internet, email, telephone or other electronic means that your financial institution authenticates with its usual security measures.
• A claim made after the 90 calendar days (personal PAD) or 10 business days (business PAD) is handled between you and the business outside the Rule, and the PAD is not returned under the Rule.
• FCAC says you have a right to get your money back if the debit was made on the wrong date or for the wrong amount, or if the contract was cancelled, and that you usually have 90 calendar days from the date the funds came out of your account to report the problem to your financial institution and ask for your money back.
• FCAC adds that your financial institution does not have to reimburse you if more than 90 days have passed, and that you will have to sign a declaration confirming the reason for reversing the debit.
• FCAC says you may not be able to get your money back if the PAD was a transfer of funds from your account at one financial institution to your account at another.

What if money came out under a PAD you never agreed to?

A debit with no agreement behind it is a separate claim, counted from the posting date on your account statement, and Payments Canada’s guide says it applies to all types of PADs, including funds transfer PADs that have no other recourse. Payments Canada also says to report suspicious activity to your financial institution immediately; fraud is covered on banking fraud protection.

• If a PAD or other debit was processed to your account and no PAD agreement existed between you and the business that took it, your financial institution must expeditiously reimburse you and return the debit.
• That claim must be made no later than 90 calendar days after the posting date of the debit shown on your account statement; after that, a dispute about whether there was a contract is for you and the business to settle outside the Rule.
• FCAC's advice for a PAD you did not approve is to contact the biller directly and ask for the money back.
• FCAC says you can file a complaint with your financial institution about any unauthorized debit going through your account.

Related pages

• Ways to move money
• Cancelling a payment
• Interac e-Transfer
• Direct deposit
• Void cheques
• NSF fees and bounced payments
• Stop-payment fees
• Bank complaints
• Switching banks
• Stopping a cheque