FAQ – Business financial products and services – Rule H1 regarding pre-authorized debits (PADs)
Before you can offer the pre-authorized payment option to your customers, you must sign the Service Agreement (referred to as Payee Letter of Undertaking in Rule H1) with the Desjardins caisse that will process the PADs on your behalf. In this contract, you agree to follow the terms of Rule H1 and other Payments Canada rules as they apply to pre-authorized debits.
Before issuing any PADs to customers, account, you must obtain the account holder's authorization (the payor) by using a form or a process that has been approved by Desjardins AccèsD Affaires Services. This authorization is referred to as Payor's PAD Agreement in Rule H1.
Get a model Payor's PAD Agreement that meets Rule H1 requirements. (Any deviation from this model must be approved by AccèsD Affaires.)
To establish Payor's PAD Agreements through an electronic process (Internet or telephone), you must also provide the electronic forms and/or details of the proposed process to verify the Payor's identity for review and approval before they are implemented.
You need to ensure that any Payor's PAD Agreements contain the new mandatory requirements provided in Appendix II of Rule H1.
Obtain model Payor's PAD Agreements. AccèsD Affaires can also provide you with these models.
The requirements include the following:
- The date of the agreement and the payor's signature
- A statement giving the company or organization the authority to debit a specific amount
- The amount and timing of the PAD; if the amount or the schedule is variable, the PAD Agreement must indicate this, and further requirements apply (see Sections 14, 15 and 16 of Rule H1 for details)
- The PAD category (Personal or Business)
- A statement indicating that the payor may cancel the PAD Agreement at any time. The method of cancellation should be clearly set out within the Payor's PAD Agreement (the lead time required to cancel the PAD must not exceed 30 days and should be shorter in most cases)
- A statement advising payors that they may obtain a sample cancellation form or other information on their right to cancel a PAD Agreement at their financial institution or by visiting the Payments Canada's website
- Issuing company contact information that the payor may use to make inquiries, obtain information, seek recourse in the event of an error or improperly authorized PAD
- A standard statement about the recourse available to the payor
Additional requirements apply for variable PADs, sporadic PADs and in cases where the company seeks the payor's agreement to reduce or waive the standard notification period applicable in certain circumstances.
Notification requirements apply when a business' name changes or when a business wishes to transfer or assign a PAD to another party.
Businesses must act Notices of Change that they receive from their financial institution. Financial institutions send these notices to billers to inform them about changes to a payor's account number or transit number.
If you re-present an NSF PAD, it must be for the same amount as the initial transaction.
Failure to provide written confirmation of an electronic PAD or not meeting the defined period for sending the confirmation prior to the first PAD has been added as a reason that a payor could dispute a PAD. Otherwise, the reasons that a payor could make a reimbursement claim and the timelines for doing so remain the same.
You must use a “commercially reasonable” process to confirm the payor's identity when establishing a Payor's PAD Agreement through an electronic channel (Internet or telephone). Some useful guidance is provided in the definition of “commercially reasonable” in Section 5(e) of Rule H1.
You must submit this process and the forms you intend to use to establish electronic Payor's PAD Agreements to the AccèsD Affaires Service prior to implementation. The AccèsD Affaires Service will confirm that they are satisfactory and meet the requirements of Rule H1. The electronic forms and/or processes used for the Payor's PAD Agreement must include all of the mandatory elements set out in Rule H1.
If the payor submits a request to change their account information, is a new Payor’s PAD Agreement required? Is there a specific section in the Payor’s PAD Agreement where these changes can be indicated?
The account number on which a PAD is drawn is a mandatory element of the Payor's PAD Agreement. If the account number changes, the issuing company must have the payor's authorization for this amendment to the Agreement. This authorization may be achieved either by establishing a new agreement with the payor, or by obtaining instructions from the payor to change the account. As this instruction would be an amendment to the original Payor's PAD Agreement, you must retain it along with the original Payor's PAD Agreement.
Account number changes may also be communicated to you via a Notice of Change. You must act upon notice; no separate authorization from the payor is required.
The definition of a set interval PAD has been expanded and now includes PADs that occur as a result of an event (reaching a predetermined balance, meeting a set condition, etc.) or a criterion defined in the Payor's PAD Agreement.
A customer has already signed a Payor’s PAD Agreement to pay for a service; can the charges for a new service be added to the existing Agreement?
Charges for another service may be added to an existing PAD Agreement, provided that it allows for variable amount PADs. Pre-notification and audit-trail requirements must also be met. Otherwise, a new Payor's PAD Agreement must be signed.
The payor must receive a written notice regarding any change 10 calendar days prior to the next PAD.
If your Payor's PAD Agreement specifically provides for the change in amount to occur as a result of a direct action from the part of the payor (e.g., a telephone instruction), it is not necessary to send a notice.
If you and the payor mutually agree to reduce the pre-notification period or if the Payor's PAD Agreement clearly indicates (in bold or underlined) a waiver of pre-notification, it is possible to change the provision.
If the amount is changed due to a tax rate reduction, no notice is required.
If a PAD is returned due to insufficient funds, you may re-present the payment item only once, and this must be done within 30 days of the original transaction. If you re-present the PAD, it must be for exactly the same amount as the original transaction. You cannot add penalties or additional service charges.
When providing the written confirmation for an electronic agreement, can we mask the client’s account number?
Yes, it is acceptable to partially mask or truncate account numbers. The ideal balance would be to provide enough information to enable the payor to understand the details of the PAD, while ensuring that enough of the account number is masked to mitigate security and privacy concerns.
What are the requirements when a third-party service provider is responsible for the actual debit processing?
Rule H1 stipulates that the payor knows who is debiting their account (the payor can recognize the name appearing on their account statement). The Payor's PAD Agreement must state that a third-party will process the PAD and indicated the name of said administrator.
Rule H1 stipulates that the maximum advance notice period that can be required in your Payor's PAD Agreement is of 30 calendar days. This period should be based on operational requirements to process a cancellation and should normally be less than 30 calendar days. In practical terms, you may specify the advance notice period in business days (e.g., 5 business days), as long as this period falls within 30 calendar days. See Section 27 of Rule H1.
The cancellation of the Payor's PDA Agreement does not affect existing obligations between a payor and a company under any broader contract for goods or services. For example, if the payor has signed a 1-year lease and initially agreed to make monthly payments by PAD, the payor may cancel the PAD Agreement at anytime, but must make arrangements with the company to use another form of payment.
Source: Payments Canada
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