FAQ – Business financial products and services – Rule H1 regarding pre-authorized debits (PADs)

Before you can offer a pre-authorized payment option to your customers, you must sign the Enrolment Agreement (referred to as Payee Letter of Undertaking in Rule H1 (PDF, 447 KB) - External link.) with the Desjardins caisse that will process the PADs on your behalf. In this contract, you agree to comply with Rule H1 and all other Payments Canada rules that apply to pre-authorized debits.

Before initiating a PAD, 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. This authorization is referred to as the Payor's PAD Agreement in Rule H1.

Get a model Payor's PAD Agreement that meets Rule H1 requirements on the Checklist and model Payor's PAD Agreements page. (Any deviation from this model must be approved by AccèsD Affaires.)

You can choose one of 3 ways to set up Payor's PAD Agreements: in person (hard copy document), online or by phone. You must submit the PAD Agreement forms and details of the process you wish to use for review and approval by AccèsD Affaires, including the payor identity verification process, before implementing them.

You need to ensure that any Payor's PAD Agreement meets the mandatory requirements set out in Appendix II of Rule H1 (PDF, 447 KB) - External link..

You'll find model Payor's PAD Agreements on the Checklist and model Payor's PAD Agreements page. AccèsD Affaires can also provide you with these models.

Mandatory elements include:

  • The date and the signature of the Agreement.
  • A statement giving the company or organization the authority to debit a specific amount.
  • PAD amount and timing or specified event/action that defines the timing; if the amount or the timing is variable, the PAD Agreement must indicate this, and further requirements apply (see part IV of Rule H1 for details).
  • PAD category (Personal or Business).
  • A statement indicating that the payor can cancel the PAD Agreement. The cancellation method should be clearly set out in the Payor's PAD Agreement (the notice period for cancelling the PAD Agreement cannot exceed 30 days and should be shorter in most cases).
  • A statement advising payors that they can obtain a sample cancellation form or other information on their right to cancel a PAD Agreement from their financial institution or by visiting the Payments Canada website.
  • Issuing company contact information that the payor can use to make inquiries, obtain information, and seek recourse in the event of an error or an unauthorized PAD.
  • A standard statement about the recourses available to the payor.

Mandatory elements depending on the circumstances:

  • Third-Party Debit Processing: If your company uses a service provider for authorized debit processing, the PAD Agreement must identify the service provider's name as a beneficiary and that they are acting on behalf of a third party who is the actual beneficiary. This will allow your payors to recognize transactions posted to their accounts.
  • PAD Agreement for a one-time debit: One-time PAD Agreements terminate automatically once the payment is made, and any subsequent PAD requires a new Agreement.

Additional requirements apply for PADs in other cases, such as when the company asks the payor to enter into a PAD to reduce or waive the standard notice period, which apply under certain circumstances.

Notification requirements apply when a business changes its name or when a business wishes to transfer or assign a PAD to another party.

Businesses must take steps when they receive a Notice of change from their financial institution. Processing financial institutions send these notices to inform businesses about changes to a payor's account number or transit number.

If you re-present a PAD that was returned because of non-sufficient funds (NSF), it must be for the same amount as the initial transaction.

Failure to provide written confirmation of a PAD or to comply with the period for sending the confirmation prior to the first PAD has been added to the reasons for which 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 setting up a Payor's PAD Agreement. Some useful guidance is provided in the definition of "commercially reasonable" in Section 5(e) of Rule H1 - External link..

You must submit this process and the forms you intend to use to set up Payor's PAD Agreements to AccèsD Affaires before implementing them. AccèsD Affaires will confirm whether 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.

The account number on which a PAD is drawn is a mandatory element of the Payor's PAD Agreement. If the account number changes, you'll need the payor's authorization to make this amendment to the Agreement. This authorization can be obtained either by establishing a new agreement with the payor, or by obtaining instructions from the payor to change the account. Since 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 can also be communicated to you via a Notice of Change. You must make the changes after receiving this type of notice; no separate authorization from the payor is required.

The definition of set interval includes PADs that are triggered by events (such as reaching a certain balance or a certain condition) or an action set out in the Payor's PAD Agreement.

Charges for another service can be added to an existing PAD Agreement as long as it allows variable amount PADs. Pre-notification and audit trail requirements must also be met. Otherwise, a new Payor's PAD Agreement must be set up.

The payor must receive a written notice about any change 10 calendar days prior to the next PAD.

If your Payor's PAD Agreement specifically provides for a change in amount to occur due to a direct action by the payor (such as instructions by phone) it is not necessary to send a notice.

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.

Yes, it is acceptable to partially hide/mask or truncate account numbers. The best practice is to provide enough information to enable the payor to understand the details of the PAD while ensuring that enough of the account number is concealed to mitigate security and privacy concerns.

Rule H1 stipulates that the payor must be aware of the name of the service provider debiting their account (the payor must be able to recognize the name appearing on their account statement). The Payor's PAD Agreement must include a statement that describes the agreement between the beneficiary and the entity providing the goods and services to the payor, indicates that a third party will process the PAD, and indicates the name of this processor.

Rule H1 states that the pre-notification period that can be required in the Payor's PAD Agreement cannot exceed 30 calendar days. This pre-notification period must be based on operational constraints and must be less than 30 calendar days in most cases. In practice, you must specify the pre-notification period in business days (for example, 5 business days), as long as the period is less than 30 calendar days. To learn more, see section 17 of Rule H1 - External link..

The cancellation of a Payor's PAD Agreement does not change any existing obligations between a payor and a company under a broader contract for goods or services. For example, if a payor has signed a 1-year lease and initially agrees to make monthly payments by PAD, the payor can cancel the PAD Agreement at any time, but must make arrangements with the company to use another form of payment.

Source: Payments Canada

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