Paying by Pre-Authorized Debit

Set It So You Won't Forget It

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), for example. 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 to protect against improper withdrawals.

If you need detailed information, Rule H1 (which applies to PADs) is available in the "Rules and Standards" section. 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 PADs if the organization you want to pay offers this option. You should contact them.

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

If you sign up using an electronic agreement, you should receive a written confirmation at least three days before the first withdrawal from your account.

As part of the agreement, you provide your banking information. The biller may ask for a blank cheque to confirm your account information. Be sure to write "VOID" in ink across the front of the cheque, and don't sign it.

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

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

What should be in your pre-authorized debit agreement

There are mandatory elements that need to be in each pre-authorized debit 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

For detailed information, see Appendix II of Rule H1.

What if something goes wrong

You have 90 days from the date of the withdrawal 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 pre-authorized debit agreement

The agreement should specify instructions for cancellation. If not, notify the biller in writing and keep a copy for your records. 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 pre-authorized debit 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 – Payments Academy.