Protecting yourself by knowing the ins and outs of automatic withdrawals from your bank account

Pre-authorized debits (PADs) are one of the most common ways that people pay for recurring services. They can be used to pay your mortgage, utility bills, streaming services and even to make charitable donations.

The name sounds a bit technical, but whether it’s your gym membership or an automatic withdrawal for your electricity or water bill, all a pre-authorized debit really means is that an amount of money is coming out of your bank account on an agreed-upon frequency and date, in accordance with the agreement you signed.

As the owner and operator of Canada’s payment systems, Payments Canada is responsible for ensuring that financial transactions are carried out safely and securely each day. Our Retail Batch Payment System, made up of the Automated Clearing Settlement System (ACSS) and the United States Bulk Exchange application (USBE), is where the vast majority of Canada’s daily payments are processed. This includes pre-authorized debits.

Giving an organization the ability to withdraw money from your account is serious business. For this reason, Payments Canada and our member financial institutions establish terms and conditions through our rules, standards and by-laws to make sure that pre-authorized debits are properly authorized. For example, Rule H1 specifies that if an incorrect or unauthorized amount of money is taken from your account, you have 90 days from the date of the withdrawal to report it to your financial institution.

While the safe and secure operation of Canada’s national payment systems remains our number one priority, as part of our mandate outlined in the Canadian Payments Act, we also have a duty to facilitate the development of new payment methods and technologies. One of the ways that we do this is by amending our rules to reflect technological advancements in the payment space.

This year, Rule H1 was amended to improve the pre-authorized debit experience for both the individual and the organization. Rule H1 now makes pre-authorized debit agreement obligations easier to understand, and gives the end user whose account is being debited more confidence in signing that agreement. This includes making sure that the process is the same whether the contract is paper or electronic. Doing so will facilitate better contract management for businesses accepting pre-authorized debits.

To help Canadian businesses and consumers better understand their rights and responsibilities when it comes to pre-authorized debits, Payments Canada has a PAD-focused consumer guide. It answers the most frequently asked questions that we receive throughout the year about this type of payment method. It includes answers to questions like “What should be in your pre-authorized debit agreement”; “How to cancel a pre-authorized debit agreement”; and “What to do if something goes wrong”.

If you’re looking to learn more about the money you’ve agreed to have withdrawn from your bank account, our consumer guide is a great place to start — because understanding your rights and responsibilities when making payments helps you make informed decisions about the way you pay.

Derek Young
Director, Retail Payment Products 
Payments Canada

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