Pre-authorized debits (PADs) are an option for paying bills or transferring funds when these transactions occur on a regular basis—for example, mortgage and utility payments, RRSP contributions, insurance premiums or charitable donations.
The Canadian Payments Association (CPA) and its member financial institutions have established certain terms and conditions for the processing of pre-authorized debits to make sure that these payments are properly authorized and to provide protection against improper withdrawals.
In order to authorize PADs, you will be required to complete an agreement in which you authorize the withdrawals, either through a written form that you sign, or through an electronic communications channel, such as a website or over the telephone.
As part of this agreement, you provide your banking information. You may be asked to provide a blank cheque to confirm your account details. Be sure to write “VOID” in ink across the front of the cheque and do not sign it.
What should your pre-authorized debit agreement include?
The amount of the pre-authorized debit if it is a fixed amount, or a statement that the amount will vary—pre-authorized debits for bills that vary require that the biller give you at least 10 days notice of the amount before they withdraw the funds unless you agree to waive or shorten this period.
The frequency of the pre-authorized debit—for instance, it could be weekly, monthly, semi-annually or annually. The frequency can also be variable, such as if you are only billed when you make a purchase. If the frequency will be irregular, the biller must get your approval for each pre-authorized debit. This additional approval can be provided, for example, through a password or a secret code.
Things to remember
Keep a copy of the signed agreement or confirmation of the PAD for your files.
Inform any merchants or financial institutions that you have PADs with if you change your banking information.
Know how to cancel a PAD. This information is usually found in your signed agreement.
Check your account regularly to make sure the withdrawals match what you pre-approved in your agreement.
TIP: As a consumer, you have 90 calendar days from the date of withdrawal to report an incorrect or unauthorized pre-authorized debit from your account to your financial institution and to seek reimbursement.