Amendments to Rule H1 facilitate Pre-Authorized Debits (PADs) user experience came into effect on October 3, 2022. This follows a public consultation conducted by Payments Canada that ended on January 14, 2022.
As defined by Payment Canada :’A PAD agreement is a contract signed between a payor (the end user whose account is being debited) directly with a payee (the end user whose account is to be credited, such as a biller) that authorizes the payee to withdraw funds from the payor’s bank account’.
Rule H1 outlines the procedures for the clearing and settlement of PADs that are supported by an ongoing agreement between a Payor and a Payee. Rule H1 concerned four categories of PADs, namely: (i) Business PAD, (ii) Cash Management PAD, (iii) Funds Transfer PAD, and (iv) Personal PAD.
Key highlights of the amendments include:
Removal of the distinction between electronic and paper PAD agreements: this enables the onboarding process to be standardized regardless of type of contract (paper or electronic).
Revision of the definition of “commercially reasonable” allowing a Payee to use a form of verification that takes into account the circumstances of the PAD, its relationship with the Payor, and that meets the Payee’s operational capabilities.
Introduction of the definition of “one-time PADs” to provide consistency to payors. One-time PAD agreements will now automatically terminate once the payment has been completed, requiring a new agreement for any subsequent PAD transaction(s).
Cancellation of goods and services contracts and PADs: This is applicable where the Payor and Payee have entered into an agreement (including a Payor’s PAD Agreement) that include a cancellation period that does not exceed 30 days, a cancellation or revocation may become effective at the end of that period.
Clarification of the payment service providers provision, the Payor’s PAD Agreement must include a statement that describes the arrangement between the Payee and the entity providing the Payor with goods and services in situations where a Payee is collecting payments on behalf of an entity that is providing the Payor with goods and services.
Inclusion of requirements for Payee-initiated cancellation of a PAD Agreement:
A Payee will have the possibility to terminate a Payor’s PAD Agreement in accordance with the terms of that agreement.
Where a Payor’s PAD Agreement does not address termination by the Payee, the Payee may terminate the Payor’s PAD Agreement with Authorization from the Payor or by providing at least 30 calendar days’ written notice to the Payor before ceasing to issue PADs.
Where a Payee terminates a Payor’s PAD Agreement pursuant to Authorization from the Payor, the Payee shall provide or make available a written statement specifying the date of the final PAD and the effective termination date of the Payor’s PAD Agreement within 10 calendar days of the final PAD.