Pre-authorized debits (PAD)

Why use pre-authorized debits

A pre-authorized debit allows the biller to withdraw money from your bank account when a payment is due. Pre-authorized debits may be useful when you want to make payments from your account on a regular basis.

For example, you may want to use pre-authorized debit for the following:

• mortgage payments
• utility payments
• RRSP contributions
• insurance premium payments
• credit card payments

Setting up a pre-authorized debit agreement

You need to fill out a pre-authorized debit agreement in which you give permission for the withdrawals. Depending on the financial institution, you may be able to do this in writing, electronically or over the telephone. If you set up your agreement electronically or over the telephone, the bank should send you a written confirmation. It must be sent at least 3 days before the first withdrawal from your account and include the details of the agreement.

You must provide your banking information as part of the pre-authorized debit agreement. Your financial institution may ask you to provide a blank cheque. This is to confirm your account details.

To protect yourself against fraud, be sure to write “VOID” in ink across the front of the cheque. Don't sign the VOID cheque.

What your agreement should include

Your pre-authorized debit agreement should include the amount of the pre-authorized debit.

The amount may be:

• fixed, that is, the same amount every month
• variable, that is, a different amount every month

If the amount is variable, the biller must give you written notice of the amount at least 10 days before they withdraw the funds, unless you agree to waive or shorten this period.

Your pre-authorized debit agreement should include the frequency of the pre-authorized debit. The frequency is how often the biller will take the money out of your account.

The frequency may be:

• fixed at weekly, monthly, semi-annually or annually
• variable, that is, only when you're billed if you make a purchase

The biller must get your approval for each pre-authorized debit if one of the following occurs:

• your agreement doesn’t define the frequency
• the frequency is variable

You may need to give the biller a password or a secret code to approve the pre-authorized debit.

Cancelling a pre-authorized debit agreement

To cancel a pre-authorized debit agreement, you must notify the biller in writing. Make sure you keep a copy of this notice. Your agreement should have details on how to cancel a pre-authorized debit.

Once you cancel the agreement, check your account records to confirm that the pre-authorized debits stop. If they continue, contact the biller. If you’re not satisfied with their response, you have 90 days to seek reimbursement through your financial institution.

Cancelling your pre-authorized debit agreement doesn’t cancel your contract with the biller. It doesn’t cancel the amount you owe. By cancelling your pre-authorized debit agreement, you’re simply telling the biller that you wish to change your payment method. You’ll need to make arrangements with the biller to pay any amounts you owe.

Requesting a stop payment

If you need to cancel a single payment, you can request a “stop payment” from your financial institution. You may also be able to put a stop payment on recurring payments.

Check with your financial institution how much time it needs to process a stop payment.

Difference between pre-authorized debits and automatic payments

An automatic payment doesn’t give the biller permission to withdraw money from your account. Instead, you arrange a payment or series of recurring payments from your account to the biller.

You set up the automatic payment independently of the biller. You may modify or cancel it yourself at any time. You can usually do this electronically through online banking. Once you log in, follow the instructions to set up a one-time payment or a series of recurring payments.

Tips for paying by pre-authorized debit

Here are some things to think about when using a pre-authorized debit agreement:

• read the terms and conditions carefully before signing the agreement
• keep a copy of the signed agreement or confirmation of the pre-authorized debit for your files
• inform any merchants or financial institutions with which you have pre-authorized debits if you change your banking information
• check your account regularly to make sure the withdrawals match what you pre-approved in your agreement
• inform your financial institution of incorrect or unauthorized debits within 90 days of the withdrawal

Pre-authorized debits you didn’t approve

If you find a pre-authorized debit that you didn’t approve on your account, contact the biller directly, and ask for your money back.

You have a right to get your money back, if:

• the debit was made on the wrong date or for the wrong amount
• the contract was cancelled

You may not be able to get your money back if the pre-authorized debit was a transfer of funds from your account at one financial institution to your account at another financial institution. Check with your financial institution for details on its pre-authorized debit policy.

You usually have 90 calendar days from the date the funds came out of your account to:

• report the problem to your financial institution
• ask for your money back

Your financial institution does not have to reimburse you if more than 90 days have passed.

You’ll have to sign a declaration confirming the reason for reversing the debit.

If there are additional charges to your account because of the unauthorized debit, ask your financial institution to reverse these charges. For example, an unauthorized pre-authorized debit may cause another payment to not go through because of non-sufficient funds.

Making a complaint about an unauthorized debit

You can file a complaint with your financial institution about any unauthorized debit going through your account. All federally regulated financial institutions must have a complaint-handling procedure in place to help resolve consumer complaints.

Learn how to file a complaint with your financial institution.

Related link

• Using debit cards