Payments Canada Rule H1

What EFT Rails does

You hold the pre-authorized debit (PAD) agreement with your customer, and you must send the required notices. EFT Rails sends each debit when you create it, and a returned payment shows as returned in the API and the dashboard, as described in the API reference.

What Rule H1 is

Rule H1 sets the procedures Payments Canada member banks use to exchange, clear and settle every PAD, covering payments supported by a PAD agreement or a letter of undertaking.¹

A PAD is a debit you issue against your customer's account at their bank under a PAD agreement, which is a continuing authority your customer can revoke, written or otherwise recorded and signed or otherwise approved.² The amount can be fixed or variable, and the debit can occur once or recur at set intervals or sporadically.³

Rule H1 is read with Payments Canada's related rules and standards.⁴ You can read Rule H1 on Payments Canada's website.

How it reaches your business

Your bank brings you under Rule H1 when it sponsors your personal or business PADs. It takes a letter of undertaking from you, reviews your agreement form or process before you use it, and obtains your confirmation that you use commercially reasonable procedures to verify your customer's identity when entering an agreement.⁵

Your bank also gives you full information on Rule H1 and its material amendments.⁶ Set up pre-authorized debits with these steps in place.

What it asks you to do

Get a signed agreement from your customer

Your PAD agreement must be dated and, when written, signed. It must clearly authorize you to debit your customer's specified account, state the PAD category, set out the amount and timing or trigger, give your contact details, and include cancellation terms with a notice period of 30 calendar days or less, cancellation information and the reimbursement statement.⁷

The agreement sets whether the PADs occur once, at set intervals or sporadically and whether their amounts are fixed or variable. A sporadic PAD needs your customer's approval before each debit, a one-time PAD needs a new agreement for any later debit, and an amount change on a set-interval PAD needs no new approval when you give pre-notification.⁸

Tell your customer before the first debit

For personal and business PADs, send a confirmation, meaning a copy of the agreement or a summary of its key terms, at least 10 calendar days before the first debit's due date. Your customer can authorize a shorter period or waive the confirmation, but after a waiver you must provide it within 5 calendar days after the first debit.⁹ See how to send PAD notices.

Tell them again before a debit changes

For PADs recurring at set intervals, send pre-notification stating the amount and date of the next debit at least 10 calendar days before a fixed amount or payment date changes, and before the due date of every variable-amount debit after the first.¹⁰

You can omit pre-notification when a tax reduction decreases the amount or when the agreement specifically covers a change your customer requests. You and your customer can agree to reduce or waive it, and any reduction or waiver clause in the agreement must be displayed prominently.¹¹

If a debit bounces, try once more within 30 days

You can submit a debit returned for "Non-Sufficient Funds" (901) or "Funds Not Cleared" (908) again once, within 30 calendar days after the return. A second dishonour ends that option.¹² Follow the steps for handling NSF returns.

If your customer claims a debit back

Your customer can claim reimbursement when a debit did not follow the agreement, the agreement was revoked, or a required confirmation, pre-notification or notice was not given. Their bank reimburses on a best-efforts basis up to 90 calendar days after a personal or funds transfer PAD, or 10 business days after a business PAD, and a personal PAD miscoded as a business PAD keeps the 90-day window.¹³

A claim that no agreement existed carries a 90-calendar-day window from the posting date on your customer's statement for any PAD category.¹⁴ Later claims are settled between you and your customer outside the rules. See the PAD dispute windows.

If your customer cancels

Stop the debits by the next billing cycle if you can, and within 30 calendar days of your customer's notice at the latest. After that, you need a new agreement to debit them again. A cancellation period in your agreement can be no longer than 30 calendar days.¹⁵

Keep your records

Keep an audit trail containing the PAD agreement, evidence of your customer's approval and everything needed to retrieve or trace a PAD for at least 12 months after the last debit under that agreement.¹⁶

What changed recently

The removal of paper PADs was approved on May 28, 2026 and took effect on July 27, 2026, and paper PADs stop being accepted for clearing on December 1, 2028.¹⁷