Pre-authorized debits in Canada

What EFT Rails does

EFT Rails lets you collect loan repayments and other pre-authorized debits (PADs) from Canadian bank accounts through its application programming interface (API) or dashboard. You hold the PAD agreement with your customer and send the required notices.

What a PAD is

Your customer authorizes you to collect from a specified bank account through a PAD agreement. They can cancel that authorization. The agreement can be written or otherwise recorded, and signed or otherwise authorized.¹

A PAD can have a fixed or variable amount. It can be one-time, recur on a schedule or occur sporadically. Paper PADs stop being accepted for clearing on December 1, 2028.²

A business PAD pays for goods or services connected to your customer's business or commercial activity, such as payments between franchisees and franchisors or dealers and manufacturers. A personal PAD covers consumer payments such as donations, mortgage instalments, utility bills, insurance premiums, membership fees, property taxes, credit card bills and loans.³ The category determines how long your customer can dispute the debit. Read about business and personal PADs, sporadic PADs, electronic funds transfers in Canada and the file format used for collection files.

The guides

• Build a PAD agreement
• Read Rule H1 section by section
• Set up pre-authorized debits
• Tell your customer before a debit
• Choose business or personal PAD
• Understand the dispute windows
• Collect sporadic PADs
• Charge NSF fees correctly
• Compare PAD with a card on file

Before the first debit

Get your customer's signed or otherwise authorized PAD agreement before collecting. The agreement sets whether the debits are one-time, sporadic or recurring on a schedule, and whether their amounts are fixed or variable. A sporadic PAD needs your customer's authorization before every debit, and your customer cannot waive that authorization. A one-time PAD needs a new agreement before any later debit.⁴

The agreement records its date and, for a written agreement, your customer's signature. It also gives clear authority to debit a specified account and states the PAD category, amount and timing or triggering event, cancellation terms with a notice period of no more than 30 calendar days, your contact information and where your customer can obtain a sample cancellation form or more information.⁵ It must carry the recourse statement in its entirety, using the required wording. The form on the PAD agreement page includes it.⁶

Send your customer a confirmation at least 10 calendar days before the first debit's due date. The confirmation can be a copy of the agreement or a summary of its key terms. 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.⁷ The setup guide takes you through the process.

Before a change or a variable amount

Tell your customer the amount and date of the next debit before a change takes effect. For PADs recurring on a schedule, give pre-notification at least 10 calendar days before any change to a fixed amount or payment date, and before the due date of every variable-amount PAD after the first.⁸ A tax-rate change, top-up or another adjustment to a fixed or variable amount on a recurring schedule needs no new authorization when you give pre-notification.⁴

You do not need to tell your customer before a debit when a tax cut lowers the amount, or when your customer asks for the change and the agreement specifically allows changes made that way. You and your customer can also agree to shorten or skip these notices, with that clause in bold, highlighted or underlined in the agreement.⁹ See the pre-notification guide.

When a debit comes back

Your customer's bank can dishonour a PAD for reasons such as insufficient funds, a stop payment or a closed account. The debit comes back to you as a returned payment no later than the business day after it reaches the part of your customer's bank that refuses it.¹⁰

You can re-present a debit returned for "Non-Sufficient Funds" or "Funds Not Cleared" once within 30 calendar days after the return. A second dishonour ends your ability to re-present it.¹¹

Your customer can also dispute a debit through their bank. The claim and its category determine the window.

Within these windows, your customer's bank refunds your customer and the debit comes back to you as a return. After the window closes, any claim is between you and your customer.¹² A claim that no agreement existed, made more than 90 calendar days after the debit posted, is also between you and your customer.¹³

Read the guides to handling NSF returns, PAD dispute windows and EFT return codes.

When your customer cancels

Use best efforts to stop the PAD in your next business, billing or processing cycle. Issue no new PADs more than 30 calendar days after receiving the cancellation notice, and do not debit that customer again without a new agreement. Any cancellation period stated in the agreement can be no longer than 30 calendar days.¹⁴

If you transfer the agreement to another business or change your name, tell your customer in writing at least 10 calendar days before the next debit.¹⁵

Keep the PAD agreement, evidence of your customer's authorization and the records needed to retrieve or trace a debit for at least 12 months after the last PAD under that agreement.¹⁶

Running your collections

Money collected by PAD can still come back until your customer's dispute window closes. Collect a fee for a returned debit through a separate debit authorized by the agreement, and never add it to a re-presentment.

Use the EFT reconciliation guide and returns and reconciliation overview to match returns to their payments. See the guides to NSF fees and PAD compared with card billing, or read about the Real-Time Rail for another way to move money.