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Business Guide Pads

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Business Guide to the Power of Pre-Authorized Debit Pre-Authorized debits (PADs) are a powerful tool for businesses that want to initiate and receive recurring electronic payments. Personal PADs With your customer’s permission, you can use PADs to set up recurring debits to your customer’s bank account to collect payment for the goods or services you provide. Business PADs You can also leverage the power of PADs to arrange payment for goods or services related to your business or commercial acti
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  Pre-Authorized debits (PADs) are a powerful tool for businesses that want to initiate and receive recurring electronic payments. Personal PADs With your customer’s permission, you can use PADs to set up recurring debits to your customer’s bank account to collect payment for the goods or services you provide.Business PADsYou can also leverage the power of PADs to arrange payment for goods or services related to your business or commercial activities, for example, payments between franchisees and franchisors, distributors and suppliers, or dealers and manufacturers.Funds Transfer PADsPADs are also a great tool to consolidate or reposition funds between accounts held by your business or closely affiliated businesses at different financial institutions. For example, a parent company can use a cash management PAD to draw funds from an account of its subsidiary.The Canadian Payments Association (CPA) and its member financial institutions have established certain terms and conditions for the processing of PADs to ensure that these transactions are properly authorized and to protect against improper withdrawals from accounts. The full text of the CPA’s Rule H1 which governs PADs is available on the CPA web site at www.cdnpay.ca.Recurring charges to credit cards are not considered PADs and are thus not covered by Rule H1. How to Get Started Regardless of the type of PAD, your first point of contact is your financial institution. To offer Personal PADs as a payment option for your customers First you’ll need to determine whether your financial institution offers a PAD service to billers. If they do, your next step will be to sign a contractual agreement (referred to as a “Payee Letter of Undertaking” in Rule H1) with them. In the contract, they agree to issue PADs on your behalf (to be your “sponsoring” financial institution), and you agree to follow the terms of Rule H1 and other CPA Rules as they apply to pre-authorized debits.Before issuing any PADs to a customer’s account, you must obtain the authorization of the account holder (the Payor), either electronically, or on paper, and this must be Business Guide to the Power of Pre-Authorized Debit done using a form or process that has been approved by your sponsoring financial institution. This authorization is referred to in Rule H1 as a Payor’s PAD Agreement. To provide clarity and transparency to your customers, the Payor’s PAD Agreement must contain certain mandatory elements, which are outlined in Rule H1. You need to keep a copy of this agreement, and any associated information, for a minimum of one year following the last debit to the customer’s account. You may request a “void” cheque from your customer to confirm their account information, but this is not mandatory. Signing up your customers for PADs electronically If the customer provides their authorization electronically, it is your responsibility to verify that the personal and/or banking information set out in that Payor’s PAD Agreement actually belongs to that Payor using a commercially reasonable method of verification approved by your sponsoring financial institution. You are also required to send the customer a written confirmation of the terms of the electronic Payor’s PAD Agreement before the first PAD is submitted. The Confirmation must include all of the mandatory information elements set out in Appendix IV of Rule H1. If you want to set up Business PADs The set-up procedure for Business PADs is essentially the same as for Personal PADs. You enter into a contractual CONTINUED ON PAGE 2 www.cdnpay.ca  CONTINUED FROM PAGE 1 agreement (a Payee Letter of Undertaking) with a financial institution that will process the PADs on your behalf, and obtain the agreement of the other party in a Payor’s PAD agreement that contains the mandatory elements outlined in Rule H1. To arrange Funds Transfer PADs When you set up funds transfer PADs, you’re moving money between accounts held by the same, or closely affiliated, businesses, so no Payee Letter of Undertaking is required. Your sponsoring financial institution will obtain your authorization for the PADs via a Payor’s PAD Agreement. Frequently Asked Questions for businesses who use PADs to collect payments from their customers  What should the Payor’s PAD agreement say? According to Rule H1, there are mandatory elements that every Payor’s PAD Agreement must contain.You should consult with your financial institution to see if they have a template agreement that they require their Payees to use. If not, you can design your own Payor’s PAD Agreement, or include the mandatory elements within another agreement, such as a broader contract for goods or services. Instructions can be provided to your sponsoring financial institution in many ways, depending on their processes and preference. The standard file format for PADs (AFT transactions) in Canada is CPA Standard 005. Your instructions might already be in the form of AFT files, or the financial institution might ask you to provide the instructions in a different format (like an Excel spreadsheet, for example, or even over the phone for small businesses who need to make very few of these types of payments at a time) and do the work of creating the AFT files for you. Some businesses might also choose to contract out the work of creating the AFT files to a service provider (if the service provider’s name is shown on account statements as the srcinator of the PAD, your business would need to disclose this third-party arrangement to the Payor in the Payor’s PAD Agreement). Can the amount of a PAD vary from month to month according to the amount the customer owes? If so, do I have to let the customer know the amount for each PAD in advance? Yes, the Payor’s PAD Agreement can fulfill the mandatory requirement for “Amount” by stating that the amount will vary from month to month. For variable amount PADs occurring on a set schedule, you need to let your customer know what the amount will be at least 10 days in advance of each PAD, unless you and your customer mutually agree to reduce or waive this “pre-notification” period in the Payor’s PAD Agreement. CONTINUED ON PAGE 3 These mandatory elements are in addition to, and do not replace, the provisions of any other contract between your business and the Payee: ã the execution Date of the Agreement, and a Signature field (for paper agreements) ã the Payor’s Authority to Debit a specific Account ã the PAD Category (Personal, Business, or Funds Transfer) ã the Amount and Timing of the debits, or the Specified Event/Action that will trigger a PAD ã instructions for the Payor on how to Cancel the Agreement ã Contact Information so that the Payor can contact the Payee ã a mandatory Recourse/Reimbursement Statement, which must read: “You [or I/We, depending on the context] have certain recourse rights if any debit does not comply with this agreement. For example, you [I/we] have the right to receive reimbursement for any debit that is not authorized or is not consistent with this PAD Agreement. To obtain more information on your [my/our] recourse rights, [I/we may] contact your [my/our] financial institution or visit www.cdnpay.ca.” How do I provide payment instructions to my financial institution? Is there a standard format? www.cdnpay.ca Your Rights and Responsibilities  CONTINUED FROM PAGE 2 The waiver has to be prominently displayed in a paper agreement (e.g. in bold print, highlighted or underlined), or expressly communicated to the Payor if the Payor’s PAD Agreement is set up electronically. Can I mask my customer’s bank account information when sending a written confirmation for an electronic agreement? Yes, you can partially mask or truncate customer account numbers in your correspondence. The ideal balance would be to provide enough information to enable the Payor to understand the details of the PAD, while ensuring that enough of the bank account number is masked to mitigate security and privacy concerns. What if the customer’s account information changes? The account number on which a PAD is drawn is a mandatory element of the Payor’s PAD Agreement. If the account number changes, the Payee must have the Payor’s authorization for this amendment to the agreement, either by establishing a new agreement with the Payor, or by obtaining an instruction from the Payor to change the account. As this instruction would be an amendment to the srcinal Payor’s PAD Agreement, you need to retain it, along with the srcinal agreement, for a minimum of one year after the last debit to the account.If you receive an update to your customer’s financial institution information from your sponsoring financial error correction, provided that you contact them within the timeframe outlined in your agreements. What can a biller do if a PAD to a customer’s account is returned NSF? Can I debit the account again? Can I apply NSF charges to the next debit? If a PAD is returned due to insufficient funds, the biller may re-present the payment item, but only once, and this must be done within 30 days of the srcinal transaction date. If the biller chooses to re-present the PAD that was returned NSF, the PAD must be for exactly the same amount as the srcinal transaction (i.e. it cannot include service fees charged by the biller).However, if the Payor’s PAD Agreement provides for variable amount PADs, the Payee may add NSF charges to the outstanding balance the next time a PAD is withdrawn from the Payor’s account, provided the pre-notification provisions are satisfied. Take for example a Payor’s PAD Agreement that provides for variable amount PADs reoccurring on the 15th of every month; if on January 15th a PAD of $100.00 was returned NSF, the Payee would have the right to debit the account on February 15th for $200.00 plus NSF charges (i.e. for the outstanding balance plus NSF fees). On the other hand, if the Payor’s PAD Agreement provides for a Fixed Amount PAD reoccurring on a fixed date (the 15th of every month), the Payee’s only recourse within the clearing system would be to re-present the PAD (without NSF charges) one time only (i.e. for $100.00 in the example above) within thirty days. CONTINUED ON PAGE 4 institution in the form of a Notice of Change (NOC), you should update the customer’s records accordingly. Payees are required to act upon NOCs; no separate authorization from the Payor is required. What happens if my business makes a mistake when issuing a PAD? In the vast majority of PADs, everything goes according to plan, and both the Payor and the Payee are satisfied. If an error does occur (for example, incorrect account information provided by the customer, or an incorrect amount entered by the business), the errors can be corrected. If an AFT transaction is rejected for incorrect routing information, or if required information is missing in the transaction itself, it will be returned to your sponsoring financial institution, sometimes as early as the same day, and they will notify you of the issue.If the customer’s financial institution can’t post the transaction to the customer’s account (because there isn’t enough money in the account, for example) the customer’s financial institution will return that transaction to your sponsoring financial institution by the next business day. If a return is initiated at the request of the Payor or Payee, however, the timeframe is different. If your business discovers an error, you can ask your financial institution to recall the transaction (if it hasn’t been posted to the customer’s account yet), or issue an www.cdnpay.ca Frequently Asked Questions  Frequently Asked Questions www.cdnpay.ca CONTINUED FROM PAGE 3 Can my customer cancel a Payor’s PAD Agreement? Yes. All PAD cancellation requests must be sent directly to you by your customers, not to the CPA. The CPA cannot cancel a PAD agreement, as it is a contract between you and the Payor.The procedure to cancel a PAD should be outlined in the Payor’s PAD Agreement. If no clear preference for cancellation procedure is expressed in the agreement, the customer may notify the biller in writing and keep a record of the cancellation. They may use the Sample Cancellation Form provided in the CPA’s Rule H1 for this purpose, but they are not required to do so. If your PAD Agreement does not outline the cancellation procedure, and the customer is unable to contact you, they may seek the advice of their financial institution as to how to cancel the PAD. That said; this should be a last resort. The customer’s financial institution may not be able to assist them in cancelling the PAD Agreement as the Payor’s PAD Agreement is a contract between the customer and the biller.Once the PAD has been cancelled with the biller, the customer can check their account records to confirm that the withdrawals have stopped. If the PADs continue to be taken from their account, they are advised to contact the biller and ask why. If they are not satisfied with the response that they obtain from the biller, customers may seek recourse through their financial institution.Remember, cancelling the PAD Agreement does not cancel a contract for goods or services between you and your customer, or cancel the amount they owe you. By cancelling the PAD Agreement the customer is simply indicating that they no longer wish to pay by pre-authorized debit. The customer will need to make alternate arrangements with you to pay any amounts owing. Can my customer reverse a PAD? Yes, if the PAD is unauthorized, or not in accordance with the Payor’s PAD Agreement. A customer should inform their biller immediately if any withdrawal from their account is not in accordance with the terms of their agreement (e.g. different amount or date), or processed after the customer has cancelled a Payor’s PAD Agreement.If a customer is not successful in resolving the issue with their biller, or if the PAD was srcinated by a biller with whom no agreement exists, the customer may request that their financial institution reverse the transaction and return the funds to their account, (resulting in a debit to the biller’s account) subject to the time frames below. (This provision may not apply to certain funds transfer PADs). For a customer-initiated return of a PAD, the timeframe is 90 days for personal PADs, and 10 days for business PADs, unless the business PAD is not authorized for the reason that no agreement exists, in which case its 90 days. Once a reason for the claim has been provided to the Payor’s financial institution, the debit will be reversed, and the funds will be restored to their account. If I have a client with an existing PAD and they sign up for an additional service, can the charges be added to the existing PAD agreement, or do they need to sign a new one? Adjustments to the amount of an existing PAD Agreement are permitted, provided that you meet your requirements to provide pre-notification of change in amount to your customer as outlined in you Payor’s PAD Agreement, and retain a record of the Payor’s instruction to make the change for a minimum of one year following the last debit to the account. What if I sell my company? Can the new owner continue the PADs? A Payee may transfer its contractual arrangements relating to PADs to another organization (for example, through a sale of the company or a business unit, or to a collection agency in provinces where this is permitted) provided that certain conditions are met. In the case of the Letter of Undertaking or equivalent contract with its financial institution, the Payee must obtain its financial institution’s prior consent to transfer or assign the contract with the FI to another party and in the case of Payor’s PAD Agreements, the Payee must provide full details of the transfer to the Payor, including the name and contact information of the proposed new Payee, at least 10 days in advance of the first PAD being issued in the proposed new Payee’s name. CONTINUED ON PAGE 5

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