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CCCC invites comments on Proposed Changes to Pre-Authorized Debit (PAD) Rules

August 22, 2007

The Canadian Payments Association (CPA) has recently undertaken a comprehensive review of its framework for processing Pre-Authorized Debits (PADs) through the Canadian clearing system and is proposing a number of changes to Rule H1 - Pre-Authorized Debits. If adopted, these amendments will result in some significant changes for many of our members using PADs to collect payments from clients.

Background Overview of the Proposal

The Canadian Payments Association (CPA) operates Canada’s national clearing system for various types of payments, including pre-authorized debits. The proposed changes to Rule H1 will establish certain mandatory requirements for the authorization forms that organizations have their clients sign to give permission for debits to the clients’ bank accounts, and adopt a new, more flexible framework to support electronic processes for obtaining customers’ authorizations for PADs.

Glossary

  • Pre-Authorized Debit (PAD) - is a withdrawal from a consumer’s or business’s bank account that is initiated by a company or a financial institution (FI) that has the account holder’s written authority to do so.
  • Payee - is the person whose account is to be, or has been, credited with the amount of the PAD.
  • Payor - is the person whose account is to be, or has been, debited with the amount of the PAD.
  • Payor’s PAD Agreement - is a continuing but revocable authority given by the Payor to the Payee that authorizes the Payee to issue a debit against the Payor’s account.
  • Secure Electronic Signature (SES) - is an electronic signature that results from a security technology or process that ensures the electronic signature is unique to the signer, was created and affixed by the signer or by using a means under the sole control of the signer, and indicates the signer’s approval of the data message.

CPA Objectives align with Key Changes in the Proposal

Embrace An Evolving Marketplace and Technological Advancement:

  1. Remotely Authorized Payor’s PAD Agreements - proposed that the current SES language in Rule H1 be replaced by a workable framework that respects current general contract law in Canada, thereby permitting PAD authorizations to be provided remotely (Internet, E-mail, telephone).
  2. PAD Frequency and Authorization Requirements - proposed that the definition of "Set Interval" be expanded to include PADs that occur as a result of a specific act, event or criterion set out in the Payor’s PAD Agreement.

Enhancing Consumer Protection and Convenience:

  1. Revocation/Cancellation of Payor’s PAD Agreements - proposed amendments to framework to ensure Payors understand options and procedures to cancel a PAD Agreeement.
  2. Recourse Periods and Transaction Codes - proposed that consumer PADs, either through incorrect coding or commingled PADs (when Business and Personal PAD have been combined as a single debit under one transaction code) always be afforded a 90-day recourse period.
  3. Transferability of Payor’s PAD Agreements - proposed amendment would provide that Payee Letters of Undertaking could not be assigned in any manner without the prior written consent of the Payee’s FI, and that Payor’s PAD Agreements could not be assigned in any manner without at least 10 days prior written notice to the applicable Payor.
  4. Re-Presentment - proposed amendment to clarify that a re-presented debit item must be for the same amount as the original debit. Any additional fees or charges may not form part of the re-presentation and would require a new debit and authorization from the Payor.
  5. Sponsoring Member Obligations - proposed amendment that the Payee FI provides the Payee with full information on Rule H1 governing PADs, advising them of responsibilities and obligations with respect to using PADs.
  6. Waiver of Pre-Notification - proposed amendments to ensure Payors have control over whether or not they wish to waive the notice requirement. The waiver must be provided voluntarily and unambiguously by the Payor to the Payee.
  7. Claims for Reimbursement (Declaration Forms) - proposed remote authorization option for Payors to dispute a Personal PAD (not a Business PAD).

Improving Process/Operational Efficiency:

  1. Changes in PAD Amount Due to Tax Changes - proposed amendments to allow flexibility where PAD amounts have varied because of a change in taxes.
  2. Changes to Payor’s Account Information (Notices of Change) - proposed amendment to the Notice of Change (NOC) that require Payee Letters of Undertaking to include a contractual obligation between a Payee and its FI compelling Payees to accept and act on any NOC of a Payor’s account information received from its FI (not from one FI to another FI).

Conclusion:

This is a brief synopsis on Canadian Payments Association’s (CPA) proposed changes taken from the CPA’s consultation paper. These changes reflect CPA’s objectives to increase the "transparency, usability and understandability of Rule H1." CPA advises that once the changes are implemented, it is proposed that Payees have a grace period of up to six months to revise their new Payor’s PAD Agreeement forms to be consistent with the new requirements (existing Payor’s PAD Agreements would be grandfathered). The complete proposal is available on the CPA’s web site at the following link: http://www.cdnpay.ca/news/pdfs_news/Rule_H1_PAD_consultation.pdf.

To ensure that the views of all interested parties are considered, CCCC, on behalf of CPA, invites members, particularly those who are currently participating in Pre-Authorized Debit (PAD), to forward comments on the potential rule changes. Please submit them in writing no later than September 21, 2007 to:

Milly Siderius,
Manager, Stewardship Services
Canadian Council of Christian Charities
milly.siderius@cccc.org

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