December 31, 2023 is the deadline for compliance with Payments Canada’s new Rule H1 governing the use of pre-authorized debits (PADs) as a payment method, and will require changes to PAD agreements and related business processes. This deadline marks the end of the grace period for compliance with the new Rule H1, since it came into effect in October 2022.

Background & Purpose

Payments Canada’s new Rule H1 reflects changes made to modernize the use of PADs, in response to input from Payments Canada’s members and other stakeholders and consumers. In particular, the changes provide greater flexibility when using PADs for collecting payments.

Notable Changes

• Revised definitions of “Authorization” and “Commercially Reasonable Methods” to allow for greater flexibility in application
• Requirements are now the same for paper and electronic Payor’s PAD Agreements
• Confirmation must now be provided for all Payor’s PAD Agreements
• New termination rights for Payees
• New option for “One-Time” PADs
• New requirements for Payees acting as Payment Service Providers
• New mandatory requirements for forms of Payee Letter of Undertaking and Payor’s PAD Agreement

Next Steps

To comply with the new Rule H1, all PAD agreements and related business processes must be updated before the deadline.

For help with these changes and understanding the impact on your business, contact the authors of this post, Lisa Ford and Ana Iordache.