Pre-Authorized Debit (Pad) Agreement: Fill & Download for Free

A direct debit or direct withdrawal is a financial transaction in which one person withdraws funds from another person's bank account. Formally, the person who directly draws the funds ("the payee") instructs his or her bank to collect (i.e., debit) an amount directly from another's ("the payer's") bank account designated by the payer and pay those funds into a bank account designated by the payee. Before the payer's banker will allow the transaction to take place, the payer must have advised the bank that he or she has authorized the payee to directly draw the funds. It is also called pre-authorized debit (PAD) or pre-authorized payment (PAP). After the authorities are set up, the direct debit transactions are usually processed electronically. Direct debits are typically used for recurring payments, such as credit card and utility bills, where the payment amounts vary from one payment to another. However, when the authorisation is in place, the circumstances in which the funds are drawn as well as the dates and amounts are a matter of agreement between the payee and payer, with which the bankers are not concerned. In countries where setting up authorization is easy enough, direct debits can also be used for irregular payments, such as for mail order transactions or at a point of sale.

All is not as simple as it seems, unfortunately.Margaret has mentioned the way of manually writing checks, from your card. However, as she stated the interest would be immediate and high. This would wipe out any rewards that your card provides (paying 29.99% interest on a Cash Advance is not offset by miles, etc. and most cards exclude these from cash-back as well).Fees are a major reason that lots of places don't accept cards, but there's more to it than that.The Charge BackIf you pay for something with a credit card (let's say carpet cleaning for an easy example) and don't get what you pay for, (they don't show up, your carpet is ruined, etc.) you can call your card issuer and request what is called a 'Charge Back'. This means that typically you sign a form stating that you did not receive the service paid for and are unable to receive a refund from the company you paid. Your issuer would look into the request, and sometimes (if approved) will actually go into the merchant's account, withdraw the amount you paid, and return it to you. This is not a regulated or consistent system - some issuers do it to a max of 30 days from charge, some for six months afterwards. Some require heaps of proof, some do it on the smallest of evidence.Now, you can see how this would be a problem for people such as property managers. If you have 50 tenants paying by card, you can't actually know that you have those funds, secured, in your account. Anytime in the next six months (and I have personally seen this happen) one or more of those payments can simply disappear. All it takes it a tenant calling their card company and complaining that you didn't provide services, fix a leak, whatever. The same goes for Hydro (another example of a payee that doesn't accept cards, at least locally). If they have 10,000 customers, they don't want to be constantly chasing down people who pay, then suddenly take that money back months later after being provided with hydro service. It's a big, expensive headache.This is (from my experience) the main reason why merchants don't accept credit card payments. With direct deposit, once the money is deposited it's done. It can't be recalled (taken back) after that deposit. It's secure and they incur no processing fees.Debt CollectionImagine you're a merchant and someone stops paying their bill by credit card by cancelling the card. You try to charge it, it's declined. What can you do? You have to try and contact them to update the card. It may not have been intentional (they may have forgotten your service was tied to that card) but this is often a long, time-consuming process. If you've invoiced them for something already provided (like consulting) and the payment was declined? You have now incurred a loss. What if they don't answer your calls?You then enter the world of Debt Collection. There are legal methods to recovering funds owed through court, and once a judgment is granted for the merchant to do so, some pursue Garnishment. This, in a nutshell, is saying "John Smith makes $2000/month, so we will take $150/month until the invoice is paid in full, with interest". Banks can do this with a court order. However, you need banking information. Paid via credit card? You're out of luck - can't garnish a card. Have a PAD (Pre-Authorized Debit Agreement)? Then you have bank account details and can go after that account. See the difference?I'm not going to write an essay here, but hopefully you can see my point. It's not just about the processing fees (but they do play a role). Even if you were willing to incur a small fee here and there, it often doesn't offset the risk to merchants if they have to worry about Charge Backs and can't easily go after you if you decide not to pay. There are more reasons, but this touches on the major ones.With that said, you can always call and ask - it never hurts to ask. Some merchants may have a blanket policy of no cards, but if you have a long, good history with them (like the Hydro example) then they may allow you to switch it. Spend some time on the phone and see what they allow.Ultimately, there is no 'service' I've ever seen that will pay your bills for you and charge your credit card. Two quick reasons.The risks I've talked about now transfer to them, so they'd have to have iron-clad agreements and enough cash flow to pay merchants while waiting for your payments.Merchants often require banking information for proof of residency, credit checks, etc. If a third-party is providing their banking information it invalidates these safety measures.Hope that answered your question.

This varies by country to country. I live in Canada, and of course Canada is heavily influenced by the United States.When I was a child, my mother opened up a bank account for me. This was basically a joint bank account. (In Canada a child cannot open up a chequing account by themselves, but maybe a savings account… the rules are a little unclear.)I learned how to use a passbook, debit card, and so forth. I never really learned how cheques worked until later though. I put gift money into the bank account, money from the kinds of little jobs that kids have, and when I started going to university, student loan money and similar kinds of student aid went there. And then I opened a new bank account and closed the old one.I was stunned to find that this isn’t universal, although Canada is becoming a low-cash country and almost everyone here has a bank account. There are people who didn’t have a bank account as a child. Some still prefer cash (which is just risky). Some have been banned from having bank accounts (this is much more common in the US, but it does happen in Canada). Some “don’t see the point” because they don’t have enough money to save up and bank fees would erode those… and are apparently unaware that online bank accounts cost nothing (or don’t use the internet).And, probably the two biggest ones: legal problems, and a bad relationship with banks. For the first, there are people who deliberately work under the table, because they’re illegal immigrants, trying to avoid garnishments, are criminals, etc. Even then, it’s possible to get prepaid debit/credit cards (basically a type of online bank account), but those are clunky and have high fees.For the second, people get enraged if their bank rips them off, more than any other type of business, probably because “everyone” uses a bank. Nobody should tolerate getting ripped off. The problem is if they are surprised by the bank, they think they’re getting ripped off. If a financially illiterate person gets “ripped off” by the bank a few times, or worse by more than one bank, they may decide to “exit” the banking system entirely. Unfortunately many people don’t know how overdraft protection works.Overdraft protection is defined by Wikipedia like this:Overdraft protection is a financial service offered by banking institutions primarily in the United States. Overdraft or courtesy pay program protection pays items presented to a customer's account when sufficient funds are not present to cover the amount of the withdrawal. Overdraft protection can cover ATM withdrawals, purchases made with a debit card, electronic transfers, and checks. In the case of non-preauthorized items such as checks, or ACH withdrawals, overdraft protection allows for these items to be paid as opposed to being returned unpaid, or bouncing.That seems safe, but it does not always protect against cheques or ACH withdrawals… Wikipedia suggests that it does, but that seems too convenient. Either the money comes out, and you’re in overdraft, or the money doesn’t, and you’re in trouble with whoever you owe money too (and the bank charges you a fee as well).Wikipedia again: In July, 2010 the Federal Reserve adopted regulations (revisions to Regulation E) which prohibited overdraft fees resulting from one time debit card and ATM transactions unless the bank customer had opted into overdraft protectionUnfortunately most customers have opted into overdraft protection.You can get various types of overdraft protection. Some banks will charge you a high fee ($35-$42 is typical in Canada) if you have an “unarranged” overdraft (to use the British term) but will only charge you $5 per overdraft if you have an “arranged” overdraft that you have to apply for (or $4 per day, which is a worse deal). It’s better not to use that at all, but a $5 charge is better than a $42 charge. Even better, get an unsecured line of credit (with no fee) and use only if you absolutely have to spend money you don’t have, and of course you want this before the emergency. Of course, an “arranged” overdraft and a line of credit both require you to have reasonably good credit.Pre-authorized debits: A PAD is a legal agreement between you and the vendor. That money is going to get taken out of your bank account using the ACH system no matter how much money you have in your bank account at the time, as the bank should not refuse this legal agreement. The money might “come back” if you didn’t have the money, but now your vendor is angry at you… and your bank just charged you a fee.Many people don’t know how cheques work. If you deposit cash into your bank account by cheque, it takes the bank time to confirm if the cheque writer’s account has money in it, using the ACH system. Until that happens, the bank provides some of that money as “available funds”. Later on, the bank must provide the rest of the money, even if that has not been confirmed yet. The cheque could be reversed months later, if fraud was discovered, or some other unusual thing happened. However, it’s the 21st Century, and people are expecting an almost immediate confirmation. Since many people don’t know about the available funds issue, someone might deposit a large cheque and then immediately spend all of that money. They get hit by an unavailable funds fee and they say the bank ripped them off. In Canada, the easiest way to pay someone when you don’t have physical cash is with an Interac e-transfer, but this costs a fee at some banks, and requires both of you to have online banking. The US doesn’t have an organization like Interac, and from what little I know about such apps they’re not necessarily safe or reliable. (In Europe, many countries use “giro” or “giropay”, which is something like a reverse cheque, or an “address” to send money to. This is at least as safe as Interac. You don’t want people knowing your cheque information, but European businesses want you to know their giro “address”.)When you write a cheque, you don’t know how long it takes before it is withdrawn. Do not think the cheque will be withdrawn in a few days, after payday, so it’s safe to write a cheque when you don’t have money in the account. Murphy’s Law: the cheque will be withdrawn immediately.On the other hand, people don’t always deposit a cheque immediately. Once the cheque has been deposited, it can still take a few business days before the money is withdrawn from your account. A typical cheque can be deposited up to six months after it’s been written. It’s very dangerous to write someone a cheque and then forget about it. That cheque could be withdrawn when your bank account is temporarily low. I treat a cheque as if it has already been removed from my bank account, so in effect writing a $500 cheque means I pretend my bank account has $500 less money in it than it really does until the cheque is withdrawn.And last, transaction order effects. Some banks will arrange transactions to screw over the customer. So if you have $40 in your bank account, and you withdraw $20, $15, and $100, you would logically expect to get charged one overdraft fee. But the bank can arrange the order like this: $100, $20, $15, so you get three overdraft fees. Many banks lost legal challenges over this practice. Unfortunately, this has convinced people that this is illegal. Not exactly. This is legal under federal laws. Some banks are not allowed to do this in some states. While you could collect a list of which bank is allowed to do this or not and where, it’s better to just not overdraw your account in the first place.With the exception of the last (the transaction order effects), none of these are really a case of the bank trying to “screw over” a customer. But if someone runs into any of this long list of problems a few times, without understanding why, they may just rage quit the system.