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What is a tele-cheque?
What are the differences between a tele-cheque
and a Pre-Authorized Debit (PAD)?
How is a paper Pre-Authorized Debit (PAD)
different from a tele-cheque?
Does the prohibition to tele-cheques also
apply to paper Pre-Authorized Debits (PADs)?
What payment options might a biller consider
instead of tele-cheques?
What is a tele-cheque?
A tele-cheque is a paper payment item that resembles a cheque
except that it is neither created nor signed by the payor (i.e. the
person from whose account the funds would be debited). Instead, it is
created, and may be signed, by a third party on behalf of the payor who
has purportedly authorized the withdrawal from his or her account over
the telephone or the internet. Furthermore, a tele-cheque is not supported
by any agreement signed by the account holder to authorize the withdrawal of
funds from his or her account. Consequently the account holder's financial
institution has no means of confirming that its customer authorized the payment.
Under CPA Rules, these items are prohibited in the clearing system effective
January 27, 2004.
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What are the differences between a tele-cheque
and a Pre-Authorized Debit (PAD)?
PADs are subject to all of the provisions under CPA
Rule H1.
One of these provisions is that the biller (payee) must have its
customer (the payor) sign a Payor’s PAD Agreement that meets the
requirements of Rule H1 and authorizes the biller to debit the account
of its customer subject to certain terms and conditions. In contrast,
a tele-cheque is not supported by any agreement signed by the account
holder to authorize the withdrawal of funds from his or her account.
Furthermore, before entering PADs into the clearing system, the biller
(payee) must also sign an agreement, referred to under Rule H1 as a Payee
Letter of Undertaking, with the financial institution that will be entering
these items into the clearing system on its behalf.
The formats of tele-cheques and paper PADs also differ.
Most PADs are created as electronic payment items. Paper
PADs must adhere to a specified format under the CPA’s
Standard 006, Section 3.16.2. In addition, under CPA Rule
H1 Section 15 (b), a paper PAD must have the word “PAD”
written on its face to identify it as such. Tele-cheques,
however, look like regular cheques, except that they are
not signed by the payor.
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How is a paper Pre-Authorized Debit (PAD)
different from a tele-cheque?
All PADs, whether paper or electronic, must satisfy the provisions in
the CPA’s Rule H1, notably
the requirement to have a signed agreement between the biller and its
financial institution in the form of a letter of undertaking and a
signed payor's authorization or customer agreement.
Paper Pre-Authorized Debits must also adhere to the CPA’s Standard
006, Section 3.16.2
which specifies that they must be MICR encoded and presents the model
format. In addition, under CPA Rule H1 Section 15 (b), a paper PAD must
have the word “PAD” written on its face to identify it as such.
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Does the prohibition to tele-cheques also
apply to paper Pre-Authorized Debits (PADs)?
The prohibition to tele-cheques does not apply to paper
Pre-Authorized Debits.
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What payment options might a biller consider
instead of tele-cheques?
Billers that have been using tele-cheques may wish to consider
the following alternatives:
- Pre-Authorized Debits (PADs)
PADs are mainly used for recurring payments from the same account at
specified dates. However, sporadic withdrawals are possible provided
a written agreement authorizing the biller’s sporadic withdrawals from
the client is in place and arrangements have been made with the biller’s
financial institution to initiate PADs (i.e. a Payee Letter of Undertaking
has been signed). Once the Payor’s PAD Agreement is in place, billers still
need authorization from the client before every sporadic PAD. This subsequent
authorization can be provided via the telephone or via the internet or through
a password, for example. Evidence of this authorization must be retained for at
least a year.
- Bill Payment Options
Instead of using tele-cheques, businesses can also consult their
financial institution to be registered as a biller so they may
receive payments from their clients via telephone or internet banking.
- Regular Cheques
Receiving payments by regular cheque from clients is another alternative for billers.
The CPA is currently working on a policy for one-time payments which is
expected to facilitate new payment options in the future.
Policy Statement on Prohibition of Tele-Cheques
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