You’ve probably noticed we’re pushing hard to get EFT deposit payments adopted. But why?
After extensive review of the process we’ve come to believe that EFT is the safest way to make deposit payments today. Checks and wires are under major criticism for their high fraud rates and EFT provides a solution for some of these issues in addition to facilitating the automation of reports and processes.
In this article we will discuss the key compliance and security benefits and look specifically at some of the most critical items raised by developer lawyers in response to requirements by the various governing bodies and how our specialized workflow conforms.
There are three main reasons why EFT is the better option moving forward:
Individualized collection and payment protocols. From the start, Avesdo’s EFT payment process is pulling all information directly from the contract and sending payment requests with contract specific payment links directly to the contract holder (the purchaser). By following these unique payment links, the purchaser is prompted to confirm payment instructions are correct and complete their own PAD authorization form which is required to initiate future payment.
This direct process ensures you are not distributing wire transfer details publicly for fraudsters to leverage and links payments with contracts and purchasers from the start for the tightest verification of source of funds and the most exact fulfillment of contractual deposit obligations.
Speed and Real-time tracking. EFT is the closest to real-time payment option available. A purchaser initiates a payment by signing their PAD – the system is updated. The funds are transferred – the system is updated. In our review the average check payment takes up to 45 days to process from the time it’s initiated by the purchaser to reconciled in the trust account with manual tracking along the way. Wires are not much better and take a month minimum and largely due to heavy reconciliation requirements as funds hit the trust account without notice. Each step in the EFT process is tracked in real-time with the most complete settlement report of any payment type and is issued the day funds leave the purchaser’s account.
Lower risk of error. In our development of this product we were amazed to learn how often checks are lost, and how often mistakes are made resulting in short payments, difficulty reconciling transfers, reporting errors from manual entry and that all these avoidable issues can delay large funding draws. Avesdo’s EFT process is pulled directly from information on the contract and when completed everything is exactly as contracted with little room for human error by any party in the chain.
As we’ve been signing clients up, there are three main concerns we have been hearing from clients’ lawyers which have been identified and accommodated in the Avesdo EFT workflow that we will clarify here:
1. Revocability. This is an important one related to the ability for funds to be revoked from the trust account after payment is made. The way the Avesdo payment automation has been set up the funds are irrevocable once the transfer has been made. Any attempt to cancel a PAD before funds are transferred must be made through the developer / Avesdo so you would be well informed of their intent vs. other payment types that could be canceled at the bank without your knowledge. Even if they attempted to stop payment at the bank Canadian law requires they inform you first. And if the bank allowed them to break the law by not informing you, the payment would fail and no transfer would occur to be revoked.
Despite this confirmation, some have cited Payments Canada Rule H1 Pre-athorized Debits stating that there are up to 90 days for a payee to make a claim for reimbursement and so questions related to fund holds arise.
There are only three conditions where this claim is allowable for which none are possible with Avesdo’s payment workflow. They are:
A. The PAD was not drawn in accordance with the Payor’s PAD agreement
– At Avesdo, the information from the PAD comes directly from the contract, and the transfer is made exactly from the terms of the PAD. There is no manual entry where an error between the PAD and the transfer might occur.
B. The Payor’s PAD agreement was revoked
– As noted above, if the payor revokes the PAD they can only do so prior to the transfer and through request to you and therefore are unable to do so on their own after the transfer has been completed.
C. A Confirmation, pre-notification or notice was not given in accordance with [requirements listed in other sections]
– Avesdo notifications are built into the automation and conform to all requirements by Payments Canada and have been vetted by the law firm who wrote those requirements.
Even if a purchaser claims one of the above conditions have been met, they must complete a formal dispute per the terms of Payments Canada to receive a refund and funds are not automatically recalled and therefore irrevocable once transferred.
2. Record keeping. The Law Society of BC Rule 3-64.2 and Bylaw 9 on Financial Transactions and Records from the Law Society of Ontario outline similar requirements for the management of trust accounts. Avesdo’s EFT payment automation not only conforms to the requirements, but also improves upon them. Settlement reports are issued (lawyers included in the notice) when a deposit leaves the purchaser’s bank account and is in transit to the trust account. The report includes an estimated settlement date and all the payment details down to the strata lot and deposit number. We have reviewed our workflow with the Law Society to ensure compliance.
3. Direct transfer. FINTRAC PCMLTFA, RESA (BC), REBBA (ONT), RECA (ALB) all contain requirements for trust account management. The transfer of funds directly from the purchaser’s bank account to the trust account is imperative for the tracking of source of funds among other reporting as it links funds directly to the purchaser’s verified bank account vs. traveling through an intermediary obscuring the source and/or making reporting/transparency more complicated or difficult.
Through Avesdo’s EFT payment automation, Avesdo makes a direct connection between the purchaser and developer without passing through Avesdo’s hands in the process. The settlement report includes full transparency to the source of funds and associated contract down to the strata lot and deposit number.
Here is a handy reference for how EFTs stack up against other payment types:
Our team has spent many months developing this product and are well-versed on associated compliance requirements. Please do let your advisor know if you need clarification on how Avesdo’s automation workflow conforms to the various requirements in question.
