BMO Auto-Pay Policy Triggers Consumer Backlash Despite Security Gains
Scott Bergen often helps his 82-year-old mom with her finances. Everything from advising her on investments to activating accounts to recommending a credit card that suits frequent Costco shoppers.
“I looked at the different Mastercards available and BMO had pretty good cash back on a no-fee card,” Mr. Bergen said.
After doing some research and signing up for a Bank of Montreal cash-back, no-fee Mastercard in late June, Mr. Bergen did what he always does when setting up a new card. He immediately contacted a representative to set up preauthorized debit transfers that would cover his mom’s credit balance in full each month, through funds from her account at TD Bank.
This time, the bank’s answer surprised him.
“I was notified by BMO that this is against their policy,” he said. “She was required to set up a BMO chequing account to take advantage of this product.”
Mr. Bergen had never encountered this issue in the many times he had previously set up automatic debit transfer payments on credit cards. He had even done so with his own BMO Mastercard.
But an e-mail viewed by The Globe and Mail show that a BMO representative told Mr. Bergen the company had changed its policy.
“As part of a business decision implemented in June 2025, BMO revised its pre-authorized debit payment process and now only permits pre-authorized debit arrangements from BMO personal bank accounts,” the e-mail read.
The representative told Mr. Bergen that his mom could continue to make payments toward her BMO Mastercard through what amounted to a manual bill payment service offered by her other bank, by visiting a BMO branch or mailing a cheque.
“This policy makes it so difficult to manage your credit card in the most responsible way possible – by paying it off every month,” Mr. Bergen said. “I never want to be charged interest.”
In a statement, BMO spokesperson Anke Suwanda confirmed the policy change and said it was part of “ongoing enhancements” to protect clients.
Industry watchers say that limiting auto-pay options to internal accounts only reduces consumer choice in financial services, and makes it easier for customers to miss payments.
“The more difficult it is to make automatic payments, the more likely you will pay fees,” said Claire Célérier, Canada Research Chair in household finance and associate professor of finance at the University of Toronto’s Rotman School of Management. “It’s really extracting wealth from consumers just by exploiting consumers’ limited attention.”
Multiple studies have shown that automating credit card repayment helps ensure bills are covered on time, avoiding high-rate interest charges.
For example, a U.S. Federal Reserve study on approximately 63,000 credit card accounts between 2018 and 2020 found that services such as auto-pay increased the likelihood of making a minimum payment by 20 to 29 percentage points. It also reduced charge-offs – serious, long-term delinquencies that can result in a bank closing your account – by 13 to 19 percentage points.
The one key downside to auto-pay is if it’s set to cover the minimum balance only, and a consumer neglects paying their bills in full, said Julien Picault, an economics professor at the University of British Columbia. But that wouldn’t have been the case for Mr. Bergen, whose mom would have paid the balance in full using automated transfers.
Stuart Davis, who has worked at three of Canada’s big banks and is currently president of Surpass Insights Inc., an advisory specializing in financial crime and risk, said that policy changes of this sort may be necessary measures to crack down on preauthorized debit fraud.
“There’s often limited controls and name-checking verification between the banks to see if the same person owns both accounts,” Mr. Davis said. “How can a bank verify who the money is coming from?”
If a bank receives $1,000 to pay off a credit card through preauthorized debit from another institution, the bank from which the payment was drawn has up to 90 days to dispute the transaction. If the transaction is disputed, the credit-providing bank may have to give the money back to the bank that provided the transfer, Mr. Davis said.
During the dispute period, however, fraudsters can charge the minimum credit card balance as many as two times or more.
The Globe reached out to Canada’s Big Five banks asking if they allow automatic preauthorized debit, or PAD, transfers from a secondary institution to cover balances on their credit cards.
Out of those banks, only one credit card, a Mastercard from Scotiabank, did not allow this type of automatic transfer.
Mr. Davis said it’s very likely that identity verification challenges, as well as the risk of chargebacks making inter-bank PAD transfers vulnerable to evolving types of fraud, will push more institutions to limit preauthorized transfers soon. “I think all banks are going to adopt some form of that in the long run.”
But these kinds of policies also wield financial advantages for banks in a heated credit card landscape, Ms. Célérier said.
“Banks have incentives to compete more and more with very generous rewards,” she said. “And if the only way for them to make these rewards profitable is to prevent people from paying off their credit card on time, we have a problem.”
Making the issue more pressing is that credit card debt is growing among Canadians. Equifax data showed that credit card balances in Canada swelled to a historic $131-billion in the last quarter of 2025, a 4.04-per-cent spike from the year prior.
“People got in the habit of using credit during the pandemic because banks were being more forgiving,” said Linda Paul, a licensed insolvency trustee with MNP Ltd. At that time, banks charged low interest for some customers or even offered payment deferrals.
In limiting his mom’s auto-pay options, Mr. Bergen said the issue was not a technical one for BMO: It wasn’t that the bank could no longer offer the option because of software barriers or related obstacles.
The bank still allows the pre-authorized debit auto-pay feature for customers, including himself, who set it up prior to the policy change in 2025. “This appears to be a deeply cynical policy aimed at generating more chequing account sales,” Mr. Bergen said.
This article was first reported by The Globe and Mail
