CRED 11.4 Entering into a distance contract for accepting deposits1

Those parts of COB that relate to distance contracts for accepting deposits will have limited application to credit union. This is because the DMD only applies where there is "an organised distance sales or service-provision scheme run by the supplier" (Article 2(a)). If, therefore, the credit union normally operates face to face and has not set up facilities to enable customers to deal with it at a distance, such as facilities for a customer to deal with it purely by post, telephone, fax of the Internet, the provisions will not be relevant. A one-off transaction dealt with by distance means in order to deal with a particular contingency or emergency will not fall under the COB provisions.1

For those credit unions to which the provisions in COB will apply, the provisions which are of particular relevance concern the generalprovisions (COB 2.6), pre-contract information (COB 6.4.25 R), cancellation rights (COB 6.7) and financial promotion(discussed at CRED 11.2). If the credit union provides cash deposit ISAs further rules may apply.1

COB 6.4.25 R sets out the basic requirement that applies before a credit union enters into a distance contract for accepting deposits. The credit union has to ensure that the terms on which it will conduct business, including, in particular, certain required information, is provided to a retail customer (which means an individual, acting for purposes which are outside his trade, business or profession) in good time (that is, in sufficient time to enable a customer to consider properly the services on offer) in a durable medium, before the retail customer is bound by the distance contract, unless certain exemptions apply.1

The required information is the contractual terms and conditions and the other information set out in COB App 1, and covers basic information about the credit union, the main characteristics of the service on offer, the price, details about any distance contract such as its duration, cancellation rights and any other early termination rights and penalties, and information about out-of-court complaints and compensation arrangements.1

The exemptions referred to in CRED 11.4.3 G are set out in COB 6.4.27 R to COB 6.4.31 R. They are relevant:12

1. (1)

   where the contract is concluded by telephone and the retail customer gives explicit consent to receiving a more limited range of information. COB 6.4.27 R (1) sets out the information to be provided in such cases. Full information has to be provided, in a durable medium, immediately after conclusion of the distance contract (COB 6.4.27 R (2));12

2. (2)

   where a means of communication (other than telephone) is used which does not enable provision of required information in a durable medium before conclusion of the contract; in this case full information must also be provided in a durable medium immediately after conclusion of the distance contract (COB 6.4.29 R);12

3. (3)

   where there is an initial service agreement and the contract is in relation to a successive or separate operation of the same nature under that agreement

   , or there is no initial service agreement and the contract is in relation to a successive or separate operation of the same nature and is being performed no more than one year from the date of performance of the last operation (COB 6.4.30 R to COB 6.4.31 R; and see COB 1.10.2 G).12

The other provisions in COB which relate to the disclosure requirements and are of relevance to credit unions entering into a distance contract for accepting deposits are in COB 2.6 (General provisions related to distance contracts).12

A retail customer has a right to cancel a distance contract for accepting deposits without giving any reasons and without penalty. The right to cancel has to be exercised within 14 days of the day of the conclusion of the contract or the day on which he received the contractual terms and conditions, if later (COB 6.7.10).1

The only exemptions from the right to cancel are when:1

1. (1)

   the price of the service depends on fluctuations in the financial market outside the credit union's control which may occur during the cancellation period; or1

2. (2)

   the contract has already been fully performed with the retail customer's consent before he exercises his right to cancel; or1

3. (3)

   the credit union has an initial service agreement with the retail customer and the contract is in relation to a successive operation or separate operation of the same nature under that agreement (see COB 1.9.2 G (3))1

The effects of cancellation are set out in COB 6.7.51 to COB 6.7.52. Unless the contract relates to a CTF, the credit union has to return, no later than 30 days after the date it received notice of cancellation, any sums paid by the customer in connection with the contract. The customer can be required to pay for any services provided up to the date of cancellation, provided that the sums are in proportion to the extent of the services actually provided and could not be construed as a penalty. No payment can be required if the credit union cannot prove that a customer was told the amount that would be payable as part of the pre-contract information or if the credit union starts performance of the contract without the customer's prior consent.13

If there are other ancillary distance contracts related to the first, those ancillary contracts may also be cancelled automatically when a retail customer exercises a right to cancel (see COB 6.7.51)1

This guidance is not a substitute for, and should be read in conjunction with, the requirements contained in the relevant parts of COB.1