CRED 11.4 Entering into a distance contract for accepting deposits1

Those parts of COBS 4that relate to distance contracts for accepting deposits will have limited application to a 4credit union. This is because the Distance Marketing Directive4 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 COBS 4provisions.1

For those credit unions to which the provisions in COBS 4will apply, the provisions which are of particular relevance concern the distance communications4provisions (COBS 5)4, pre-contract information (COBS 6, COBS 13 and COBS 14),4, cancellation rights (COBS 15)4 and the financial promotion rules4(discussed at CRED 11.2). If the credit union provides cash deposit ISAs or cash deposit CTFs 4further rules may apply.1

COBS 5.14 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 consumer4 (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 inCOBS 5 Annex 1 R4, 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 COBS 5.14. They are relevant:12

1. (1)

   where the contract is concluded by telephone and the consumer4 gives explicit consent to receiving a more limited range of information. COBS 5.1.12 R4sets 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 (COBS 5.1.13 R)4;12

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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 (COBS 5.1.13 R)4;12

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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 (COBS 5.1.8 R, COBS 5.1.9 R and COBS 5.1.10 G4).12

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A consumer 4has 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 (COBS 15.2.1 R)4.1

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 consumer4 consent before he exercises his right to cancel; or1

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3. (3)

   the credit union has an initial service agreement with the consumer4 and the contract is in relation to a successive operation or separate operation of the same nature under that agreement (seeCOBS 15.2.1 R4)1

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The effects of cancellation are set out in COBS 15.4 (Effects of cancellation)4. 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 consumer4 exercises a right to cancel (see COBS 154)1

This guidance is not a substitute for, and should be read in conjunction with, the requirements contained in the relevant parts of COBS4.1