CRED 11.4 Entering into a distance contract for accepting deposits1

Those parts of BCOBS 5that 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 BCOBS5 provisions.1

For those credit unions to which the provisions in BCOBS5 will apply, the provisions which are of particular relevance concern the distance communications4provisions (BCOBS 3),5 pre-contract information (BCOBS 4)5, cancellation rights (BCOBS 6)5 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

BCOBS 3.15 sets out the basic requirements5 that apply5 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 in good time in a durable medium, before the retail customer is bound by the distance contract or offer,5 unless certain exemptions apply.1

The required information is the contractual terms and conditions and the other information set out inBCOBS 3 Annex 1 R5, 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 BCOBS 3.15. 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 BCOBS 3.1.11 R5 sets out the information to be provided in such cases;12

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2. (2)

   where a means of communication is used at the consumer's request5which does not enable provision of required information in a durable medium before the consumer is bound by any distance contract or offer5; in this case full information must also be provided in a durable medium immediately after conclusion of the distance contract BCOBS 3.1.12 R;512

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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 (BCOBS 3.1.9 R to BCOBS 3.1.10 R)

   545412

A consumer 4has a right to cancel a contract5 for a retail banking service5 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 (BCOBS 6.1.1 R)5.1

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

1. (1)

   a contract (other than a cash deposit ISA) where the rate or rates of interest payable on the deposit are fixed for a period of time following conclusion of the contract; or5

   5
2. (2)

   a contract whose price depends on fluctuations in the financial market outside the firm's control that may occur during the cancellation period; or5

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3. (3)

   a cash deposit CTF (other than a distance contract).5

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The effects of cancellation are set out inBCOBS 6.3 (Effects of cancellation)5. Unless the contract relates to a a cash deposit ISA or a cash deposit CTF,5 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 or if the credit union starts performance of the contract before expiry of the cancellation period 5 without the customer's prior consent.13

This guidance is not a substitute for, and should be read in conjunction with, the requirements contained in the relevant parts of BCOBS5.1