ICOBS 7.2 Effects of cancellation

Termination of contract

ICOBS 7.2.1R

By exercising the right to cancel, the consumer withdraws from the contract and the contract is terminated.

Payment for the service provided before cancellation

ICOBS 7.2.2R
  1. (1)

    When a consumer exercises the right to cancel he may only be required to pay, without any undue delay, for the service actually provided by the firm in accordance with the contract.

  2. (2)

    The amount payable must not:

    1. (a)

      exceed an amount which is in proportion to the extent of the service already provided in comparison with the full coverage of the contract; and

    2. (b)

      in any case be such that it could be construed as a penalty.

  3. (3)

    A firm must not require a consumer to pay any amount:

    1. (a)

      unless it can prove that the consumer was duly informed about the amount payable; or

    2. (b)

      if it commenced the performance of the contract before the expiry of the cancellation period without the consumer's prior request.

  4. (4)

    A consumer cannot be required to pay any amount when exercising the right to cancel a pure protection contract.

  5. (5)

    A consumer cannot be required to pay any amount when exercising the right to cancel a payment protection contract unless a claim is made during the cancellation period and settlement terms are subsequently agreed.

[Note: article 7(1), (2) and (3) of the Distance Marketing Directive]

ICOBS 7.2.3G

The amount payable may include:

  1. (1)

    any sums that a firm has reasonably incurred in concluding the contract, but should not include any element of profit;

  2. (2)

    an amount for cover provided (i.e. a proportion of the policy's exposure that relates to the time on risk);

  3. (3)

    a proportion of the commission paid to an insurance intermediary sufficient to cover its costs; and

  4. (4)

    a proportion of any fees charged by an insurance intermediary which, when aggregated with any commission to be repaid, would be sufficient to cover its costs.

ICOBS 7.2.4G

In most cases, the FCA would expect the proportion of a policy's exposure that relates to the time on risk to be a pro rata apportionment. However, where there is material unevenness in the incidence of risk, an insurer could use a more accurate method. The sum should be reasonable and should not exceed an amount commensurate to the risk incurred.

ICOBS 7.2.5G

An insurer and an insurance intermediary should take reasonable steps to ensure that double recovery of selling costs is avoided, particularly where the contract for the insurance intermediary's services is a distance contract, or where both commission and fees are recouped by the insurer and insurance intermediary respectively.

Firm's obligation on cancellation

ICOBS 7.2.6R
  1. (1)

    A firm must, without any undue delay and no later than within 30 days, return to a consumer any sums it has received from him in accordance with the contract, except as specified in this section.

  2. (2)

    This period shall begin from the day on which the firm receives the notification of cancellation.

[Note: article 7(4) of the Distance Marketing Directive]

Consumer's obligation on cancellation

ICOBS 7.2.7R
  1. (1)

    A firm is entitled to receive from a consumer any sums and/or property he has received from the firm without any undue delay and no later than within 30 days.

  2. (2)

    This period shall begin from the day on which the consumer dispatches the notification of cancellation.

[Note: article 7(5) of the Distance Marketing Directive]

ICOBS 7.2.8G

If an insurer has made a charge for services provided, the sums and property to be returned by a consumer should not include any money or property provided in settling a claim.

Set off

ICOBS 7.2.9R

Any sums payable under this section are owed as simple contract debts and may be set off against each other.

Automatic cancellation of an attached distance contract

ICOBS 7.2.10G

A consumer's notice to cancel a distance contract may also operate to cancel any attached contract which is also a distance financial services contract. This is unless the consumer gives notice that cancellation of the contract is not to operate to cancel the attached contract. (See the Distance Marketing Regulations.) Where relevant, this should be disclosed to the consumer along with other information on cancellation.