The amount payable must not:
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
in any case be such that it could be construed as a penalty.
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]
The amount payable may include:
any sums that a firm has reasonably incurred in concluding the contract, but should not include any element of profit;
an amount for cover provided (i.e. a proportion of the policy's exposure that relates to the time on risk);
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.
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.
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]
[Note: article 7(5) of the Distance Marketing Directive]
Any sums payable under this section are owed as simple contract debts and may be set off against each other.
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.