CCCFA - Debtor's right to cancel

This Topic Includes:

Effect of cancellation
Statement of right to cancel
How must the debtor give notice of cancellation
Situations where right of cancellation does not apply

A debtor may cancel a consumer credit contract by giving written notice to the creditor (you) within three working days after initial disclosure, or at any time if you have not made initial disclosure.

The debtor must refund you any advance they have received under the contract within this time period.

Effect of cancellation

If a consumer credit contract is cancelled, no party is obliged to perform it further.

You must promptly return any property received under the contract to the party from whom you received it, and ensure you release every security interest taken in connection with the contract.

The debtor is only liable to pay you:

• interest at the contract rate for the period for which the credit was provided
• your reasonable expenses in connection with the contract or cancelling the contract
• the cost of repairing any property returned to you that has been damaged while in the debtor’s possession.

The debtor must return to you any advance and any other property they have received under the contract.

However, if the contract is a credit sale and any of the following apply:

• the debtor has taken possession of the goods, or
• the property was sold by auction, or
• the debtor wants to keep the property, or
• a credit sale was for services that have been performed,

the debtor cannot return the property and must pay the cash price of the property or services (or the balance of the cash price after deducting any amount already paid) to you within 15 working days after notifying you of their decision to cancel the credit contract. 

In this case, you do not need to return the cash price paid for the property or services, however your obligation to provide the property or services continues.

Statement of right to cancel

When you establish a consumer credit contract with a debtor (see Schedule 1 of the Act), you must disclose a statement of their right to cancel in the following form:

“The Credit Contracts and Consumer Finance Act 2003 gives you a right for a short time after the terms of this contract have been disclosed to you to cancel the contract.

How to cancel

If you want to cancel this contract you must give written notice to the creditor.

*You must also –

1. return to the creditor any advance and any other property received by you under the contract (but you cannot do this if you have taken possession of any goods or if you bought any property at an auction or if the contract is for the sale of services that have been performed); or
2. pay the cash price of the property or services within 15 working days of the day you give notice.

*Delete if the credit contract does not involve a credit sale.

#You must also return to the creditor any advance and any other property received by you under the contract.

#Delete if the credit contract involved a credit sale.

Time limits for cancellation

If the disclosure documents are handed to you directly you must give notice that you intend to cancel within three working days after you receive the documents.

If the disclosure documents are sent to you by electronic means (for example, e-mail) you must give notice that you intend to cancel within five days after the electronic communication is sent.

If the documents are mailed to you, you must give the notice within seven working days after they were posted.

Saturdays, Sundays, and national public holidays are not counted as working days.

What you have to pay if you cancel

If you cancel the contract the creditor can charge you –

1. the amount of any reasonable expenses the creditor had to pay in connection with the contract and its cancellation (including legal fees and fees for credit reports, etc); and
2. *interest for the period from the day you received the property or services until the day you either pay the cash price for the property or services or return the property to the creditor.

*Delete if the credit contract does not involve a credit sale.

(b)   #interest for the period from the day you received the advance until the day you repay the advance.

#Delete if the credit contract involves a credit sale.

This statement only contains a summary of your rights and obligations in connection with the right to cancel. If there is anything about your rights or obligations under the Credit Contracts and Consumer Finance Act 2003 that you do not understand, if there is a dispute about your rights, or if you think that the creditor is being unreasonable in any way, you should seek legal advice immediately.”

How must the debtor give notice of cancellation?

The debtor can provide written notice of cancellation in any way that shows their intention to cancel or withdraw from the contract.

They can give you notice, return property, or pay a cash price to you by either giving it to you or posting it.

They can also give you notice in electronic form, if you consent.

An agent acting on behalf of the debtor may provide written notice of cancellation, return property, or pay the cash price.

You are deemed to have received notice of cancellation four days after it was posted, or on the second working day if it was sent electronically.

Situations where right of cancellation does not apply

The right of cancellation does not apply if the credit is provided for a specified period of less than two months and no part of the credit is used, with your knowledge, to pay amounts owing to you or a related company under another credit contract.

A debtor is not entitled to cancel a contract on the grounds that disclosure has not been made to a guarantor.