House of Lords - European Union

Select Committee on European Union Third Report

Chapter 5: Justification for regulation

53. We considered how far regulation in this area is justified and what might be achieved through self-regulation.

54. We received conflicting evidence on the coverage and effectiveness of the OTE's Code of Ethics[17]. The OTE said that it represents "70% plus of all timeshare sales conducted in the whole European Union" (Q 42) and that "through the application of the OTE code of conduct, the vast majority of timeshare operators in Europe have supported a self-regulatory scheme since OTE's formation in February 1998". It said that complaints about OTE members had been reduced by 60% since 2002, and that the vast majority were resolved within 14 days of receipt (pp 13-16).

55. However, Sandy Grey of the Timeshare Consumers Association told us that the OTE only represented a small fraction of traders, with 60 members out of an estimated 800 companies in the industry, that the Code was in many cases weaker than existing laws, and that the OTE had systematically failed to enforce the Code on its members (pp 1-3). He contrasted self-regulation in the EU and the US, arguing that a much stronger self-regulatory culture in the US had led to a high rate of growth (Q 1).

56. Arlene McCarthy MEP said that she had "received many complaints from timeshare consumers about companies that did not comply with the requirements of the OTE code of conduct" (pp 92-94). Tony Sedgwick said that voluntary compliance within the timeshare industry was not possible because of the nature of the people within it (pp 96-99), and other submissions also referred to the problems caused by rogue traders not in membership of trade associations.

57. Several submissions suggested that the timeshare industry would benefit from stronger self-regulation. The Local Authorities Coordinators of Regulatory Services (LACORS) and the Trading Standards Institute (TSI) called for membership of trade associations to be made compulsory (pp 87-92). Some industry submissions also wanted to see one timeshare association covering all the Member States, with compulsory membership (pp 100-101), applying sanctions and fines, and recompensing consumers through an insurance policy (pp 106-108).

Scope for strengthening timeshare self-regulation

58. The proposed new directive requires Member States to "encourage, where appropriate, traders to inform consumers of their codes of conduct" (Article 10). LACORS and the TSI proposed that the timeshare industry should be required to provide information relating to codes of conduct and consumer rights on company websites and in advertising (pp 87-92).

59. The UCPD, discussed above, includes a test of unfairness which is whether a commercial practice is contrary to the requirements of "professional diligence", defined as "the standard of special skill and care which a trader may reasonably be expected to exercise towards consumers, commensurate with honest market practice and/or the general principles of good faith in the trader's field of activity". The UCPD also provides that traders who promote the fact that they comply with a code of conduct, but then do not do so, are acting in a misleading and unfair fashion. This provision reinforces the importance of codes, and presents both an opportunity and a challenge to the timeshare industry.

Holiday clubs and self-regulation

60. The OFT described to us its efforts to persuade holiday club operators to sign up to a code of conduct, and said that "they do not trust each other, let alone regulators" and that self-regulation in this sector was "really a non-starter" (Q 89).

61. Citizens Advice said that "the swiftness with which rogue traders managed to evade the initial Timeshare Directive supports the view that voluntary self-regulation will not be sufficiently robust" (pp 72-76). LACORS and the TSI also said that the problems of misrepresentation, the use of isolated sales venues and the prevalence of rogue traders meant that voluntary arrangements would not work and that legislation was necessary (pp 87-92).

The EU dimension

62. Most submissions, including those of LACORS and the TSI (pp 87-92) recognised that timeshare purchases were primarily made by consumers from one country in another country, that cross-border disputes were common in this trade sector, and that purely national legislation was inadequate to address what are EU-wide problems.

63. Arlene McCarthy MEP told us "Binding legislation is needed to safeguard consumers. Without a European-wide framework of legal rights and redress, the perception of the timeshare industry as a 'problem' will persist, and UK law cannot adequately cover problems in popular Member State destinations such as Spain, Portugal, and growing new markets such as Bulgaria" (pp 91-93). Professor Howells and Dr Twigg-Flesner said that the cross-border context made self-regulation more difficult (pp 54-59).

Conclusions and Recommendations

64. We are disappointed that a substantial part of the industry remains outside the self-regulatory system. We urge companies in the timeshare sector to do more to raise standards. We regretfully conclude that there appears to be no reasonable prospect of self-regulation in the long-term holiday club sector at present. (paras 53-61)

65. We recognise the motivation of those who suggest that compulsory membership of trade associations should be considered further but we think it unlikely that this would be practical and effective. We consider it more appropriate for the Commission to pursue the concept of licensing as we recommend in paragraph 160. (para 57)