Select Committee on European Union Third Report

Chapter 6: The right of withdrawal and the cooling-off period

69.  The introduction of rights of withdrawal, a cooling-off period for consumers and a ban on advance payments during the cooling-off period has given consumers some protection from aggressive sales practices and misleading sales pitches, and made the timeshare market less attractive to rogue traders. The directive proposes the continuation of these rights for timeshare and their extension to cover long-term holiday products (Article 5).

Right of withdrawal

70.  The OTE supported the right of withdrawal. Other industry submissions expressed different views. Shakespeare Classic Line argued that the right to withdraw had led to the disintegration of the timeshare industry and the emergence of holiday clubs (pp 100-101). Others proposed that there should be no cooling-off period at all, since "it encourages cancellation of what is a superb product" (pp 106-108) while another claimed that abolition would benefit consumers who would then be able to buy the product at a lower price (pp 81-83).

71.  The OFT supported the requirement for the trader to draw the consumer's attention to the existence of the right of withdrawal and the ban on advance payments, and proposed a requirement to provide a separate notice to the consumer setting out these rights (pp 29-31). Citizens Advice suggested that customers' signatures should be in a box that contains wording that the contract is cancellable (pp 72-76). LACORS and the TSI also said that the prescribed information, particularly the rights of withdrawal, should be prominently displayed, with key information headings and a warning contained in boxes (pp 87-92).

Charges where the consumer cancels

72.  The Commission proposes that companies be permitted to make charges where consumers cancel during the withdrawal period (Article 5.5). Citizens Advice, TATOC, LACORS and the TSI opposed this provision, arguing that such charges are sometimes excessive and thus a disincentive to cancel. LACORS and TSI suggested that, as with consumer credit legislation, there should be no financial charge imposed for cancellation within the cooling-off period (pp 87-92). The Minister told us that the UK and other Member States shared these concerns, and that the Presidency had agreed to withdraw the provision (Q 105).

Harmonisation of withdrawal rights

73.  Much of our evidence favoured the full harmonisation of withdrawal rights and criticised the provisions which permit Member States to go further in this area (Article 1.2). However, as explained in paragraph 38, such harmonisation would pre-empt the outcome of the review of the consumer acquis and the possible introduction of a new horizontal directive on contractual rights.

Cooling-off period

74.  The draft directive proposes a 14 day cooling-off period for both timeshare and long-term holiday products (Article 5.1), in place of the minimum period of ten calendar days for timeshare required under the 1994 Directive. The UK's Timeshare Act 1992 provides for 14 days.

75.  Many witnesses favoured full harmonisation of the length of the cooling-off period, in order to give greater clarity for consumers and the industry about the precise start point and length of the right of withdrawal.

76.  The OTE supported a cooling-off period of 14 calendar days. Group RCI said that consumers who cancel generally do so in the first few days after signing (pp 78-80). The Minister said that 14 days "was a reasonable timescale to allow people to genuinely pause to reflect on their purchase" and that he had not seen evidence to suggest that 21 days was necessary (Q 108 ).

77.  The OFT suggested that a 21 day period might be preferable, now that people tend to take longer holidays, to allow prospective purchasers time to return home and seek legal advice (Q 72). It also argued that people are more reflective when they get home and think "Do I really want the product that I've signed up for?" (Q 76), and that timeshare and long-term holiday products differed from others in that consumers do not have the same opportunity to shop around and compare prices (Q 77). The Timeshare Consumers Association suggested that 28 days would help to "future proof" the new directive (pp 1-3).

78.  Professor Howells said that there was an emerging consensus for 14 days as the cooling-off period across consumer legislation generally, during the discussions on the review of the consumer acquis, but he suggested that timeshare might be an exception given its special nature (Q 137, pp 54-59). He said that 28 days, as originally considered by the Commission, might have some sense "in that because if one flies off to the sun for a 14-day holiday, gets accosted by a timeshare salesman on your first night there, makes a decision rapidly to buy it or within the first few days, then by the time you have got back home you have a rather short time to react" (Q 137). Dr Twigg-Flesner said that there were two arguments in relation to the cooling-off period. If it just related to the pressure-selling element, then 14 days might be sufficient: if however the intention was to allow people a period in which to seek legal advice, which he regarded as "the real rationale", then "a longer period might well be appropriate" (Q 137).

79.  Dr Twigg-Flesner told the Committee that there is "a general lack of research on how consumers behave and that is one of the main problems we have. We do not know what consumers do; whether they understand what it means to have a right of withdrawal; why they exercise it, if they do; and why most of them do not exercise it" (Q 138).

Definition of a "day" in relation to the length of the cooling off period

80.  Kevin Davis of the Department for Business, Enterprise and Regulatory Reform (BERR) told us that the precise definition of a "day" in this context is under discussion. The Commission proposed that, where the fourteenth day of the cooling-off period is a public holiday, the period shall be extended to the first working day thereafter (Article 5.1). At issue is whether the relevant public holiday is that of the consumer's country of residence, or that of the country where the contract is signed (Q 107). Dr Twigg-Flesner recalled that the Community had in fact defined working days and calendar days by way of a Regulation adopted in 1971[18] "but what has since happened is that people have forgotten about its existence, even if it remains in force, and there is legislation in place which deviates from that Regulation" (Q 136).

Informing consumers of the cooling-off period

81.  The OTE said that written details of the cooling-off period should be included in the contract, together with the date of cancellation and details of where and how to cancel, but said that by providing three places for the consumer to sign it appeared more like a "health warning" (pp 13-16). Professor Howells said that "There are certain common things which can be harmonised and sensibly harmonised", such as the definition of a "day" but he questioned whether there needed to be a standardised way of giving notice of the right of withdrawal (Q 134).

82.  The draft directive proposes that the consumer's withdrawal rights be extended by a further three months if the information provisions of Annex I, which include information on the right to withdraw from the contract, have not been met (Article 5.3). Citizens Advice said that this raised the possibility that rogue traders would not provide cancellation rights, since few consumers would be aware of their rights in the absence of the specified provision (pp 72-76).

83.  We discuss the issues of the cooling-off periods for resale products and exchange schemes separately in Chapter 8.

Conclusions and Recommendations

84.  The introduction of rights of withdrawal and a cooling-off period have benefited purchasers of timeshares and the industry, and these rights should be maintained for timeshare and extended to cover long-term holiday clubs. (para 69)

85.  Evidence that suggests that most consumers who cancel do so early in the cooling-off period gives only a partial picture. There may be many other consumers who return from their holiday and, on further consideration and perhaps advice, wish that they had cancelled but find that it is too late to do so. On this basis, we do not think that 14 days is an adequate period for reflection and obtaining independent advice and we therefore recommend that the cooling-off period be 21 days (Article 5.1). (paras 74-78)

86.  We recognise that as a consequence of a longer cooling-off period more consumers may cancel purchases of timeshares and long-term holiday products but we suggest that, if this occurs to a significant extent, the problems lie with the products and the way in which they are sold. (paras 70-71)

87.  We recommend that in setting cooling off periods, the definition of "day" as a working or calendar day should be clarified. (para 80)

88.  We conclude that there is scope for confusion, in the proposal that the cooling-off period be extended by one day, where the final day is a public holiday unless there is greater clarity for both parties about which public holidays apply. We recommend that the cooling-off period be extended by one day where the final day is a public holiday in the Member State of either of the contracting parties (Article 5.2). (para 80)

89.  We recommend that the right of withdrawal should not expire after three months in the absence of the information provisions required in Annex I (Article 5.3). (para 82)

90.  We recommend that information for consumers about rights of withdrawal be provided in a prominent and clear manner in the contract and in promotional material. (paras 71 and 81)

91.  We recommend the deletion of the proposal that consumers reimburse expenses to traders where they cancel during the withdrawal period (Article 5.5). (para 73)

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18   Council Regulation (EEC, Euratom) No 1182/71 of 3 June 1971 determining the rules applicable to periods, dates and time limits (OJ L124 8.6.1971)  Back