Select Committee on European Union Third Report

Chapter 7: Advance payments during the withdrawal period

92.  The proposed new directive would continue the ban in the 1994 Directive on the taking of a deposit for a timeshare during the cooling-off period, and extend it to holiday clubs (Article 6). The proposal also prohibits demands for payments to be made to third parties, a practice that has developed in some Member States and which in effect circumvents the original ban.

93.  The OTE told us that "we know of no other industry that is penalised with a cooling off period and a ban on deposits and a significant number of large hospitality brands, principally US based, will not operate in the EU under such punitive restrictions". The OTE also said that "singling out timeshare without good reason puts the industry in a less competitive position compared with other tourism services and products" (pp 13-16). It proposed instead the use of independent third parties for deposit payments to encourage the growth of the industry (pp 13-16).

94.  Shakespeare Classic Line argued that consumers should expect to pay a deposit for timeshare (pp 100-101). Interval International, a holiday exchange network, proposed that advance payments should be permitted for timeshare, provided that these payments were secured by independent third parties accredited by national law (pp 83-87).

95.  The Minister rejected the idea of payments to third parties. He argued that the 1994 Directive had proved successful in this area and that a third party scheme would add an unnecessary level of bureaucracy for consumers and the industry (Q 100).

96.  Consumer and enforcement bodies and TATOC welcomed the Proposal to tighten the ban on advance payments during the cooling-off period. The OFT noted that taking deposits "puts consumers under a psychological pressure to continue with the contract" (Q 72), a point supported by the TCA which said that "the prospect of failing to recover a deposit, or simply the complex mechanism that traders would place in the way of consumers trying to recover their deposit on a legitimate cancellation, is a strong incentive on consumers to continue with an agreement that they really want to terminate" (pp 1-3).

97.  The Minister also told us that a ban on advance payments was justified "because of the particular circumstances in which these products are usually sold". He said that consumers were normally overseas and away from sources of help and advice such as the Citizens Advice Bureau. They were therefore potentially susceptible to high-pressure sales techniques (Q 100).

Conclusion and Recommendation

98.  We conclude that the removal of the ban on deposits during the cooling-off period would be likely to lead to a recurrence of the problems that plagued the timeshare industry prior to the 1994 Directive. We therefore recommend the continuation of the ban on the taking of a deposit for a timeshare during the cooling-off period and its extension to holiday clubs, and we support the ban on demands for payments to be made to third parties, as proposed by the Commission. (paras 95-97)

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