Select Committee on European Union Third Report

Chapter 8: Resale and exchange


99.  Resale and exchange both raise particular issues.

Definition of resale

100.  Resale, as defined by the proposal, is a contract by which a trader against consideration helps a consumer to sell or buy a timeshare or long-term holiday product (Article 2.1(c)). The Commission indicated that this is intended to cover contracts concluded between a consumer who wishes to sell or buy a timeshare/long-term holiday product and a resale agent, who is acting as an intermediary. The Minister described a resale agent as fulfilling a role similar to that of an estate agent (Q 101).

101.  The word "resale" can lead to some confusion, in that it can also mean what occurs where a trader buys a timeshare and then resells it to the consumer. The Commission made clear in the Explanatory Memorandum to the Proposal that where a trader does not act as an intermediary, but buys a timeshare and then resells it to the consumer, the contract will be on the same basis as if it were a first-time sale: that is, it would come within the scope of the new directive, including in respect of the withdrawal and cooling-off period provisions.[19] The Minister also told us that he shared and supported this interpretation (pp 51-53).

102.  The TCA said that on this basis it did not consider it necessary to legislate additionally for resales "except to ensure that a consumer wishing to sell his ownership to or through a trader should not be required to make any payment to the trader" (pp 1-3). The TCA also told us that issues concerning the resale of timeshare properties by consumers to traders needed to be dealt with separately within the new directive, and not together with sales by traders (Q 29).

Cooling-off period for resale contracts

103.  The Minister took the view that a cooling-off period for resale was unnecessary (Q 123), since a consumer would not have to make an up-front payment to a resale agent, and that it might well delay the service to the consumer (Q 124).

Proposed ban on advance fees for resale

104.  A number of submissions focused on fraudulent activity associated with resale, where timeshare owners are cold-called from so-called "boiler rooms". These are often said to be located in Spain. The caller, who has a probably stolen list of timeshare owners, persuades the timeshare owner to pay an advance fee for the sale of their property to a buyer who is said to be ready and willing to pay a good price. Once the money has been paid, it disappears together with the caller (Q 91).

105.  There was general support for the proposed ban on advance fees for resale (Article 6). The Minister said that it was impossible to stop rogues from operating altogether, but by providing a "clear sense as to when money has to be paid and when it does not have to be paid, the consumer at least has the information to reach a conclusion as to whether or not they are dealing with someone who is reputable" (Q 101).

106.  Interval International, a holiday exchange network, supported a ban on deposits for resales (pp 83-87). However, Shakespeare Classic Line said that there was no problem for consumers making advance payments for resale as long as the consumer has not been cold-called (pp 100-101). TATOC said that the timeshare industry and consumers needed an active and reputable resale market, and it was concerned that a total ban on all payments prior to completion of a sale would result in further stagnation. TATOC said that small, reasonable and detailed charges should be permitted to be made by registered companies (pp 101-106).

107.  It was acknowledged that some genuine resale traders do currently request fees but, as the OFT pointed out, it is difficult for consumers to tell the genuine from the fraudulent. It suggested that genuine traders could operate like estate agents and ask for their fees after a sale (Q 91).

Exchange schemes

108.  An exchange as defined by the new directive is where consumers pay to join a scheme which allows them to change the place as well as the timing of their timeshare through an exchange (Article 2.1(d), a definition which Professor Howells and Dr Twigg-Flesner suggested was "circular" (pp 54-59). The Minister also told us that the UK Government had proposed instead a definition based on the feature that exchange allows consumers to use the timeshare rights of others, in exchange for others using their timeshare rights, without modification of the rights of the owners (pp 51-53).

109.  Interval International, a holiday exchange network, explained that a company dealing in timeshare exchanges would typically enter into a multi-year affiliation agreement with a company dealing in timeshares, under which timeshare purchasers would be enrolled in the exchange company's network. The exchange trader would then provide the timeshare purchasers with the ability to exchange their timeshare accommodation for comparable accommodation at resorts participating in the network (pp 83-87).

Exchange schemes: cooling-off period and ban on advance payments

110.  The new directive would provide a separate cooling-off period for exchange fees, and a ban on advance payments within that period.

111.  The Commission argues that consumers are sometimes oversold the advantages and possibilities of timeshare exchange, and that additional charges may apply to some exchanges. It also points out that because membership is often included in the global price paid for the timeshare in the first instance, consumers may not be aware of the actual costs of membership[20].

112.  Interval International said that, in contrast to the timeshare itself, payments for exchange schemes were "quite modest" and quoted an annual membership fee of £69 and an exchange fee of £99 for exchanges within Europe. In most cases, the initial membership was paid by the timeshare trader. While it supported a 14 day cooling-off period for the main timeshare contract, it saw no need for the introduction of a separate withdrawal period for exchange (pp 83-87).

113.  Several submissions queried whether the right of withdrawal (Article 5) should apply to exchange contracts, arguing that (under Article 7) the exchange contract automatically terminates if the consumer withdraws from the main contract (pp 83-87).

114.  The Minister said that by far the greatest number of exchanges were operated by organisations that are separate from timeshare operators, and that they would therefore be unwilling to enter into contracts until the timeshare sale was completed after the end of the cooling-off period (pp 51-53). The Minister told us that, by definition, a consumer wanting to make an exchange had already bought a timeshare and would therefore have already had a 14 day cooling-off period: a further two week cooling-off period was therefore unnecessary and disproportionate (Q 122). However, he did acknowledge that there were concerns that timeshare sellers might masquerade as exchange companies (pp 51-53).

115.  The Minister expressed the view that a more proportionate approach should be based on information requirements, which should also include details of restrictions on access to particular exchanges which might be the result of peak periods of demand for particular resorts, and that exchange operators should be obliged to inform the consumer about any additional charges for particular exchanges (pp 51-53).

Fees paid by consumers for exchange services

116.  Professor Howells said that possible depletion in the amount of property available for exchange might mean that people did not get the property they were expecting (Q 164) and that if consumers paid to join an exchange service and the company was unable to provide the service requested, then they should not be required to pay the fees. "If there was a real incentive to get the fee to make sure the exchange was effectuated, that would probably solve lots of the problems, because there would be an incentive on the scheme to make sure there was an appropriate pool of properties" (Q 164).

Conclusions and Recommendation

117.  We support the proposed ban on requests for advance fees for resale. (paras 104-107)

118.  We recommend that the objectives of the cooling-off provisions in relation to resale be clarified. We are particularly concerned that treating resales by timeshare traders and by independent intermediaries on a different basis could be confusing for consumers and could open up a loophole whereby rogue traders collaborate with, or pose as, intermediaries. (paras 100-102)

119.  We believe that clarification is needed too in relation to the cancellation of exchange contracts (Articles 5 and 7). In that vein, we agree that consumers who pay to join an exchange scheme should be entitled to a refund of their fees if reasonable and timely requests for exchanges cannot be met and recommend that a right on these lines be added to the directive. (para 116)

120.  We recommend that the definition of an exchange be amended to clarify that exchange allows consumers to use the timeshare rights of others, in exchange for others using their timeshare rights, without modification of the rights of the owners. (para 108)

121.  We support the suggestion by the Minister that the information requirements should also include details of restrictions on access to particular exchanges and that exchange operators should be obliged to inform the consumer about any additional charges for particular exchanges. (para 115)

19   op.cit. Back

20   op.cit. p.19 Back

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