Select Committee on European Union Third Report

Chapter 11: Enforcement and Sanctions

Experience to date and international co-operation arrangements

145.  The OFT acknowledged that in the past cross-border co-operation with other enforcement bodies "has not been great" but said that the structure provided by the new EU Consumer Protection Co-operation Regulation[22] was starting to work, with Spain putting in place a specialist team to tackle complaints, 95% of which concerned Spain (Q 86).

146.  Industry bodies also said that enforcement in some Member States had been poor or non-existent. Peter van der Mark of OTE said that "although the fraud is perpetrated often in Spain, it is often a Brit ripping off another Brit" (Q 59). However, Sandy Grey, for the TCA, told the Committee that Spanish police only seemed to be prepared to act when victims were Spanish (Q 26).

147.  The Minister told us that he had seen real engagement in discussions on the draft directive by Spain and other Member States where timeshares operate: "for them there is a reputational issue in terms of their country as a tourist destination" (Q 113). The Minister said that the issue was not one of a lack of willingness on the part of the Spanish authorities to act: "it is simply that they do not have the powers to do so", and the new directive would, by bringing holiday clubs into its scope, provide the authorities with the tools necessary to act (Q 117).

148.  The OTE said that it had allocated €150,000 in 2007 towards enforcement and employed a full-time enforcement manager in Spain. OTE referred to its role in the Metropolitan Police's Operation Sterling, a UK Travel Industry fraud forum (pp 24-26).

149.  Several witnesses pointed out that the problems should be regarded as EU-wide, and suggested that the European Commission could monitor enforcement and fund a short-term task force of investigators and lawyers to crack down on known offenders (QQ 91, 92; pp 29-31). The Minister said that enforcement would remain predominantly the responsibility of the country where the offence takes place but he envisaged a possible role for the Commission in researching the extent of the problems (Q 113).

150.  LACORS and the TSI considered that the powers of enforcement authorities were inadequate in this area and should include powers of entry and the power to make test purchases to ascertain whether offences had been committed (pp 87-92).

Injunctions Directive

151.  The OFT outlined its powers under the Enterprise Act 2002 (in part stemming from the Injunctions Directive[23]) which enable it to seek court orders, including in other jurisdictions, preventing a firm from committing further breaches of EU consumer protection legislation. However, it acknowledged the limitations of these powers. They do not involve fines for past action, or redress for consumers. In addition, in Spain the powers can only be used against companies, which may close down and start up again under another name, rather than against individuals (Q 85).

152.  Professor Howells and Dr Twigg-Flesner also suggested rules on the disqualification of directors, which would have the effect of preventing rogue traders from establishing new companies in the timeshare industry (pp 54-59).

Sanctions

153.  The OFT called for severe penalties across the EU for breaches of the directive, subject to Member States being free to determine the levels having regard to local market conditions (Q 94). TATOC suggested that sanctions should be "timely, punitive and rigorously enforced" (pp 101-106) as well as effective, proportionate and dissuasive (Article 11 of the draft directive).

154.  In its Explanatory Memorandum[24], the Commission said that the effectiveness of the new consumer protection enforcement cooperation network established by the Consumer Protection Cooperation Regulation should be assessed before introducing a provision at EU level requiring Member States to introduce criminal sanctions[25].

A licensing scheme

155.  Several submissions called for a licensing system for traders, on a similar basis to consumer credit licences, with Citizens Advice proposing that a licensing system should also involve suitable arrangements for the protection of consumers' advance payments (pp 72-76, 87-92, 96-99). The TCA said that "a licensing scheme would also overcome the problems for consumers seeking compensation from traders registered outside the EU" (pp 1-3). The Commission did not take a view on this issue and indicated that, under the principle of proportionality, national provisions regarding authorisation regimes and licensing would apply[26].

156.  For the OTE, Peter van der Mark told the Committee that a fully fledged licensing and bonding system was not appropriate for the timeshare industry because its product is guaranteed by real estate, but he supported a bonding system for long-term holiday products. The Minister also told the Committee that a licensing scheme was unnecessary, as it would impose an additional level of bureaucracy and expense, and would confuse consumers (Q 114).

Conclusions and Recommendations

157.  We agree that the establishment of appropriate sanctions is properly the responsibility of the Member States, but recommend that the Government and the Commission act speedily where there is evidence that implementing measures are not effective, proportionate and dissuasive (Article 11). (para 153)

158.  We conclude that licensing could have merits. Although it may impose costs, these should be assessed in relation to the level of consumer detriment identified by the OFT. We recommend that the Commission study the costs and benefits of a licensing scheme for enforcement and redress. (para 155)

159.  We agree that although enforcement is primarily a matter for the Member States where problems occur, there is a Europe-wide dimension and we recommend that further consideration be given to the idea of monitoring by the European Commission with a view to informing the actions taken by Member States to enforce the legislation. (para 149)

160.  We recommend that the Commission review and report on progress in the enforcement of the directive and on the adequacy of sanctions by 2010. (para 154)

161.  We recommend that the Commission review the provisions of the Injunctions Directive in relation to the powers to act against individuals as well as traders. (para 151)

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22   Regulation (EC) 2006/2004 of the European Parliament and of the Council of 27 October 2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws (OJ L 364 9.12.2004, p. 1-11) Back

23   Directive 98/27/EC of the European Parliament and the Council of 19 May 1998 on injunctions for the protection of consumers' interests (OJ L 166, 11.6.1998, p. 51-55) Back

24   Proposal for a Directive of the European Parliament and of the Council on the protection of consumers in respect of certain aspects of timeshare, long-term holiday products, resale and exchange. COM (2007) 303, 07.06.2007, Page 5 Back

25   The issues surrounding the imposition of criminal sanctions to penalise infringements of Community law were considered in the House of Lords EU Committee's 42nd Report (2005-06): The Criminal Law Competence of the European Community (HL 227) and subsequently by EU Committee, 11th Report (2006-07): The Criminal Law Competence of the EC: follow-up Report (HL 63). On 23 October 2007, in C-440/05 Commission v Council (ship-source pollution), the European Court of Justice ruled that, "the determination of the type and level of the criminal penalties to be applied does not fall within the Community's sphere of competence". These issues are now being considered by the Committee in the context of a number of Proposals held under scrutiny.  Back

26   op.cit. page 7 Back