Memorandum by Citizens Advice
1. Introduction
1.1 Citizens Advice is the national body
for Citizens Advice Bureaux (CABx) in England and Wales. The CAB
service is the largest independent network of free advice centres
in Europe, with 462 main bureaux in England and Wales. Bureaux
provide advice from over 3,300 outlets, including courts, prisons,
GP surgeries, hospitals, probation services and prisons. All CABx
are registered charities. In 2006-07 the CAB service helped people
with approximately 145,000 consumer related issues and 32,400
travel, transport and holiday issues.
1.2 Citizens Advice has long been concerned
about the effectiveness of timeshare legislation to deal with
problems in this market. In November 2003 we published an evidence
report, "Paradise Lost", outlining the problems
experienced by CAB clients and seeking legislative change.
2. General Comments
2.1 Citizens Advice considers that Directive
94/47/EC, on timeshare, has provided some strong consumer protection
which should be retained, in particular the ban on initial deposits
and the provision of cancellation rights. We support the proposal
for a new Directive in this field that is able to:
— cover all products that use timeshare
accommodation of all types, including boats and timeshare-like
products that involve large initial fee, regular maintenance or
annual membership, and transaction fees;
— provide consumer protection for both
the purchase and the life of the contract, for example for administration,
re-sales and management fees;
— cover the use of credit to buy the
timeshare. The currently unregulated market associated with timeshare
is a major area of consumer detriment because there are large
sums of money involved, frequently funded through consumer credit;
— fit with other consumer protection
Directives which provide consumer protection from certain practices
associated with the wider timeshare market and;
— provide for adequate enforcement
as well as consumer redress.
2.2 The key factors that result in problems
for consumers in the wider timeshare market are:
— Significant expenditure including
large up front payments.
— Poor identification of the businesses
involved in the sales and ongoing contractual relationship and
lack of clarity about who is responsible to the consumer and for
what.
— Avoidance of existing laws (timeshare,
doorstep selling, distance selling, unfair contract terms, package
holidays).
— Long term contracts with no financial
certainty for ongoing costs and often no contractual right to
end the agreement, even after many years.
3. With regard to measures intended to safeguard
timeshare consumers, what is the rationale for binding legislation
rather than a voluntary agreement?
3.1 The current legislation reduced the
number of complaints about timeshare which we believe would return
that if the existing law were repealed.
3.2 The rules for timeshare should attract
enforcement provisions and redress. Citizens Advice does not believe
that voluntary agreements can deliver this. The timeshare market
has always attracted a rogue element, because of the high upfront
costs paid by consumers (often around £6,000), an ongoing
obligation to pay maintenance and service charges, and complex
agreements which consumers are unlikely to understand. We believe
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.
3.3 Not all timeshare companies are members
of the code of practice operated by the Organisation for Timeshare
in Europe (OTE). Citizens Advice considers that there is no guarantee
that businesses across this sector would chose to join a voluntary
agreement, and even if they did, a code of practice would only
be effective if there is effective compliance monitoring.
4. In this policy area, what do you consider
to be the respective roles of EC law and national law?
4.1 It has been the role of EU legislation
to set minimum standards so that all member states can find common
ground. Holidays and travel have been important in promoting cross-border
purchasing. National law can, in addition, reflect local custom,
practice and preference and allow for the particular national
enforcement provisions.
5. What has been your experience of the existing
Directive? What, in your view, are its strengths and weaknesses?
5.1 The existing Directive has provided
good front-end consumer protection, including banning deposits
and providing cancellation rights but only in respect of those
contracts that have fallen within its definition of timeshare.
Weaknesses have been:
— the definitions of products covered
and the duration of contracts, which allowed timeshare companies
to develop new products outside the scope of the legislation;
— failure to allow for prompt review
of the legislation to deal swiftly with new problems causing consumer
detriment;
— failure to protect consumers during
the life of a long term contract;
— the length of timeshare agreements
means there is every possibility of changed circumstances but
locks consumers into a product they may be unable to afford without
sensible clauses for termination. Membership and maintenance fees
are not regulated in terms of the justification and choice for
the amount payable and points values can be reduced; and
— other consumer protection directives
do not interact with the timeshare directive, so that the full
potential for enforcement has not been realised.
5.2 There are a number of issues that need
to be addressed if the wider life of a timeshare is to be encompassed
in a new Directive, rather than just the initial sale, including
maintenance fees.
5.3 Increases in the cost of maintenance
fees often cause consumers to relinquish their timeshare and because
timeshare agreements can be long people out grow them. Collection
of these fees can be aggressive, as in the following examples:
A CAB in Oxfordshire reported that a couple in
their seventies were no longer unable to afford the maintenance
fees on a timeshare in Portugal they had had for 21 years. The
fees had now increased five fold, and the couple had not used
the accommodation for some years. When they stopped the annual
payments they received a copy from the land registry showing their
home with a message that this would be useful in a court action
for the money. They sought advice because they thought their home
was at risk. When the adviser looked through their contract a
clause covering non-payment of maintenance fees allowed for the
company to reclaim the timeshare after three years. It also said
owners are not obliged to tell the company but just to note the
effect of non-payment.
A South London CAB client wanted to terminate
a timeshare agreement bought in 1982. Her husband had died and
she could no longer afford the maintenance fees to the end of
2011 when the timeshare ran out. The contract terms allowed for
the timeshare company to terminate if she failed to pay for three
years but had no provision for her to surrender it.
5.4 Changes to timeshare legislation should
also be seen within the wider context of the review of the consumer
acquis and the new Unfair Commercial Practices Directive (2005/29/EC)
being transposed into UK legislation. The proposed new timeshare
law is an opportunity to look at how other relevant Directives,
including the doorstep selling, unfair contract terms, distance
selling and package travel, could work better together to ensure
more coherent consumer protection legislation.
5.5 Timeshare is exempt from the Distance
Selling Directive, in order to avoid confusion between which legislation
applies. There are, however, a number of ways in which rogue elements
in the wider timeshare associated market use distance sales:
A Hampshire CAB client from the South East received
an unsolicited phone call offering a free holiday in Spain for
£149 flights provided they attended a 60-minute exhibition.
He had just come out of hospital after an operation and was not
thinking clearly, and agreed to pay by credit card. As they already
had a timeshare his wife tried to cancel and was refused. The
card company said they could not refund unless the company agreed.
The CAB advised that this is in breach of the Distance Selling
Regulations and the client should cancel in writing.
5.6 These clients should have been able
to exercise the cancellation rights available under distance selling
law. The exclusion of timeshare from Directive 97/7/EC on Distance
Selling, at article 2, appears to have been misinterpreted by
businesses who make unsolicited calls to consumers to include
timeshare-like, travel discount club and re-sale of timeshare.
As the Timeshare Directive does not currently cover these sales
the exemption will not apply.
5.7 Use of distance mechanisms to contact
consumers about re-sales is also common and could be tackled under
distance selling law. And in the case of Travel Discount Clubs,
we see no reason why the Package Travel Directive should not catch
this concept. Travel and transport, and other provisions, are
commonly involved so that the elements for a package are present.
6. What is your view of the scope and definitions
contained in the draft Proposal (Articles 1 and 2)? Might they
be expanded, clarified or reduced? If so, how might this be achieved?
6.1 Citizens Advice believes that it is
vital for the Commission to review and revise this Directive regularly.
The scope of the review should not be restricted to "certain
aspects" of "marketing and sale" and "exchange",
as it will fail to provide much needed certainty about the levels
of ongoing costs such as maintenance.
6.2 Many of the current problems in the
market are addressed, but we fear that it is too definitive. It
will be open to abuse and evasion, for example in the original
Directive the three-year rule led to 35 month agreements. In this
draft the one year rule will doubtless lead to 51 week agreements
which, like the 35 month ones, will be described as "trials".
6.3 We are concerned as to whether the use
of the word "exchange" at 1 (d) would be capable of
incorporating the exchange of one timeshare type product for another.
This might be captured under 1(c) as "re-sale". We would
welcome clarification.
7. On the basis of your own experience, what
is your assessment of the proposals relating to information provision
and advertising (Article 3 and Annexes)?
7.1 Citizens Advice believes that the legislation
must require companies to provide all the information consumers
need. We are concerned that there are still gaps in provision,
including the following:
— Annex II at (d) the addition of a
specific date by which failure to complete the accommodation would
trigger reimbursement.
— Annex III at (c) the duration would
seem always to be relevant rather than being included "if
necessary". At 9(d) the further costs such as maintenance
and booking costs need to be known if consumers are to make an
informed transactional decision, as envisaged in the UCPD. We
see the provisions of Article 5 (5) as reflected in (e) as very
dangerous and against the whole nature of withdrawal rights which,
we believe, should return the consumer to the pre-contractual
position.
— Annex V at (h) provides for important
information but we believe for the contracts covered by this annex
to have value the concrete examples should be the most popular
ones requested.
8. How can consumers generally be best informed
by national governments or other bodies about their rights in
relation to this Directive (Article 10(1))?
8.1 In the UK we have examples of good practice
in the delivery of information to consumers through provisions
for credit paperwork. We suggest the following:
— A prominent title to the front of
the paperwork that clearly defines the nature of the agreement
and the law governing it, for example "timeshare re-sale
contract governed by the timeshare directive . . .".
— Consumers' signatures should be in
a box that also contains wording that the contract is cancellable.
— Cancellation information should be
presented adjacent to the signature box, should specify how and
where to cancel and the date by which this must be done and should
make reference to where further advice can be readily obtained.
9. How satisfactory, from the consumer's perspective,
are the provisions on the right of withdrawal (Article 4(3) and
Article 5)?
9.1 We are concerned that even preliminary
agreements will need to include the information in the annex and
are not sure why a binding preliminary contract should be permitted
at all.
9.2 At Article 5.3 withdrawal rights are
extended by a maximum of three months for failure to provide information
including at Annex I(m) on withdrawal. It is our experience that
when cancellation rights are not given, consumers will not realise
they are available so that the extension for three months may
not have the desired effect. We suggest the withdrawal rights
should always run from the provision of the required information,
however long it takes to provide it. This, we feel, will avoid
rogue traders risking not providing cancellation rights on the
basis that only a few consumers will realise they are missing
within three months.
9.3 The provisions at Article 5.5 provide
the obvious way of getting around the rules. Rogues will make
up costs that consumers are not in a position to challenge and
will threaten court action for failure to pay. This clause undoes
the consumer protection provided in the right to cancel.
10. One of the aims of the provisions is to
establish a more consistent regime across Member States. To what
extent is this achieved, particularly given the flexibility enshrined
within Article 1(2), which allows Member States to apply more
stringent national provisions relating to aspects of the right
of withdrawal?
10.1 If a comprehensive directive is to
be achieved, Citizens Advice believes that the Commission must
take into account what has worked for each member state. For example,
In the UK we have always included caravans as potential timeshare
accommodation, as these were in common use when UK legislation
was passed, but were far less clear about the inclusion of boats.
Movement of consumers and business around the EU is more common
now so that practices in one state might be spreading more easily
to other states.
10.2 In terms of Article 1(2) however it
is very important that consumers know how to use their cancellation
rights. In our briefing report "Can You Cancel It?"[1],
we concluded that more consistency was needed in relation to cancellation
rights in EU legislation. We recommended:
— a minimum 14 day cancellation period,
clarifying whether these should be working or calendar days;
— a common time for the cancellation
clock to start ticking, taking into account the problems across
different markets; and
— a variety of methods for consumers
to exercise their cancellation rights, which also reflected the
various methods of purchase.
11. How can consumers best be protected from
any demand to make advance payments before the end of the period
during which the consumer may exercise the right of withdrawal
(Article 6(1))?
11.1 If this important protection is to
be assured, we suggest that acceptance of a payment before the
end of the withdrawal period should result in the agreement being
open to legal challenge as unenforceable. In addition in our report
Paradise Lost[2]
we recommended that all companies engaged in the wider timeshare
market, including agents who undertake re-sales, should be registered
in the member state in which they operate. Further, we said that
these businesses should make suitable arrangements for the protection
of consumer monies that are paid in advance.
A Derbyshire CAB reported that a client was persuaded
to pay £3,500 to join a holiday club whilst on holiday in
Tenerife. She had changed her mind by the following day but had
no cancellation rights.
12. How significant a problem for consumers
have advance payments been in the re-sale market (Article 6(2))?
12.1 Re-sale has become an addition to those
scams easily perpetrated in this market. In our experience the
seller in re-sale scams is never heard of again and the name of
that client is often sold on for a further scam to try to get
the advance fee back. This also raises issues about data privacy.
A Dorset CAB client was cold called by a company
offering her help to sell her timeshare. They required £995
up front for marketing and presentation costs which would be refunded
when the timeshare was sold. The terms and conditions were read
over phone. The client phoned the next morning to cancel but was
told all had been processed and she could not do, though she was
supposed to be entitled to a seven days cooling off period.
A CAB in Gloucestershire saw a client who had
lost all his savings after trying to resell his timeshare. After
dealing with one company and ending up losing £5,000, he
was cold called by another one, based in Spain, who offered him
to get his money back in a group legal case but that never happened.
13. What are your views on the provisions
relating to judicial, administration and out-of court redress
(Article 9 and Article 10(2))?
13.1 In the UK the provisions of Article
9 seem most likely to be provided by enforcers in the consumer
protection field, though changes to provision for representative
actions may add to this. In terms of Article 10.2 we currently
have no consumer ombudsman except for specific purchases, so that
the clause would rely on encouraging codes of practice in this
market. As we have outlined earlier in our submission, we do not
feel that codes of practice in this area are likely to be effective.
14. The proposed Directive expands the current
requirement for penalties against infringements of the legislation
(Article 11). What is your view on the level of sanctions imposed
by member states for infringements of the current Directive, and
on the efficacy of monitoring and enforcement across the EU?
14.1 It is not clear whether sanctions at
Article 11 are to apply to all the provisions of the proposed
new Directive. We have not been convinced that all the tools available
for enforcing consumer protection relevant to this market have
been used. We are not convinced that enforcement is adequately
funded.
17 September 2007
1 Citizens Advice evidence briefing "Can
You Cancel It?" December 2005-CAB/ECC clients' experience
of cancellation rights in consumer contracts. Back
2
Citizens Advice evidence report "Paradise Lost"-November
2003-CAB clients' experience of timeshare and holiday clubs. Back
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