Select Committee on European Union Minutes of Evidence


Examination of Witnesses (Questions 1-19)

Mr Sandy Grey

12 JULY 2007

  Q1Chairman: Welcome to the Committee and thank you very much for coming to give evidence. We are very grateful to you for agreeing to come and speak to us about the European Commission's proposal to replace the directive relating to timeshare and similar holiday products. We know that there have been many problems for UK residents and other people regarding the purchase of holiday products in general and the new directive is intended to improve the protection of the consumer with a wider range of products. There are just a few housekeeping points. We have got an hour available to us for this discussion. The session is open to the public although there are, as it happens, no members of the public here but it will be recorded for possible public broadcasting or web casting. A verbatim transcript will be taken of your evidence and will be sent to you shortly after this session. If you feel you need to alter it, please could you do that as soon as possible so that we know we are putting the right evidence out. You may submit supplementary evidence after the session. Sometimes we do not fully explore the points that we have raised and the witness wants to add something to what he or she has said and it is very useful to us to have any further thoughts you might have if we have not been able to cover everything during our hour. I would like you to start by stating your name and your official title for the record. You may also wish to begin by making a statement and, if so, we would be happy to hear that.

Mr Grey: My name is Sandy Grey and I represent the Alliance of Timeshare Consumers in Europe which is a group of five independent timeshare organisations: Greece, Germany, France, Sweden and the UK. I am also chairman of the Timeshare Consumers Association in the UK which has been going for about nine years now so we have a fair degree of experience in the industry. I would like to make a five or six minute preliminary statement which will attempt to answer I think the first question which is the issue that was raised in the European Parliament a fortnight ago. A Member of the European Parliament stated very recently that timeshare is a criminal industry. I do not entirely accept that generality. There are some good people in the industry and there are some happy timeshare owners but unfortunately we have rather more than our fair share of rogues in the industry. These rogues got into the industry, or attempted to get into the industry, in the very profitable 1970s and 1980s but the response to their intrusion into the industry was totally different either side of the Atlantic. The industry leaders in America, which is a strong trade body formed in 1969 and supported by major hotel groups, evolved a strategy to control the rogues and to create a good long-term future for their own industry. That strategy included two key issues: one which was a very strong self-regulatory regime and, secondly, they encouraged and promoted legislation to give consumer protection believing that will give a long-term strength to the industry. In contrast, we in Europe, and mainly based in the UK in those days, have been through a series of six trade bodies with almost no support from the major hotel groups and have failed to follow the US lead. Even now they appear to lack the will to have a long-term plan to develop the industry and let it grow. For example, they have a very ineffective code of conduct and it resists every single attempt to legislate on behalf of consumers. The results of those differentials between the Americans and the UK are quite stark. Americans claim to have 4.4 million timeshare owners and it is growing at about 10% per annum. In Europe, with a bigger population than America, we have only 1.4 million owners and it is declining at about 3% per annum. The lesson we have failed to learn from the States is that the grab-it-and-run philosophy runs out in time and I believe that time has probably already arrived. The consumer problems that are caused by these rogues fall into three basic areas: the buying of timeshare; the owning of timeshare; and the selling or getting out of timeshare. Let me give some quick examples of all three. Most sales are made to consumers whilst they are on holiday in a country not of their residence. For UK citizens it is usually in Spain or Portugal or the Canaries. In many cases they sign to get out of that very intense hot-house atmosphere, hard sell, three or four hours of intensive highly structured presentation, lies told by sales people, failing to put the key benefits of the purchase in writing so they are just verbal. For example, they will say that the purchase is a good investment, you will get all your money back when you are selling, which we will find out later is certainly not true. They say "Yes, you can go on holiday in August guaranteed." Perhaps yes, but only if you do not mind sharing your bed with nine strangers. Then there is the development of loophole products where there is no cooling off period and no ban on taking of a deposit. The best known of these is what the Commission called long-term holiday products, we call holiday clubs, which look similar to timeshare, smell similar to timeshare, are sold in an identical manner to timeshare and are priced the same as timeshare so the consumer is confused. The other loophole was the 35 month trial package which was invented by the industry in 1997 when the new directive became effective. It produced a lower cost avoidance of the law designed to get the consumer in the hands of the sales people when they went on holiday for the next 35 months to try and persuade them to buy the full-blown timeshare. The second area is the owning of a timeshare. There have been excessive fee increases. Two of the largest organisations in the industry both have increased their fees by double in less than 10 years at a time when inflation has only gone up by 35%. With the declining number of owners, resorts are being closed for re-development as hotels, shopping precincts or whatever. There is a general squeeze to get rid of owners where the resorts are starting to decline. The final area where there are problems for consumers is what we call getting out. There is hardly any natural demand to buy timeshare. We produce a series of help sheets: one is called How to Buy Timeshare and one is called How to Sell Timeshare. For every one How to Buy Timeshare we send out, we send out 500 How to Sell, a clear indication of the lack of the demand. Many time shares, as a result, are worthless. These are the problems we believe this new directive should be addressing. What I have not mentioned, and do not intend to do so unless you wish me to, are the frauds that are operated within the industry and on the periphery of the industry which are not addressed and the directive has no intention of addressing.

  Q2  Chairman: We will come to that point later on in our discussion. I want to start the questions by asking you to what extent you think the situation in Europe was improved by the 1994 Timeshare Directive and what have been the strengths but particularly the weaknesses, following on what you have been telling, us of that directive.

  Mr Grey: The main changes of the directive, I am sure you already know, are to introduce a cooling off period.

  Q3  Chairman: You mean the current directive, the proposed directive? I was asking about the effect of the 1994 directive.

  Mr Grey: I was going to come on to that. The 1994 directive did not become law until 1997 which was a trigger point for quite a lot of action within the industry. It introduces a cooling off period, which we already had under UK law of 14 days. It introduced a ban on the taking of a deposit and it introduced a modest level of written disclosure of the purchase. From the point of view of the old directive, as we will call it, the ban on the deposit and the cooling off period gave very good improvement to consumer protection. It may be an odd way of putting it but the industry itself claims that its decline started from that very day. It was suffering something like 50 or 60% cancellations so obviously it was working. The weaknesses of the existing directive are three-fold: first of all, the loophole that was invented by the industry, the 35 month trial package which got below this three year directive limit on the law, is now the most intensively marketed timeshare product as opposed to long-term holiday product. It is still a major problem to us where people are buying with no cooling off period and no ban of deposit. The other loophole is the holiday club, which I mentioned already, using exactly the same techniques as timeshare and promising some marvellous availability of accommodation, marvellous availability of holidays, which simply do not exist. In some cases they are figments of somebody's vivid imagination. The negative side of the existing directive were developments of new products. In the days before the directive the basic product in timeshare was a fixed week of accommodation. You bought week 36, which is the last week in August, and you knew you had that last week in August in perpetuity. The new products were floating periods where you bought a choice in a red band, which is a high season band, but you had to book it each year so it was subject to availability. I am sure this will come up a number of times later this morning. The points scheme works in a similar way where the purchaser acquires points and uses that as currency to book accommodation year by year, again the problem subject to availability. A final downside or weakness of the directive was it has encouraged much more aggressive selling techniques.

  Q4  Baroness Greengross: You have mentioned holiday clubs. I think I know what a holiday club is but it would help me if you could explain the term precisely. You have mentioned some of the problems that that 1994 directive threw up regarding those definitions. If you could clarify that it would help me.

  Mr Grey: Would it help if I gave you a definition for timeshare and a definition for long-term holiday products in a simple way? Timeshare is effectively an acquisition of a legal right of use of accommodation. It is usually held in trust or by some form of real estate registration or public register as it is in Spain and Portugal. Technically once you have it, it cannot go away; it is certain. It is only certain in respect of the fact that you have to carry on paying the annual management fees to keep the rights maintained. Timeshare has a certainty about it and a feeling, a pseudo feeling, of real estate ownership, hence the word timeshare owner. Holiday club is a promise to book accommodation or a whole package through an agent. It is no different in any way from going to the high street or going to Thomas Cook and saying "I would like to go to Tenerife." The only difference is that the sales people promise, when you join this club which gives you access to the booking system, you are getting very good choice, you are getting very good quality and you are getting big discounts, none of which are true. The holiday club is only offering the same as is available off the internet, teletext or the high street.

  Q5  Baroness Greengross: Why "club"? What is the club bit?

  Mr Grey: It is simply an organisation which you join when you pay the money. A holiday club is where you phone or write or email to book your accommodation. It is rather like a Christmas club in some peculiar way.

  Q6  Baroness Greengross: There are no membership benefits at all?

  Mr Grey: No, none at all.

  Baroness Greengross: That is extremely helpful to me, thank you.

  Q7  Baroness Gale: You have already talked about the present cooling off period of 10 days and the proposal to take it to 14 days. You have said you think it could easily be changed to the 28 days. Could you tell us what are the problems with 10 days? Could you say why you think it would be better 28 days and do you think that could have a detrimental impact on the future development of timeshare?

  Mr Grey: Can I go back to the beginning of the history of the cooling off period. The first law to introduce a cooling off period was the Timeshare Act 1992 introduced in the House down the corridor. It gave a 14 day cooling off period and that was 1992. The 1994 Directive, which became the 1997 law in Europe which is the current directive, went backwards to a 10 day period at a time when it was quite clear people were taking longer holidays. It is now becoming apparent people are taking even longer holidays. Point number 1 is that we must protect people not only today in the current holiday time pattern to give them time to come and think about it—and I will come back to that in a minute—but the Commission did say they wish to future-proof the new directive. Future-proofing must allow for longer holidays which people are taking throughout the whole of Europe. Coming back to the point I made earlier, the purchase of timeshare is almost always made overseas. It is nearly always made on the first or second day of someone's holiday: white knees, red face, recognised very quickly as having just arrived. There is a long time before their brains are back in gear and back home and able to do research and ask us or other people questions about what they bought. That time now is quite clearly not enough. We get a number of inquiries from people who say "I signed up on so-and-so a date" and I say "You have passed the time". "Oh dear, we did not know." 14 days is already inadequate and will become more and more inadequate as the years go by. In the Commission's proposals last year a range of periods were proposed: 14; 21; 28 days, which is what we proposed; one or two people proposed 30 days; and one person actually said one year but that is a bit impractical.

  Q8  Baroness Gale: Do you think you will build up support for the 28 day proposal?

  Mr Grey: I would like to think the Commission would move from 14 at least. The further they move the more beneficial it will be in the longer term. An issue that may come up later on is that the existing directive should have been reviewed five years ago. If we delay reviewing the new directive by a further five years, making it 10 years, we are well into longer holiday periods which 28 days would cover but not 21 or 14.

  Q9  Baroness Greengross: What does the United States do about that?

  Mr Grey: The United States has different laws in each State: five days, 10 days, and I think one is 13. As the bulk of the people in the United States are from the United States they are nearer home and do not have this problem of going away for a fortnight and coming back again so it is less of a problem to them.

  Q10  Baroness Howarth of Breckland: I am not clear why the industry are so fiercely against the extension except that it gives people time to withdraw on reflection.

  Mr Grey: If you asked the question what is the effect of a longer cooling off period going to be, the answer is for the timeshare industry it will have a detrimental effect short-term. If they can revise their policies and practices for selling so that people use a longer cooling off period as a marketing tool and people are comfortable with this, it will have a beneficial effect. As far as long-term holiday products are concerned, the cooling off period will kill them with sighs of relief all around.

  Q11  Lord Moser: On the withdrawal period point as part of the cooling off point, I now picture this poor family in Tenerife or somewhere and there is a cooling off period, how can they possibly get out of it or perhaps they are not even there yet. They got into it because of the problem organisations that you pictured so well and demand is declining like mad. In asking about the withdrawal period I also want to ask you in general. Listening to you, my inclination would be the best thing would be to close the whole thing down and not to have timeshare any more because of all these problems. There is a very steep decline, wealth is increasing all over the place so people might buy things in total rather than time sharing, but presumably you are arguing that timeshare is a good thing if only it were properly regulated. Could you talk a bit about the bits of the withdrawal period other than cooling off which you have dealt with in giving information and all that but in the context of why it is necessary to rescue this whole business?

  Mr Grey: I do not think I agree entirely with Lord Moser's view. May I state a view on timeshare. My view is that it is a valid holiday product. It offers a facility for people to get good quality accommodation at prices lower than they would normally have to pay through owning their own villa or whatever. The principle is right but the problem has been the people in the industry. There are too many rogues in Europe. If by legislation and other means we can discourage the rogues, perhaps ending up with a smaller industry than we currently have but providing the original image of the product, quality of accommodation, just pay for the bit of time you wanted to use, I would fully support that. How you tell people about the cooling off period I think was your question.

  Q12  Lord Moser: How they can withdraw.

  Mr Grey: The UK Act has a very good piece in it, only amended five years ago, which required the cooling off period to be clearly disclosed in print no smaller than the largest print on the paper on the front face of the purchase agreement next door to where people sign which says very clearly you have until X, Y, Z date to cancel the agreement. That is an excellent idea and the directive should adopt that as well. At the same time, if we are going to say in the purchase agreement that there is a cooling off period we should also say in the purchase agreement there is a total ban on the taking of a deposit. These are the two key lock-in issues for purchasers. If they are disclosed clearly to them in the purchasing point they will have much more ability to choose what they want to do.

  Q13  Lord Moser: On the more general point, you talk about a smaller industry across Europe. Is that what you have in mind, having got rid of the problem organisations?

  Mr Grey: I am trying to project what I see is happening in the current industry. It is in decline. There is about 8 or 9% less owners now than there were five years ago.

  Q14  Lord Moser: You attribute that to the problem organisations?

  Mr Grey: To a great extent, yes.

  Q15  Lord Moser: Not to social trends, financial trends.

  Mr Grey: No. If you look at America, it is really growing. It can be done but we are just doing it wrong.

  Q16  Lord Wade of Chorlton: Clearly the reason why there is decline is the industry in this country is not even controlling itself. It is not taking any action to try and make the industry more acceptable so that it would grow. Why is that? Is it an industry that attracts unscrupulous people or is it an industry that has not actually got within the hands of honourable companies who can see the growth opportunities and want to run it effectively? Normally if there is a business that can make money for somebody, generally they want to run it well because by running it well it grows and you get consumer confidence in it. It is rather odd that people should want to run an industry in such a way that people want to use it less and less.

  Mr Grey: That is absolutely right. The problem comes back to the fact that the industry has never got itself together in a coherent, strongly led organisation. It has had six trade bodies. It has not got the support of the big powerful medium which is the hotel groups in Europe where it has in the States. Nobody has taken the industry by the scruff of the neck and said "If you want to be here in 10 years time earning decent profits, you have to do it this way." It seems to be short-term-ism, that is rogue-ism, that is grab-it-and-run-ism. I do not see any solution to it other than legislation to wrap the knuckles so hard they have to change their policies. That is why I am hopeful the directive will do exactly that.

  Q17  Lord Wade of Chorlton: I wanted to raise points on the information provision of the directive. Could you explain how the information obligations in the proposed new directive differ from those in the existing directive and would you choose to add any items of information or to consider any to be superfluous for the consumer?

  Mr Grey: The new directive introduces a little bit more requirements on disclosure of benefits but not very much; it is a marginal move. Our view is that there should be much more profound precise defined disclosure. For example, there are no requirements in the new directive to say precisely what a person is purchasing. The word "exact" is used in the new directive. "Exact" is a phrase which is interpreted by traders in a totally different way than by consumers. What I would like to see is guidance notes by the directive to state that the following items should be included in the disclosure. Availability is a big issue. I joked earlier on about sharing a bed with nine other people if you go in August because everybody wants to go in August and there is not the capacity. It should be precisely spelt out in the document whether you can or cannot go in any high season. Secondly, I think there should be a disclosure as to the current value of what is being purchased. I know it is an odd thing to do. If you buy a motor car you do not have to say that it is only going to be worth 70% less tomorrow morning but with timeshares now worth sometimes 5% of what they were when originally bought, sometimes worth nothing, I believe consumers must be given that information. The third area is drifting into another area which I hope we will be discussing later on and that is ownership rights. I believe the directive should state very clearly that owners do have control over the standards and operations and costs of their club or resort. They do not at the moment and that is one of the main reasons why there is this distress amongst owners, massive increase in fees and owners just walking away.

  Q18  Lord Wade of Chorlton: Do you think that the government, through the Office of Fair Trading, could have been successful in informing consumers of their rights in the existing directive? What further things could the UK government do to get more information on these issues across to the consumer?

  Mr Grey: The Office of Fair Trading and the DTI before them made reasonably good efforts to educate consumers about their rights within the timeshare business. The old story of financial constraints keeps coming up of course. My own belief is that the targeting of education should be done very precisely and the best place to do it is when people are flying away to Benidorm, Tenerife or wherever, with adverts on the back of flight magazines, leaflets in the airports and so forth. That was done to a limited extent but it was done only as a campaign and, as you know, campaigns last four or six weeks and then die. If the OFT would operate a campaign over two or three years, maybe lower key, aimed precisely at that area I belief the education would improve quite considerably. We could look at how the Swedes do it. They have half an hour a week of school education on your consumer rights.

  Q19  Lord Wade of Chorlton: Across a whole range of issues.

  Mr Grey: Yes, it is a broader issue I know.

  Chairman: They seem to be reforming the education curriculum at the moment so maybe you should make your input to the correct department.



 
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