Examination of Witnesses (Questions 41-59)
Mr Peter Van Der Mark and Ms Sue McNicol
19 JULY 2007
Q41Chairman: Good morning. Thank you for coming
before us. We are thinking about the European Commission's proposal
to replace the directive relating to timeshare and similar holiday
products. That is the scope of our enquiry. We are aware that
your organisation has the aims of improving the representation
of reputable companies in the timeshare sector, promoting fair
trading and growth in the timeshare industry. We would be particularly
interested to hear from you how you think the new Directive will
assist you in that matter. Could you start by stating you names
and official titles for the record and after that you are welcome
to make an opening statement as to how you see you role in assisting
this Committee.
Mr van der Mark: My name is Peter van
der Mark. I am the Secretary General of OTE, the Organisation
for Timeshare in Europe, in which I have worked now for the last
eight and a half years. We will forfeit the opening statement
to allow as many questions from the Committee as possible.
Ms McNicol: My name is Sue McNicol and
I head up OTE's operations in the UK. I am employed by the Timeshare
Council, which is the UK chapter of OTE, and I have worked for
the Timeshare Council for the last 11 years.
Q42Chairman: I am going to start by asking the
obvious question which is if you could explain briefly the role
and composition of your organisation, how representative it is
of the industry and, looking more broadly at the timeshare industry
organisations, why do you think the industry has found it difficult
to maintain consistent organisations?
Mr van der Mark: OTE was formed in February
1998 on the foundation of the European Timeshare Federation. The
European Timeshare Federation was a federation which brought together
the National Timeshare Associations but in a federated structure.
The Board of OTE (then ETF) decided to transform the trade association
into a direct membership organisation, meaning that members from
our organisation are directly members of the European entity,
not through the national entities. As such, we have not had a
discontinuation or a plethora of trade associations in timeshare;
it has just been a continuation where the trade associations have
been reformed to reflect the realities of the day. My colleague
will explain in more detail how this works in the UK. Throughout
Europe we have national trade associations which are sometimes
there for 15-16 years in their current format and they are still
part of OTE now as an additional chapter. Our organisation has
direct membership. This means that companies, including Hilton
and de Vere, are direct members of our organisation and we represent
timeshare developers, so the people who build timeshare resorts,
timeshare management companies, timeshare trustee companies, we
hold the timeshare titles in trust on behalf of the timeshare
owners, and exchange companies, the companies who allow timeshare
owners to actually exchange their week for a week in another resort
at another time, finance institutions such as GE Capital, as well
as resale companies, companies who actually assist timeshare owners
with reselling their timeshare which they bought in the past and
would like to sell on. The weight of the association is that overall
we represent a large majority of the timeshare industry; the large
majority meaning that in certain of those sectors in the vertical
chain which makes up a timeshare holiday we are representative
of 100% of the companies; in others we are representative of 50%,
but if you express it in terms of timeshare sales, we would represent
70 plus per cent of all timeshare sales conducted in the whole
European Union.
Ms McNicol: In the UK before the Timeshare
Council we had the Timeshare Developers Association and a decision
was made to expand the membership and form the Timeshare Council.
The TDA really just represented eight large developers. The Timeshare
Council, as OTE, represents the entire industry. That was formed
in 1990 and so the Timeshare Council has actually been going for
approximately 17 years. I was a little confused by the question
because we only know one trade association that formed and came
to nothing and that was called Trust Timeshare. Sandy Grey is
actually a director of Trust Timeshare and there is an actual
proposal to strike off Trust Timeshare due to non-compliance.
That is the only trade association we know of which has had problems.
Q43 Lord Wade of Chorlton: I would like
to understand two issues more clearly: (1) how does the UK industry
compare with other countries' industries within the EU, and (2)
how does the US industry compare to the EU industry? Could you
give us a rundown as to how you see the UK industry and the players
within the UK different or similar to those in other European
countries?
Ms McNicol: In the UK we have a number
of very significant players; for instance, we have de Vere and
they have the Cameron House Resort on Loch Lomond in Scotland.
They have just put £60 million into a new development two
miles north of that. We also have Hilton, Gleneagles, and you
may well have heard a couple of weeks ago Butlins launched a resort
in Minehead in Somerset. That has been very well received by the
media and is already half sold out. In the UK where we differ
on the legislative front compared with the rest of Europe, or
more than any other countries in Europe, is that we have a complete
ban on upfront deposits. We also have a trust system which essentially
means that when you as a purchaser buy your timeshare that unit
then goes into trust on your behalf and then of course the cooling
off period is 14 days, whereas in many other EU Member States
it is ten days. Timeshare in the UK is very important to the economy.
If I may give an example, in Ballater on Deeside the town was
pretty much dying. Hilton then built a 98-unit resort there and
since then what we now see is a thriving community where shops,
cafes, restaurants have opened and even the village school has
remained open because of the number of people coming to the area
to work at the resort. It is a very important part of rural life
in Britain.
Q44 Lord Wade of Chorlton: Are timeshare
customers in the UK likely to be UK people or are they Europeans
who own timeshare in the UK?
Ms McNicol: There is a mixture. A good
percentage of British people actually own in Britain because the
quality is high and a lot of Brits buy fairly local to them so
that they can go and use the facilities there. About 20% of British
people that own timeshare own in the UK, but we also have owners
from Germany, which is quite an important market, and the Americans
also like coming over here as well.
Q45 Lord Wade of Chorlton: Could we look
at this issue between the EU industry and the US industry. We
base this question very much on what we have heard so far which
is that in fact the EU industry is declining and the US industry
is growing. How do you see those issues relating to the way that
the two industries are managed within their respective areas?
Mr van der Mark: If you make a comparative
analysis, it is clear that the US industry is definitely growing.
That does not necessarily mean that the EU industry is declining.
As a general statement, I would say that it is very much in the
EU an Anglo-Saxon-driven industry within an Anglo-Saxon model
and with 500,000 British families owning a timeshare making up
a third of all timeshare owners. It is very much a concept which
the British customer very much appreciates. In the EU the core
destination market is Spain where the majority of the resorts
are built, or at least the units are built. There are 300 plus
resorts there with lots of units and that is where 50% of the
British actually own. Other markets are quite large and indigenous
as well—Hungary, Finland—and those markets are continuing
to grow. What we see is a diversification in the market-place
with resorts now being built outside the EU because tourists want
to go outside of the EU, such as in Turkey, Egypt, Croatia and
that is a trend which is progressively happening in Turkey. It
is wrong for anyone to assert that the EU timeshare industry is
struggling or not growing; that is not true. It is growing, not
as much as it was in the 1990s when there was really unbridled
growth, often as a result of an unregulated environment. It attracted
a lot of people who wanted to make a quick buck in our industry,
which was very unfortunate, but it also attracted a lot of developers.
Developers normally built either hotels or holiday apartments
and the use plan, as we call it, as to how the apartments or the
holiday complex is used is then up to the management company to
decide. In the 1990s a lot of them decided to use it as a timeshare
because of a slump, particularly in Spain, of the real estate
market. Only a couple of years ago we saw suddenly that the Brits
wanted to buy second homes in Spain and so the developers switched
to developing second homes because that is where there was demand
and that has dented growth. In general, economic conditions such
as, for example, the Germans having much less disposable income
are no longer buying as they did in the past and no longer holidaying
as they did in the past, but that is all cyclical and you cannot
really point to a trend. There is still growth, although the growth
is much less than it was in the 1990s, but that compares quite
starkly with the growth in Mexico, the US and in Asia. The international
companies now bypass Europe and do not invest in Europe in developing
resorts, but go directly to the Middle East, Asia, China or in
the US itself for pure economic business reasons. It is cheaper
to build, labour is cheaper and it is also a demand question as
lots of Europeans and Americans still go on long haul holidays.
Americans go less to Europe these days and less to the Middle
East, and therefore there is a growth in the US itself because
they take their holidays in the US itself. There is no growth,
as is suggested as well, in the ten new Member States of the European
Union. There is only one where there is a lot of timeshare which
is Hungary, but that dates back to the 1980s. We do not really
understand on what these statements are based by the European
Commission itself in this instance saying that there is a lot
of growth. There is one small, but important reason why international
companies are not investing in Europe and that is simply because
the regulatory framework for timeshare itself is rather complicated,
diverse throughout Europe and less friendly to business than the
models in the US, whereas we in the EU have a 14 day cooling off
period and a ban on deposits, as Sue explained in the UK, in the
US there is an average three to ten day cooling off period and
deposit-taking is allowed through third parties. It is a very
simple business decision. We know that probably the difference
makes up 15% in sales and anyone like Hilton or Hyatt wishing
to invest, or Donald Trump, who has announced that he would want
to invest in the UK resort in Scotland for 500 units and three
golf courses, is thinking twice again with what is happening in
the legislation and whether that would be good.
Q46 Chairman: One of the arguments that
we have heard is that if you are living in the United States,
although you might be buying in a different state, nevertheless
you are still within your own country, you can still ring up your
lawyer, you can operate as though you were at home, whereas if
you are going to Yugoslavia, Portugal or Spain, then you are not
in that same situation. You have a different legal system, you
are on holiday, you are not at home, you do not have your advisers
around you and therefore you need a longer cooling off period.
Do you understand that difference?
Mr van der Mark: I do understand the
difference and I liken it with putting parachutes into aeroplanes.
If you look at the reality in our industry we see that people
cancel within the first three to five days; that is what they
do. They do not cancel up to 14 days; they did not like the presentation,
they did not like the salesman, they did not like the product,
they did not like how it went and they cancel. They feel pressured
and they cancel the contract immediately. I think it would be
very rare for a consumer to seek legal advice on what he has just
bought, whether it is a car of £20,000 or whether it is a
timeshare of £20,000. It just does not happen.
Q47 Chairman: If that is so, what is
wrong with 14 days? If you are going to cancel anyway, giving
them a bit more time to think is not going to make any difference
to the business, is it?
Mr van der Mark: It is making a difference
to the business because it means that we have to hold that unit
and we need to act as if that has been sold subject to the cooling
off period, but if that is 14 days, you will not hear us complain
about 14 days, we think that is a good period, but it is nothing
to do with being abroad or asking your advisers because people
simply are not doing it. They do not do it. We would like them
to understand and have clear and concise information so that they
can make an informed purchase decision. That is not the issue.
The reality is that customers just do not read any contracts you
give to them. People think that if you provide a good thick contract
with lots of information and lots of disclosure that people actually
read it. When you buy a mobile phone and you contract to have
the contract for the next year, no-one reads the ten or 20 pages
there. It is the same here; they just do not do it. The more concise
information is, the better it is explained, the more uniform it
is throughout Europe, the better it is for customers to understand.
Q48 Lord Trefgarne: You say that people
never read the contract, and no doubt you are right, but it is
not much good reading it because if I read the contract and say
I do not like paragraph 27, you would not change it anyway, it
is a standard contract.
Mr van der Mark: Exactly, then they just
do not buy it.
Q49 Lord Wade of Chorlton: You have given
us a rather rosy picture, but that is not in line with what we
have heard from you consumers which give us a much more negative
view of the view of consumers of your industry. What surprises
me is that you have an industry that clearly, so far as many customers
is concerned, is not controlled to in such a way as to maintain
the standards, because we hear an awful lot of true stories of
people who have been seriously let down, particularly in Spain,
where they have been unbelievably ripped off. Clearly your organisation
has not been able to control that. Do you accept that? What are
you going to do about that? If you cannot deal with it yourself,
then clearly some other directive or law has got to deal with
it.
Mr van der Mark: That is a very valid
question but we simply look at the facts and the facts are, for
example, very clearly explained in the Impact Assessment of the
European Commission which accompanies the proposal. There are
250 complaints about timeshare in the European Union lodged with
the European Consumer Centres of which the UK Citizen's Advice
Bureau is one—250 complaints out of seven million people
who took a timeshare holiday last year and 80,000 timeshare contracts
which were concluded. That said, people complain a lot about products
which are not regulated which we liken to travel services or discount
travel membership clubs. There are so-called consumer associations
or representatives who claim that they understand how this industry
works and what the real complaints are. We simply have to say
that the official consumer organisations we are working with,
such as the European Consumer Centres and the Citizen's Advice
Bureau, simply sustain what we have said. The first Timeshare
Directive has done its work and we see not only low complaint
levels but also high satisfaction levels. That is totally in contradiction
with what you heard last week or what you will hear sometimes
in the media but those simply are not the facts. 250 complaints
is 250 complaints too many but, putting it into perspective, we
are actually quite proud of the work that we as a trade body have
done in the timeshare industry itself which has overcome quite
a negative image, not so much in the media, but definitely with
our owners and also particularly with bringing complaints down
and resolving those complaints as well.
Q50 Lord Moser: It is the same point
with the facts and the statistics. I understand the figures you
have given us of 500,000 British families, etc, mainly in Spain
and quite a lot of other countries involved. You referred earlier,
in answering Lord Wade, to some emerging countries. I do not want
to waste more time on that, but what you were telling us about
the overall picture is diametrically different from what we heard
last week. We really must, for the purpose of this enquiry, be
clear about the facts. What I am referring to is not so much the
relative position in the States as here, the question is about
Europe, and we were given some figures last week showing that
timeshare is in decline in Europe in actual figures. I was very
interested in the possible reasons for that. There seem to be
two possible reasons: the obvious one is that there are a lot
of people in the business who are not behaving very well, and
we were told quite a lot about that, and presumably one can argue
about how many of these there are; the other possibility which
I am interested in is that there is a trend because there is more
wealth more people might be buying properties not with timeshare.
However, without spending too much time on that, we do need to
know who is giving us the right figures.
Mr van der Mark: That is a very valid
question. We will supply this Committee with the studies which
we have commissioned over the past years through renowned research
companies which has cost us a lot of money to do but they give
an accurate picture of the size, depth and the breadth of this
industry. No-one else has done such studies. We do not know how
these figures have come about or how they have been arrived at
by this particular consumer group; we simply know what we have
commissioned to independent consultancies, particularly here in
the UK, asking them to find out what the depth and breadth of
the industry is and also the socioeconomic impacts of this industry,
how many people do we employ? On the consumer complaints, I can
simply point to the figures.
Q51 Lord Moser: I do not want to pursue
the complaints business. There must be some simple facts. Is the
number of timeshare owners in Europe going up or going down, or
is it level?
Mr van der Mark: It is level. In the
1990s we saw a steep increase from 300,000 owning families all
the way up to 1.4 or 1.5 million owning families and we now see
that stabilising. That means that 80,000 contracts are being concluded,
which on average is probably 120,000 timeshare weeks, but also
80,000 timeshare owners one way or another are selling on their
timeshare. 23% of the current timeshare owners are successfully
selling their timeshare on to someone else to buy and the other
part is made up by sales of the timeshare industry. It is a 1
to 2% growth industry at the moment in Europe, but that differs
per country. What we see today is consolidation in our industry,
consolidation meaning that smaller developers and smaller marketing
companies, but on the developer side first—the people who
built the resorts—do not actually exist any more because
they have other economic reasons to build a resort and sell it
in another way, as you said perhaps as second homes. The smaller
marketing companies who are helping the sales process have simply
been regulated out of business. What you see because of the new
rules coming into force in 1994, but actually in application in
1997, is that it has driven rogue companies out, which we applaud
very much, but it also unfortunately had the effect on small/medium
sized enterprises throughout the EU, but particularly in Spain
but also in the UK, and that of course takes a bit of the dynamic
out of the industry. Today if you wanted to start a timeshare
business the threshold costs of entering into the business is
much higher than it was pre the Timeshare Directive of 1994.
Chairman: We look forward to getting
the statistics and reports that you are providing for us.
Q52 Lord Trefgarne: My question rather
follows on from what we have been discussing already. If the Commission
are looking in terms of a new directive, they have presumably
concluded that the existing directive is not sufficient. Would
you agree with that proposition and, if so, where would you identify
the weaknesses in the present arrangements or, for that matter,
the strengths that you would like to see continue?
Mr van der Mark: Yes, the Commission
has concluded after one and a half years of review that the present
1994 Directive was in need of modernisation, simplification and
actually with an eye to developing better regulation, all in line
with the eight directives which made up the consumer acquis. It
decided, secondary, to deal with the Timeshare Directive pre any
conclusions of the review of the consumer acquis in general on
the basis of complaints about non-regulated products and services.
What the Commission after one and a half years has clearly established
is that complaints on timeshare are low, but there are lots of
complaints on what they call long-term holiday products and that
a lot of consumers complain about resale fraud. For us it is very
simple: they are entirely correct, but these two areas, particularly
resale fraud, is fraud and should already have been dealt with.
Discount travel membership clubs or long-term holiday products
in our view are also fraud. The Directive never set out to regulate
these products, so it is not that something has gone wrong, but
something appears in the market and now we have to catch up again.
There are potential weaknesses.
Ms McNicol: We think that one of the
greatest weaknesses is a lack of enforcement by the authorities,
particularly on the fraudulent side. Resale fraud is really rife
and on the discount travel membership clubs they are continuing
to rake in the money and really precious little is done about
it, particularly in Spain. The OFT does a lot in the UK. The OFT
did a report last year and concluded that 400,000 consumers are
affected by fraudulent discount travel membership clubs every
year and that is £1.2 billion which is a huge amount of money.
Q53 Lord Trefgarne: These are travel
clubs who pretend to be part of some timeshare scheme but in fact
they are nothing of the sort. Is that right?
Ms McNicol: They do not necessarily pretend
to be part of a timeshare scheme. When they sell their product
one of the selling points is they say, "Don't worry, we are
not timeshare" but really for us that is when the alarm bells
should be ringing because they do not own the accommodation or
the holidays that they are selling; they just perhaps use a third
party and try to get a discount for the person who has bought
into the club, but the discounts are not guaranteed and, more
often than not, the consumer can actually get a similar holiday
and when they get back home if they go on the Internet they might
find that they have paid £3,000 or £6,000 just for the
right to book accommodation which is not discounted or it simply
is not available. We are concerned that what they are buying is
thin air. Our other major concern is what is happening with these
people 30 years down the line when they are still contracted into
the scheme? Will that discount travel club still be able to offer
them holidays? We suspect not.
Q54 Lord Trefgarne: There has long been
an industry, has there not, of cheap travel? It goes back to the
old air transport licensing days when there was strict fare regulation
and if you included a holiday it was cheaper and the accommodation
was just thrown away and you were able to get a cheap flight and
made your own arrangements to stay in your own villa or somebody
else's and ignored the accommodation. Is that part of this?
Ms McNicol: No, it is not. They pay a
substantial joining fee and that is one of the problems that it
really is money down the drain.
Q55 Lord Trefgarne: That will be taken
care of by the new Directive, will it? That is the hope and expectation,
is it?
Mr van der Mark: That is the idea behind
it. Unfortunately we have some issues with how the definitions
have been drafted, but more a problem of principle with the process.
We are realistic enough to understand that today there is a directive
on the table which has been submitted to the Parliament and to
the Council of Ministers, but in the overall review the European
Commission has missed a major opportunity to really make some
good and better legislation and disassociate consumer protection
from products, but focus it correctly on what we consider to be
aggressive and misleading sales practices and ensuring that when
a vendor, a trader, a company initiates a sales contracting process
that as a result of that initiation a cooling off period applies,
a ban on deposit applies and further disclosure requirements apply.
Our fear, very simply, is that the rogues who are currently selling
long-term holiday products today are working on developing a new
product or service which will simply not fall within the definition.
Q56 Chairman: They will bypass it.
Mr van der Mark: That is what they did
the first time in 1994 and that is what they will do. When we
look at the people involved in this business there are five companies
operating probably with 30 odd marketing companies, often in Spain;
it is not a large number of people. According to the European
Consumer Centre in Spain they are already fraudulent. Our question
is if that is so, who is doing something about it? We operate
and cooperate with the Office of Fair Trading and police authorities
to ensure that something is done. We would like to stress that
the view that this Directive is going to solve the problems of
those consumers is not the reality.
Q57 Lord Trefgarne: Why has this business
attracted so many rogues and so much roguery?
Mr van der Mark: In the past any business
which is successful, particularly in the real estate business,
attracts people you would rather not see in your business. Luckily,
and this is part of the misconception, yes, there has been high
pressure sales, even misleading sales, pre the Directive and pre
legislation, but the timeshare owners always got their timeshare.
The resorts were always there. This is not a case of nothing was
built; they always had their timeshare. If we ask timeshare owners,
what you often hear is that they are extremely happy with their
timeshare, and sometimes you hear that despite the fact that they
had to go through the sales process.
Ms McNicol: If I may tell you about consumer
satisfaction levels because they are very surprising. We did a
survey last year and we had 30,000 timeshare owners throughout
Europe responding to it. It was independently done on the Internet
and it was all done through Survey Monkey, which means it was
not coming back directly to us and we could not have fiddled the
figures or anything. I was very anxious about doing it because
I just assumed that satisfaction levels would be so low that it
would be something to sweep under the carpet, but that was not
the case at all. 76% of the people who responded said they were
happy or very happy with their timeshare and well into the high
90s people were saying the accommodation and facilities are better
than other self-catering resorts and are as good as or better
than hotels. It was an incredibly positive result and I think
it really goes to demonstrate that, despite the problems the industry
had undoubtedly in the 1980s and 1990s before the legislation
was brought in, what we now have are owners that are really pleased
with what they have and can go and enjoy their holidays year after
year.
Q58 Chairman: What I think you are saying
is that traditional timeshare, as ordinarily understood, i.e.
a week or a fortnight in a certain size of accommodation in a
specified location is working okay—people have a good holiday,
they enjoy it, they are not hassled in any way and the accommodation
is successful—but that there are other products, like these
slightly shady "I'll get you a cheaper holiday than you can
get yourself", that kind of thing is not working so well.
You are making a distinction between different products.
Ms McNicol: That is right. Timeshare
and the discount travel clubs or the long-term holiday clubs are
two separate product types: one has a real estate link, that is
timeshare, and you know what you are buying into; the other is
the opportunity to buy holidays at a promised discount.
Q59 Chairman: Would you agree that some
of the problems of getting redress or not being able to challenge
somebody who has defrauded you are complicated by the fact that
you are doing this cross-boundary? You may be living in England
but, for the sake or argument, the fraud has happened in Spain,
does that make life more difficult?
Mr van der Mark: Yes, 100%. I need to
make this important point that although the fraud is perpetrated
often in Spain, it is often a Brit ripping off another Brit, and
it is often a German ripping off another German in 100% of the
cases.
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