House of Lords - European Union - Minutes of Evidence

Select Committee on European Union Minutes of Evidence

Supplementary memorandum by Organisation for Timeshare in Europe

Peter van der Mark and I wished to thank you for giving us the opportunity to respond to your questions about the proposed changes to the European Timeshare Directive at yesterday's meeting. We found the session extremely useful and it was a pleasure to meet you and the other members of Sub-Committee G.

As agreed when the meeting concluded, we are pleased to provide you with supplementary information that we did not have the time to discuss during the meeting and to expand on a number of specific issues that Committee members raised. We have already emailed a number of documents to Mr Barry Werner for distribution amongst the Committee.

Why does OTE argue that a shorter cooling off period would be workable?

Evidence points to the fact that the majority of consumers who cancel do so during the first few days of the cooling off period. As a result, extending the minimum period from 10 to 14 days will not, we believe, lead to an improved environment for consumers and OTE has no report of purchasers complaining that the cooling off period is not long enough. This said, however, OTE is in full support of a harmonised cooling off period throughout the EU and its own code currently provides for a 15 day cooling off period.

It should be noted that in the US, the standard cooling off period is five to seven days and our counterparts in the States, ARDA (the American Resort Developers' Association) have indicated this is an accepted practice and does not cause consumer detriment.

OTE'S code of ethics

OTE was informed that a comment was made at the previous week's meeting with Mr Alexander Grey that OTE is secretive about its code of conduct and that it is not readily made available to consumers and others who request it. This is categorically not the case as a number of meetings have taken place with the European Commission and the European Consumer Centres to discuss how to improve the code. As the TCA is not an officially recognised consumer organisation, it was not invited by the European Commission to take part in these meetings. I would add that the code and ADR scheme, which has been developed and is now administered by the Chartered Institute of Arbitrators, can both be downloaded in their entirety from OTE's web site.

Why does OTE support the taking of 3rd party deposits?

It is a widely accepted and standard business principle from an accounting perspective that a "sale" is only a sale when accompanied by a signed contract and a deposit payment. For many purchases, whether for furniture, cars, package travel bookings etc, it is normal practice for the buyer to make a down payment on conclusion of the sale.

It should also be noted that timeshare companies have not only to reserve the specific apartment and week allocation for the duration of the cooling off period, they are also exposed afterwards until the full and final payment is made as no financial commitment is "felt" by the purchaser.

In Europe, timeshare is the only sector that has a full ban on deposits in combination with a cooling off period, excepting in nine EU Member States that have allowed for third party deposits. We are not aware that this has led to consumer complaints. In other jurisdictions worldwide, however, timeshare companies can accept a deposit and, as a result, the industry is thriving and many internationally renowned hospitality companies are active and successful in those countries. It is of great concern that several major hospitality companies are deterred from starting new businesses in Europe because of what they consider to be double jeopardy—a long cooling off period and a ban on deposits.

Rather than having an outright ban, OTE advocates that deposit payments should be paid to an independent third party, such as an escrow agent, which holds the payment under specific rules and is obliged to return the deposit swiftly if a contract is cancelled within the cooling off period. This is a system that works well in the US and few complaints are reported.

OTE believes that decisions made by governments to ban practices should be a last resort, rather than a standard response.

What are OTE's views on the Directive's other provisions relating to the scope and definitions?

OTE is concerned that the proposal to extend the definition of timeshare to holiday options of a one year duration or more (currently timeshare is defined as a minimum of three years' duration) may result in the end of highly successful and cost effective timeshare "Trial Packages"—often purchased by consumers who wish to try out a timeshare holiday before making a commitment to buy timeshare. These are very popular and the large majority of customers in fact later go on to purchase timeshare.

Trial Packages are travel/holiday rental contracts whereby a consumer purchases the right to book a certain number of nights in holiday accommodation with the booking window being limited to a certain time period, often 35 months. Unlike timeshare, there is no transfer of ownership of real estate and/or no specific right is established on the consumer's part to a dedicated portfolio of holiday accommodation.

Our own research indicates that one of the hesitations of timeshare purchasers is making a same day decision about a product with such a large financial outlay. However, the existence of a cooling off period and the fact that consumers can try out timeshare through these Trial Packages—staying at the resorts and mixing with other timeshare owners—can only be good for consumers and good for the industry.

By proposing to bring these Trial Packages into the scope of the Directive, this will result in additional costs to the operator, making them economically unviable, and it is highly likely that these products would no longer be marketed, robbing consumers of a perfrect "test drive" of timeshare.

OTE reports extremely low complaints about Trial Packages and does not support the Commission's proposal in this regard.

What is the industry doing to tackle fraud?

— OTE has allocated €150,000 this year towards enforcement and has employed a full time enforcement manager in Spain, where the majority of fraudulent activities against UK citizens take place. OTE provides evidence to help enforcement agencies to take appropriate action and, for example, has seen 41 resale companies closed down. Court action is also being taken against a reportedly bogus Discount Travel Club.

— OTE takes an active role in the Metropolitan Police's Operation Sterling, a UK Travel Industry fraud forum.

— OTE works to educate the public and regularly advertises in the timeshare exchange company magazines, read by approximately 500,000 owning families, about the dangers of falling prey to bogus resale companies.

— OTE encourages its members to warn their timeshare owners about being approached by fraudulent operators.

— OTE issues regular press releases about fraud and has held widely attended press conferences on this subject.

20 July 2007

SUMMARY POSITION PAPER ON THE PROPOSAL FOR A NEW DIRECTIVE "ON THE PROTECTION OF CONSUMERS IN RESPECT OF CERTAIN ASPECTS OF TIMESHARE, LONG-TERM HOLIDAY PRODUCTS, RESALE AND EXCHANGE COM (2007) 303 FINAL

INTRODUCTION

This summary Position Paper has been written by the Organisation for Timeshare in Europe to assist member state experts in evaluating the European Commission Proposal for a new Timeshare Directive.

It is by no menas the full and definite position on the proposal but focuses on the reasoning for a new Timeshare Directive, whether it is a targeted and proportionate Proposal and whether it will achieve its stated objectives.

The OTE has available for all stakeholders independent (socio-economic) studies on the timeshare industry, consumer satisfaction studies, independently audited complaints statistics as well as detailed legal studies.

The OTE will provide further more detailed positions in preparation of the Competitiveness Council.

1. Problem definition

(a) Long-term Holiday Products

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— The five known LTHP providers according to the ECC Madrid and the UK Office of Fair Trading (OFT) breach existing laws including Doorstep Selling, Unfair Contract Terms and Misleading Advertising legislation.

— The real problem faced by consumers is that enforcement of existing legislation is at best weak and at worst completely lacking.

(b) Resale Fraud

— Another problem are for timeshare owners is fraud perpetrated on timeshare owners resulting from false resale propositions. In practice, fraudsters cold-call timeshare owners promising to sell their timeshare interest and demanding a heavy fee without ever selling the timeshare interest. This illegal practice constitutes fraud upon both timeshare owners and timeshare companies.

— The European Commission also identifies so-called "timeshare-like products" as a problem. In fact, the proposal refers to timeshare in boats and caravans, which was simply not covered by the 1994 Timeshare Directive.

— The proposal incorrectly uses the term "timeshare-like" to identify timeshare trial programmes. Timeshare trial programmes are in fact nothing other than rental programmes in timeshare resorts allowing consumers to experience timeshare holidays prior to committing to a full timeshare purchase. Although the Commission identifies these as a problem, they only cause a very minor number of complaints.

2. The Facts

The European Commission states in its Regulatory Impact Assessment (RIA) that the European Consumer Centres (ECCs) received 2,256 complaints in 2006. This figure also includes requests for information. Complaints can be broken down as follows:

(a) Timeshare:

— 117 for the first six months of 2006, for an estimated yearly total of 250 complaints. The estimated 250 complaints on timeshare relate to 7 million consumers taking a timeshare holiday every year.

(b) Long-term Holiday Products:

— 494 in the first six months of 2006, for an estimated yearly total of 988 complaints. According to the European Commission, 87.8% of the complaints relate to LTHPs and resale. Complaints about LTHPs are caused by only a handful of rogue companies.

— 237 for the first half of 2006 for an estimated yearly total of 474. Complaints attributed to resale transactions originate from fraud, and not from legitimate resale activity.

(d) Timeshare-like products:

— No data available.

(e) Timeshare exchange:

— No data available. Although the European Commission assumes that significant complaints originate from timeshare exchange, it is unable to provide specific figures and therefore these are included in the 250 timeshare complaints figure. 500,000 European families use exchange platforms every year.

3. The Solutions

(a) Enforcement of existing legislation

— There is broad agreement that enforcement of existing legislation can overcome the detriment currently experienced by consumer.

(b) The Unfair Commercial Practices Directive (UCPD)

— The entry into force of the UCPD will provide further tools to protect consumers.

4. EC Proposal

(a) Is this a targeted proposal?

— Despite having correctly identified LTHPs as the cause of most consumer detriment and acknowledging that LTHPs (and not timeshare) are the main reason to revise the existing Directive, the proposal fails to provide effective consumer protection from LTHPs. Instead the proposal further restricts the timeshare industry without enhancing benefits for consumers.

— The definition of LTHPs is so wide and ambiguous that it can be easily circumvented.

— The Annex detailing disclosure requirements for LTHPs does not provide consumers with material information needed to make an informed purchase decision.

— As the problems with resale are caused by fraud, the proposal cannot make fraudulent activity any more illegal than it already is.

(b) Is this a proportionate proposal?

— The European Commission justifies a revised Timeshare Directive on the grounds of problems caused primarily by LTHPs and fraudsters, yet proceeds to focus on further restricting legitimate timeshare companies.

— The new definition of timeshare is now so broad that it also includes products and services which in fact have nothing to do with timeshare, such as rental and hotel bookings for more than one time over more than 12 months.

— The Annex containing disclosure requirements for timeshare is now so complex that it will result in the consumer being overloaded with non-material information at the time of purchase. Furthermore, timeshare trial programmes will now qualify as a timeshare purchase, and thus require in certain Member States the intermediary action of notaries and registrars for a service which amounts to little more than a holiday rental booking.

— Timeshare exchange is a contract ancillary to timeshare, ie it cannot exist in the absence of a timeshare contract. Although exchange is correctly characterised as an ancillary contract in the section of the proposal that addresses ancillary contracts, the proposal also treats exchange as a primary contract by way of introducing a separate withdrawal period which may not run concurrently with the withdrawal period for the main timeshare contract. This will create confusion for consumers and undue administrative burdens for exchange operators.

— The disclosure Annex for exchange requires exchange companies to provide information which they are not privy to and which is not material for the consumer. The Exchange disclosure Annex should therefore be tailored to the specific services provided by exchange operators.

— On the basis of the points outlined above, the measures proposed are disproportionate to the problems identified.

— Is this a simplification or modernisation exercise as per the Commission Work Programme?

— Is this future-proof legisation or will rogue traders circumvent the new Directive as they have the existing one?

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— Is this proposal using the correct legal basis (art 95 v Art 153 of the EU Treaty)?

— Will the proposal truly enhance consumer protection?

5. Recommendations

(a) Due to a less than sound Regulatory Impact Assessment, and in the interest of consumers, businesses, and enforcement authorities, it is essential that more correct, reliable, and up-to-date data is collected.

(b) Greater analysis of the impact of the current proposal on consumers, timeshare owners, timeshare businesses and finally rogue traders is also needed.

(d) If, following a thorough and in-depth analysis of correct and relevant data, revision is still regarded as the best solution, legislators will at that point have the necessary tools at hand to develop targeted, proportionate and future-proof legislation which will protect consumers, stave off rogue traders and allow legitimate companies to flourish.