Memorandum by Office of Fair Trading
INTRODUCTION
1.1 The Office of Fair Trading (OFT) is
the UK's competition and consumer authority. Our mission is to
make markets work well for consumers. Our vision is for competitive,
efficient, innovative markets where standards of consumer care
are high, consumers are empowered and confident about making choices
and where businesses comply with consumer and competition laws
but are not overburdened by regulation.
1.2 The OFT welcomes the new proposals in
respect of timeshare, resale and exchange systems, and together
with the Unfair Commercial Practices Directive we believe this
will provide significantly increased protection for consumers.
1.3 However, we are less certain that in
the longer term the proposal will effectively control the sales
process which is the main area of concern here. Our view is that
new products are likely to be created that will evade the law
as holiday clubs were invented to evade the Timeshare Directive,
so the proposal may not provide a future proofed solution.
1.4 A revision to for example the Doorstep
Selling Directive to cover situations where the trader makes an
unsolicited approach to a consumer away from their business premises
but then completes the negotiation of the contract on business
premises would help avoid the need for further revisions of the
product definition under the directive should such new products
be introduced. The definition of "business premises"
would however need consideration to avoid traders circumventing
the requirements.
OVERVIEW
2.1 Historically there has been a disproportionately
high level of consumer complaints, particularly relating to high
pressure selling, within the timeshare industry. One of the major
successes of the existing Timeshare Directive has been to drive
the rogue traders out of the market and it is unlikely that such
traders would either have signed up to a form of self-regulatory
agreement or would have been bound by it. There is insufficient
incentive when there are such high levels of profit to be made
from poor trading practices. The timeshare industry is now a much
more mature market and would benefit from self regulation which
would raise standards still further, but this would need to be
in addition to legislation, not in place of it.
2.2 With regard to holiday club operators
we have tried to influence them to set up a voluntary code, but
without success. One operator signed up, but as the others did
not this put them at a competitive disadvantage and the initiative
failed. We have seen no evidence that the holiday club industry
is willing or able to police itself effectively. Levels[1]
of consumer detriment in this industry are significant both collectively
and for individuals as a result of the high pressure selling mechanisms
of bogus holiday clubs. In our view this requires a legislative
response to ensure these poor practices are eliminated from this
market. If legislation was withdrawn there is no guarantee that
the levels of complaint would not rise again.
2.3 The majority of transactions in timeshare
and holiday clubs are cross border and it is essential that consumers
have EU wide protection when making such purchases. We consider
that a harmonised approach to, for example, information requirements,
cooling off periods and so on is required across the EU in order
for consumers to be confident of their rights wherever they make
a decision to purchase timeshare or holiday club benefits.
2.4 We consider that the existing directive
has had a positive effect on reducing consumer detriment within
the timeshare industry. In particular we note the following:
Strengths
— Introduction of a cooling off period
which has protected consumers from pressure selling.
— Information provisions which have
allowed consumers to make an informed choice.
— The regulatory framework has been
successful in pushing fraudulent operators out of the market and
protected consumers.
Weaknesses
— The definition of timeshare has been
found lacking, for example, the lack of inclusion of products
of less than three years duration so that entry programmes of
35 months were invented. Timeshare in non-fixed property such
as canal boats was not covered. Most importantly it did not cover
other long term holiday products that do not offer the right to
a fixed property—so called holiday clubs or discount travel
membership clubs.
SCOPE AND
DEFINITION
2.5 We welcome the removal of the three
year element of the definition of a timeshare although our preference
would be for no minimum time period to define the length of the
contract. We would also have preferred Article 1(2) to be harmonised
in order to provide certainty for consumers and for businesses.
We also welcome the inclusion of resale of timeshare, long-term
holiday products and timeshare exchange.
INFORMATION PROVISION
2.6 We welcome the expansion of the information
to be provided in the contract for timeshare and holiday clubs
and in particular for the resale of timeshare when it is resold
by a trader.
2.7 The OFT has run a number of campaigns
to alert consumers to their rights. We believe this information
is most effectively delivered for this market at the point where
consumers are most likely to be approached by a marketer, that
is, in the resorts themselves.
RIGHT OF
WITHDRAWAL
2.8 We welcome the 14 day cooling off period
as it reflects our own national requirements and will provide
much greater certainty for consumers. However, given that the
length of holidays is now increasing, a 21 day cooling off period
for this sector could be more appropriate.
2.9 We are very supportive of the requirement
for the trader to draw the consumer's attention to the existence
of the right of withdrawal and the ban on advance payments. We
consider that this could go further and require the trader to
also provide a separate notice to the consumer setting out these
rights.
2.10 Maximum harmonisation will assist to
ensure consumers are better protected wherever they live and purchase
timeshare. We would prefer Article 1(2) to be harmonised to provide
clarity and certainty for consumers wherever they make their purchase
in the EU.
ADVANCE PAYMENTS
2.11 Most of the problems we have encountered
on advance payments have been due to fraudulent activity where
the agent will require an upfront fee with no intention of reselling
the property. However, there are other genuine traders who take
up front fees to cover marketing costs which makes it difficult
to identify the fraudsters. Our advice to consumers has always
been to avoid paying any monies up front and we welcome the ban
in the proposal.
2.12 We welcome the idea of providing easily
accessible out of court redress for consumers, although any statutory
system could be expensive and would need effective monitoring
and penalties in place. It would not provide a solution to dealing
with the rogue elements within the industry.
SANCTIONS, MONITORING
AND ENFORCEMENT
2.13 The OFT has had some success using
its powers under the Enterprise Act 2002 to stop businesses breaching
consumer protection law but we have no powers to administer fines
or penalties under this legislation. Under the proposal we would
want the level and range of sanctions to be proportionate to the
market sector within each member state so that the enforcement
is effective in targeting the worst offenders within each locality.
We would want the level of sanctions to be proportionate and provide
an effective deterrent for cases where traders deliberately do
not provide consumers with their rights and adequate information.
Within the UK, the government is committed to providing the OFT
with criminal sanctions, powers of inspection and search in the
Consumer Protection from Unfair Trading Regulations that come
into force next April. This together with the Macrory review of
penalties[2]
for regulators should assist us to deal with bogus holiday club
marketers in a proportionate way.
2.14 The Consumer Protection from Unfair
Trading Regulations will be a very useful tool for dealing with
aggressive sales practices and misleading advertising. The new
timeshare proposal sets out specific additional rights for consumers
and we believe the two will complement each other effectively.
ADDITIONAL ISSUES
2.15 We believe that effective enforcement
of the current law would go a long way towards addressing the
detriment which exists. For this reason we would welcome a broader
role for the EU to monitor and ensure the enforcement of consumer
law protection for the timeshare and long term holidays markets.
10 September 2007
1 Estimated £1.17 billion, affecting 400,000 consumers-Research
on impact of mass marketed scams, OFT December 2006 (OFT 883). Back
2
Regulatory Justice: Making Sanctions Effective Professor
Richard Macrory http://www.cabinetoffice.gov.uk/regulation/news/2006/061128_mr.asp Back
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