Examination of Witnesses (Questions 80-95)
Mr Mike Haley
26 JULY 2007
Q80 Baroness Gale: How many complaints
do you get of these holiday clubs?
Mr Haley: We had to Consumer Direct nearly
700 in the first six months of this year. To the Office of Fair
Trading directly, I think it was 300 in this past six months,
but we think that is the tip of the iceberg, particularly when
consumers know that we cannot get individual redress. Most consumers
will complain and say, "Can you put a stop to this so that
other people don't get taken in?" and many consumers of course
just want to get their money back and, since we cannot act on
their behalf individually, it can be quite frustrating for the
consumer and they may not then continue with a formal complaint
because we need all the documents, the contracts and everything
else, to be able to take the case on.
Q81 Chairman: That has been an absolutely
fascinating explanation, but I wonder if you could just explain,
therefore, why you think that the OTE did not think that this
particular Directive should be used to regulate that holiday club
aspect of the whole thing. You presumably take a slightly different
view from that, or maybe not.
Mr Haley: We are not entirely convinced
that the problem of holiday clubs will be addressed by the inclusion
of a definition of a long-term holiday product in a new Directive.
I think we would like to see some further consideration of the
definition which has been put forward of a holiday club because
we think it will inadvertently have the potential to include clubs,
such as the Civil Service Motoring Association, the trade union
holiday clubs and other staff association clubs which help people
get discounts on accommodation and holidays in the future and
it might be an unintended consequence that those legitimate businesses,
which do not cause us concern, then face further regulation and
will be the only ones who actually obey the law. We do accept,
and I have outlined the fact, that there does need to be some
regulation of holiday clubs, but the main problems arise in the
sales practices rather than the actual nature of the service.
I do not think there is anything fundamentally wrong with a club
that says, "We will use the purchasing power of a number
of members to form contracts with timeshare operators for their
excess weeks and we will pass on that discount to you", which
is the basis of the holiday club service.
Chairman: That then leads on to Lord Trefgarne's
questions and I think that will take it one step further because
we are going to talk about unfair commercial practices.
Q82 Lord Trefgarne: I am wondering to
what extent the Unfair Commercial Practices Directive addresses
some of the concerns that you have been describing to us, like
pressure selling and the aggressive sales practices which you
referred to. The OTE rather thought that there were other pieces
of European legislation which could be relied upon. I think there
is the Doorstep Selling Directive or the Distance Selling Directive
and indeed we are even told that there may be a new overarching
Directive, so it is a question of whether there is not a raft
of existing European legislation which might, in their view, be
sufficient.
Mr Haley: The Unfair Commercial Practices
Directive, which will be brought in as the Consumer Protection
From Unfair Trading Regulations next April, will be, we believe,
a very useful tool to deal with these types of sales practices,
aggressive and pressure selling and also misleading omissions,
which is one of the major issues of any sales practices, what
you are actually getting for your money. We very much welcome
that and think that it will help us to sort out within the UK
those who are selling products, but it does not provide what is
essential in this situation, which are further rights, such as
the cooling-off period, so it would help us to tackle some of
the most problematic practices, but the consumer would not have
any further rights and that is why, in our view, the new Directive
will put a challenge to those businesses who are selling holiday
clubs legitimately which they also confess they want to sell legitimately
and, therefore, we would say that it would be a good challenge
to have a definition which included them, and they will give cooling-off
rights, to see if they can honestly sell their products by obeying
consumer law. If they fall foul of the aggressive and persistent
selling, pressure selling, we can deal with it under unfair commercial
practices. With regard to the doorstep selling, more properly
known as the Contracts Concluded Away From The Business Premises
Regulations and which are set to deal with situations where you
are sold in the home, so on the doorstep, we have argued in the
UK and in Spain that the situation that people face when they
are on timeshare or holiday club presentations is similar to being
doorstepped. You are taken by surprise and you are not prepared
for contract negotiations, so it needs some extensions and tinkering
with that law to ensure that its purpose was not just restricted
to sales in the home, but for all the types of situations where
you might be put under pressure. We do think it could be a vehicle
for addressing similar situations and would not be reliant on
a definition of a long-term holiday product where, in our view,
the most creative entrepreneurs will very quickly come up with
a product which falls outwith the new definition, so this would
be looking at arming the consumer protection agencies with a tool
which applies in a far wider range of situations where consumers
are caught by surprise, so I think there is some scope there.
I do not understand the point about distance selling. We do not
see these sold over the Internet or by mail order, so I am not
sure what the OTE's position is on that. As for some other overarching
sales and marketing directive, I think the Office would support
a principled directive which gave consumers some fundamental rights
which would complement the Unfair Commercial Practices Directive
which deals with practices regardless of the market, so I think
that would be a longer-term solution for the transformation that
these businesses will come through. The purpose of these businesses
is not to sell holiday products, in my view, it is to get a large,
upfront fee by some ruse, so at some stage they will sell something
else, and we have examples already where they are starting to
pre-empt the changes in this Directive by looking at products
they can sell in the same way, but which fall outwith the new
definition.
Q83 Chairman: So it is quite a broad
spectrum of consumer protection that you are hoping that the consumer
will acquire across the European Union, not just through the Directive
that they are working on now, but through a series of other directives,
including new directives possibly?
Mr Haley: Yes, I think that you can look
at the existing directives, like the one on doorstep selling and
that might be able to be changed rather more quickly than a new
directive to deal with these types of situations rather than the
products, and the Sales and Marketing Directive which gives fundamental
rights would future-proof so that we are not here in another five
years, saying that there is another product, not long-term holiday
products, but X, "How has the market changed?", and
we would say, "Well, we have tidied it up", as the Timeshare
Directive has, "for those who were genuine about selling
timeshare, and those who were genuine about selling long-term
products, these holiday clubs, will obey this law and will continue,
but there will always be these rogues and scammers who will look
for the chinks in the armour that we are setting up", and
that is why something more horizontal will give us a much easier
way in a very fast-changing market, not just in holiday clubs
and timeshare, but other sales practices which arise.
Chairman: That is a new point, I think, for us.
Q84 Baroness Gale: What enforcement powers
do you have at your disposal to deal with problems in the timeshare
and holiday club sector and how far do you think you can use those,
and what new powers, if there are any, would you hope to see as
a result of the adoption of the new Directive? The other question
is: how would you assess the current overall co-operation arrangements
between enforcement bodies in the Member States, including under
the Regulation on Consumer Protection Co-operation adopted in
2004 and, in particular, could you describe how the Office of
Fair Trading works with the authorities in Spain and Portugal?
Mr Haley: Currently, the powers we have
are restricted to a civil injunction. It is an enforcement order
under the Enterprise Act. It is an order where we could go to
the High Court to make a business stop breaching existing consumer
protection law in the future, so it is a prohibitive order and
it says, "You are misleading people. That is a breach of
the Control of Misleading Advertising Regulations. Stop lying
to people", or, "You are not giving the cooling-off
period which you are required to under this legislation. You must
stop not giving that and, therefore, in the future you should
comply with the law", so it is solely a power to stop breaches
of consumer protection legislation.
Q85 Baroness Gale: That is for the future,
not what has already happened?
Mr Haley: That is right. It does not
punish any business or trader for breaching consumer protection
legislation in the past and it does not have any scope to seek
redress collectively for individuals or to fine or to impose any
other punishment. It is really there to regulate a market and
to say, "You're breaking the law". If we cannot persuade
them to stop, and that is always our first step, within the Enterprise
Act we have to give a business 14 days minimum of consultation
and we think that is fair as a proportionate way to go about trying
to regulate the industry, and in most cases we can come to what
we call an `undertaking' where the business promises the Office
that in the future it will not breach consumer protection legislation.
If they breach that undertaking, we can take them to court to
get an order. If they break the order, that will be a contempt
of court and that does have far more sanctions to be applied,
such as imprisonment or a fine, until you purge your contempt,
so there is a kind of hard end if you breach an order. We have
used those powers widely across different markets and successfully
to stop practices which harm consumers, including with the timeshare
and holiday club operators both in the UK and overseas. One of
the problems with that power though is that, whereas in the UK
we can go against the individual, in Spain it can only be against
a company, so we face the problem of businesses which we have
approached, even obtained undertakings from and even got to the
foot of the court in closing down the company and then they are
starting up another one and it is the legal entity which the order
must be taken against, so that is the existing power. As to the
new powers that we might want to put in the Directive, well, in
fact the Government is arming the Office of Fair Trading and other
consumer protection agencies with a whole range of new powers
from next April within the Consumer Protection Regulations, which
implement the unfair commercial practices, and that will give
the Office powers to look at criminal sanctions, powers of inspection
and powers of search to gather the evidence to prove these offences.
We think that those powers are adequate and there is nothing more
that we would want within the Timeshare Directive, plus we know
that there is the McCrory Review of regulator sanctions which
came from the Hampton Review and that is looking to arm all regulators
with a suite of sanctions and administrative fines through from
undertakings to criminal, so I think the Government has given
us exactly what we need from next April in terms of enforcing
all of the consumer protection law that we need.
Q86 Chairman: What about the cross-border
co-operation with other enforcement agencies?
Mr Haley: To be honest, in the past it
has not been great and we have struggled, particularly in places
like Spain, to get the local authorities, and it is the autonomous
authorities which implement the law rather than central government,
it is a very federal state in Spain, but since 1 January the Consumer
Protection Co-operation Regulation was introduced across Europe
and we have already seen early indications that Spain in particular
had risen to the challenge of this new Regulation. They have put
in place a specialist team with an energetic leadership, they
have already met us and they have agreed a plan for the exchange
of information for dealing with complaints and we think that this
new Regulation, although it is quite early to say that it is going
to be effective, the early indications are that it will greatly
improve cross-border co-operation. We have already undertaken
some joint consumer education initiatives with the Spanish authorities,
the Instituto Nacional de Consumo, which is the OFT's equivalent,
and they also now intervene on behalf of the individuals where
we forward complaints which is what we are not able to do, but
they are able to under their legislation, and we find that is
very helpful. The test will be over the next few months when we
make a formal referral to them for enforcement action under their
law and we fully intend to do that with the worst players in the
holiday club market. If they take action, as they are obliged
to under this Regulation, then we should see some enforcement
action and better regulation in the marketplace, so I am very
hopeful. With regards to Portugal, we have not had cause to make
contact with the Portuguese at present. The complaints are 95%
in Spain and we are concentrating our resources on ensuring that
those relationships with the Spanish are good and that the evidence
we are getting together will assist them to take action.
Q87 Baroness Gale: So there is not a
big problem in Portugal?
Mr Haley: Not at the moment. There have
been in the past in particular resorts, but at the moment it is
not at the top of our agenda and we have not given it priority.
Q88 Lord Moser: This, in a way, goes
back to things you have already talked about and it relates to
ways of regulating the industry better, given all the horrors
that we keep on hearing about; I will never go on holiday again
after having had this conversation! Some people like the idea
of an ombudsman, but that always happens whenever there is a series
of problems and somebody says, "Let's have an ombudsman",
but maybe there is a case across Europe, but then, to me, what
is more interesting is self-regulation. One would really like
to think that the industry, given sufficient pressure from governments,
et cetera, would regulate itself, so those are the two issues
I would like to hear from you about.
Mr Haley: I think that perhaps my expression
gave it away that I probably agree with you with regards to the
ombudsman situation, that it is sometimes a call for some action,
an ombudsman. I think it is worth further consideration, but it
would not either be a quick or a cheap fix. I think that if the
scheme was statutory, then maybe we need to look at processes
for monitoring and how it will be enforced, and the real issues
are with those companies which probably would not respond to any
overtures by an ombudsman. I think that really goes on to the
whole issue of: is this an industry which is mature enough to
self-regulate?
Q89 Lord Moser: Sorry to interrupt you,
but when you say "the industry", are you thinking of
both timeshare and holiday clubs or not?
Mr Haley: No, I was going to go on and
say that I always think of these as basically two different sectors
within the holiday market. The Organisation of Timeshare in Europe
is a recognised authority and trade body and it does exercise
a degree of self-regulation. We have worked with them when we
had one problematic timeshare operator, a rather large business,
and we approached them with the assistance of the OTE and had
a satisfactory resolution. I think their code of conduct does
seem to work well for those who are members, so there is a more
mature industry within timeshare. With the holiday club situation,
and the Office of Fair Trading believes in self-regulation and
we have our own OFT-approved codes of conduct to encourage self-regulation,
and we think it is a good, flexible way for businesses to have
a light-touch regulation, but we put in a lot of effort with the
major holiday clubs, the five or six we have talked about. We
brought them to London to talk through the issues, we have been
to Spain to talk to them around the table like this and we produced
a code of conduct. That only had limited success and only one
company said that they would sign up to it. Our view is that they
do not trust each other, let alone regulators, and that lack of
trust between businesses means that self-regulation in this sector
is really a non-starter, in my view. Some of these businesses
have no intention of complying with the law, although some have
when they have been forced to, so that is my point earlier about
perhaps having a definition within the Directive which will give
those who are serious that opportunity to differentiate themselves,
but they need to be forced. I say to them, "Well, if you
are honest and you obey the law now, give the cooling-off period
voluntarily, don't lie to consumers and give fair contracts, you
don't need to be self-regulated and you don't need to have a law
to be fair to consumers", but the challenge we have given
has not been taken up by any of the companies. It was by one for
a period of time until they found that they could not make any
money by continuing with the cooling-off period and then they
reneged on the deal they had with us, so my view is that self-regulation
of holiday clubs at this moment is a non-starter, but for the
OTE it is developing and it is major businesses, Marriott, Hilton
and others who are now selling timeshare and it does offer a degree
of self-regulation and co-operation with authorities, so they
are very different sectors to look at.
Q90 Lord Moser: Does the Spanish Government
take part in the discussions on these matters?
Mr Haley: Only since the end of last
year and the beginning of this year with the new Regulations coming
into play. Before then, it was very difficult to get engagement,
but now they are at the table and they were at the table at the
last summit which we had with these businesses, but, as an aside,
the Director of the European Cross-Border Department within the
Instituto Nacional de Consumo thought it was like sitting
around the set of Godfather III when they had to deal with
those businesses, so I do not think there is much trust in the
Spanish authorities about self-regulation.
Q91 Baroness Howarth of Breckland: Just
so that you are clear, we are going to take resale and the consumer
information and awareness issues, but, in view of the time, I
am going to be a bit succinct in the way I ask the question. We
are interested in fraudulent resale and it is interesting that,
whereas both our previous witnesses disagreed with each other
fundamentally in many other ways, the OTE and the consumer people
agreed that there were issues about fraudulent resale, so we would
be interested to know what the issues are around that. Also, you
have talked a bit about the rights deriving from the current Directive
and you have talked a little about what is to be amended in relation
to the new Directive, but the one thing you have not mentioned
in all of that is one of your suggestions in your document about
a small task force. You seem to imply that the effort that might
need to be engaged in order to get information to this huge body
of consumers, a very small number of whom might purchase one of
these products in the general population, is difficult. Now, I
would like you to expand on that in relation to information and
to talk a bit about how you see this task force functioning because
that might be something we are interested in thinking about. Then,
perhaps you could say something about redress and how people can
get some understanding about that and whether the establishment
of an out-of-court complaints and redress scheme should be mandatory
under the Directive and, bearing in mind what you just said about
the Regulation, we are particularly interested in that bit of
the question.
Mr Haley: Taking those in order, on fraudulent
resale, the typical scenario for that problem is that a timeshare
owner is cold-called from, what we call, a `boiler room' in Spain
and often their details have been stolen from a legitimate timeshare
company where someone who works there takes the details. The caller
offers a high, and often unrealistic, price for someone's existing
timeshare and many people who own timeshare do not know how much
their timeshare is worth, but, because there is the kind of link
in people's minds that it is property and property prices are
always going up, there is an expectation that they will get the
money back, whereas in fact it is a product for having holidays
year after year, and there is not a mature resale market and the
resale price is very, very low. It is more like buying a car in
that you know, as soon as you go out of the showroom, £2,000
or £3,000 goes off the price and ten years later it is only
worth a fraction of what you bought it for because there is the
use element. Therefore, when you have a timeshare that you want
to get rid of and someone calls you and offers a reasonably good
price for it, a high price, it is attractive for the timeshare
owner. The issue we have is that the businesses ask for an upfront
fee, an advance fee fraud is basically what this situation is.
The agent then takes the fee, normally about 800 euros, which
is quite significant, but it is worth it if you are going to get
10,000 euros back, and the agent disappears with the fee and no
purchaser ever materialises. This is nearly always outright fraud.
We deal with it by referring it to our contacts in the Malaga
police fraud squad and they have had some successes in raiding
premises, taking computers and arresting individuals. It is a
continuing battle because it is so easy to set one of these boiler
rooms up, and I think it is indicative of the type of people who
are in the industry of timeshare that it is so easy to get lists,
to set yourself up and to contact other owners, so this is a fraud
perpetrated against a specific group of timeshare owners. Therefore,
we welcome very much the clarity in banning upfront sales. We
are aware that there are certain businesses which are genuine
resale agents who offer the service for a rather small upfront
fee, but it is such a prevalent issue that the only clarity for
consumers is that they know that, if they are asked for an upfront
fee, it is likely to be fraud. That is our public position and
we have said that to the legitimate businesses. We think it is
more akin to an estate agent. An estate agent will market your
property, sell the property and then ask for the fee and we cannot
see any difference between that and your timeshare. That will
be additional protection for consumers and will almost overnight
eradicate the problem because it will be an offence and it is
so clear in our consumer protection messages that we can get through.
If I can move on to the task force issue and information, we do
believe that, because it is a concentrated and rather small number
of businesses who, in our view, control the other marketing agents,
these five or six companies who have a network and agency basis,
an enforcement project which ensures that we enforce the law against
those will fundamentally change the market. They are based in
a small geographical area, either in the Canary Islands or around
Malaga, we know where they are, they are not in hiding, they just
are able to go about their business, thinking they are untouchable,
and a small and time-bound task force, whereby in the UK and other
northern European countries, the cold countries that want to go
to Spain, taking statements and evidence with a lawyer or two
in Spain to lay this information before the courts against these
five companies to make them obey the law. I say that that would
be an effective way because it is a small, concentrated market,
we know their practice now and we have a lot of experience of
what they are doing and experience of the law, but the problem
about cross-border enforcement has been about our lack of knowledge
of Spanish legislation, the fact that we cannot go after individuals
and that it is costly for the UK taxpayer to be spending money
on Spanish lawyers to stop Spanish companies, so some sort of
cross-border project would be welcome.
Q92 Baroness Howarth of Breckland: This
is a real function which the EU could carry out?
Mr Haley: Absolutely, I think so, that
the European Commission and the European Parliament could have
a real role there of funding a short-term project which would
be effective with some professional investigators and lawyers
to sort the issue out once and for all. Also, in the meantime,
if you like, because court cases can take many years sometimes,
if they fight any court case, there is still the issue of the
encouragement of consumers to be more aware about their rights,
but it is more dispersed, and it could be any consumer who goes
on holiday from any European country. We have been active in informing
consumers of their rights and within the pack there is information
about the brochures and leaflets we have produced and there are
also the press releases that we have issued, and there have been
12 over the last three or four years. It has also been part of
our annual `scams awareness month' where in the last two years
we have featured holiday clubs as a specific issue. We had a specific
campaign with Esther Rantzen as a consumer champion fronting this
and as someone that people trust to warn them about these issues.
We have also been quite innovative in that we have put information
in ticket wallets, so when people go on holiday, they want this
information at the time when it is going to be most appropriate,
and we put ads in airline magazines, like Easyjet's, so that people
on the cheap flights out to Spain can see this information repeated,
so we provide a lot of information in an innovative way and we
will continue to do so. For example, this autumn we will be putting
warnings in the light boxes at airports, so, when you go to the
baggage carousel and you stand around waiting for your bag, you
will see the advertisements and they will be warning about holiday
clubs and what to look out for. Again, like targeting the enforcement
activity, you can target the consumer education information at
the right time, when people are on holiday, just before they might
be attracted to, or approached by, one of these holiday clubs.
Again, I think the European Commission could play a role there
because we put that in for UK consumers, but the Finnish consumers
and the German consumers are arriving at those same airports,
but, if they do not read English, they are not getting the warnings
and we do not see it as our ultimate aim to put it in the other
languages; we are there to protect British consumers. There is
lots more that can be done and I think we are being innovative
and I think it is high-profile for us, but always more can be
done. If I had the choice, if we had £X00,000, to run an
enforcement project or further consumer education, I think we
could crack it with an enforcement project, but that could be
because that has been my background of course, that I am an enforcement
officer.
Q93 Baroness Howarth of Breckland: What
about redress and out-of-court complaints?
Mr Haley: Redress, I think, similarly.
Of course I think it needs further consideration, particularly
for the timeshare industry where we have businesses which are
responsible and will listen and could agree to sign up to a redress
scheme. Perhaps through the OTE, there is pressure for them to
have a formal redress scheme for their members. The problem will
come again with the rogues who will not sign up to any informal
redress scheme and I believe that their interest is not to give
money back to consumers. We sometimes call them `deposit-takers'
as well because they are not even interested in following through
the whole of the contract, but, if they can take £500 from
someone on the first day, that is £500 for nothing and they
do not even go through to the contract. I think redress for the
mature timeshare industry should be looked at, but I do not think
it is an appropriate response for the rogue trader element.
Q94 Chairman: Well, I think that was
a remarkable run-through and I think we have pretty well covered
everything, except for the possible matter of sanctions. Do you
think that the other Member States in general are putting a sufficient
level of sanctions in effect and what do you think about the sanctions
proposed in the new Directive, so that is the punishment side
of it?
Mr Haley: I think some of this activity
is so close to fraud or is fraud that severe penalties across
Member States should be encouraged, either criminal sanctions
or other severe penalties for serious breaches, such as not giving
a cooling-off period or for taking deposits when they are banned
from doing so, so depending on the seriousness of the offence,
but I think it should be looked at, what the consumers should
have as their fundamental rights and, if they are denied, then
there should be some serious penalties, so we welcome some commonality
across the European Union. The one thing I would add though as
a caveat is that Member States should still be free to determine
that level of sanction because market conditions can differ. In
the UK, we do not have issues to the extent they have in Spain
and the sanctions that we should have applied to us should be
proportionate to the problems that we face. We would also not
want some European legislation to water down the sanctions that
we are getting next April to deal with aggressive and persistent
practices and pressure selling because they are appropriate and
have been well argued.
Q95 Chairman: That is under the other
Directive?
Mr Haley: Yes, under the other Directive,
so it just could be that there might be issues there about reducing
inadvertently the consumer protection we have here, which is something
we would not favour, but absolutely some common, serious sanctions
need to be applied and the deterrent needs to be in place to protect
consumers in the future.
Chairman: Well, thank you very much indeed for an
extremely interesting session. I think some of us were truly shocked
and surprised by your description of the pressure salesmanship
that one can be subjected to while one is on holiday. I think
we have learnt a lot and we are very grateful to you for coming
before us. If you do have other things which you wish you had
said or whatever it is, do not hesitate to write to us, but I
think you have pretty well covered the questions we wanted to
ask you. Thank you very much indeed once more for appearing before
us.
Holiday Club Business Model Overview
All figures are illustrative only
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