Examination of Witnesses (Questions 100-119)
Mr Gareth Thomas, Mr Kevin Davis and Ms Berenice
Napier
18 OCTOBER 2007
Q100 Lord Wade of Chorlton: I wanted
to ask some questions pertaining to advance payments because clearly,
there is a different view in the industry as from the consumer
groups. The timeshare industry claims that it is unfairly penalised
with a cooling off period and a ban on deposits and proposes instead
the use of independent third parties for deposit payments. Consumer
debt and enforcement bodies have told us that they welcomed the
proposal to tighten the ban on advance payments during the cooling
off period. Clearly, there is a different view there and I wondered
what position the Government take on this matter.
Mr Thomas: We support keeping a ban on
advance payments, and we do so because of the particular circumstances
in which these products are usually sold. The consumer is normally
overseas, away from their normal support networks, away from,
for example, in the case of UK consumers, Citizens Advice Bureaux,
access to Trading Standards Officers, etc. You are therefore more
susceptible potentially to high-pressure sales techniques, so
a ban on advance payments and a cooling off period gives people
the chance to pause and reflect on the decision they have taken.
Many people go ahead with their decisions—I think, Baroness
Thomas, you gave the figure of 500,000 consumers. So we think
it is sensible to keep the ban in place because it continues to
help eliminate the rogues from the business while allowing reputable
owners to continue to tout their products with success. I did
not answer your question about this idea of third parties. Given
the success of the Directive, we do not think there is a need
to go down that particular road and, frankly, it would add a level
of bureaucracy and expense for consumers, and indeed the industry,
which we just do not think is necessary.
Lord Wade of Chorlton: I must admit, I did understand
that from when you answered the first bit but that clarifies the
position. Thank you very much.
Q101 Baroness Howarth of Breckland:
I wanted to ask a question about resale because this is an area
where we have found there is a great deal of confusion. Sandy
Grey felt that any purchase by consumers would be considered a
new sale, and others thought that a resale had to be a sale that
had already gone through the system. You understand the confusion
that there is about this. Could you explain the Government's interpretation
of "resale" as defined in the Directive and could you
expand on the Government's views in relation to the application
of the Directive to resale? I know in your recent letter you talked
about the issue of exchange contracts. We have not had time to
digest the letter but it might be helpful if we understood the
relationship between this question and your recent letter on it
and whether or not there is enough in the Directive to deal with
the extensive fraud. This is where we found people were really
concerned about fraud and did not understand whether they could
sell, what happened on resale, whether they got any value—the
idea that a timeshare was like a car that was depreciating in
value was not understood by them.
Mr Thomas: Let me start where you started.
We would see a resale agent as someone who is facilitating for
timeshare owners the sale of their timeshare to another person,
so effectively they act a bit like an estate agent would act.
Again, we want to see a ban on payments before a sale takes place.
We think that is key to eliminating the fraud and the sense of
confusion that consumers are experiencing at the moment when they
are approached by resale agents because then the consumer will
know that, if they are asked for money up front, before a sale
takes place, that here is someone operating outwith the law and
they should have nothing further to do with them. You are never
going to completely stop rogues from trying to operate but at
least by having that clear sense as to when money has to be paid
and when it does not have to be paid, the consumer at least has
the information to reach a conclusion as to whether or not they
are dealing with someone who is reputable.
Q102 Chairman: If I can interrupt,
these changes are very much directed towards consumers. This whole
Directive is to protect the consumer. Would it be the intention
of the Government to publish a sort of guide to best practice?
Yes, we can pass a Directive which does improve the law but it
all happens in Europe and nobody knows what happens in Europe.
How does anybody actually get simple information about what their
rights, their new rights under the Directive are?
Mr Thomas: We actually think it is going
to be good for industry too because there are some genuinely good
businesses operating in this area.
Q103 Chairman: I take that point.
Mr Thomas: I think they are being undermined
by the activities of a small number of crooks and criminals, frankly.
In terms of information, the OFT lead on consumer information
and we will obviously be working very closely with them once the
revised Directive comes into force to get out the details of how
the Directive is going to operate and the new rights that there
are for consumers. There are also consumer bodies who, no doubt,
from the discussions we have had with them, would want to be part
of that process of getting information out. The OFT already run
information campaigns. I am told they were at Bristol Airport
very recently, warning people flying out to the Canaries in terms
of what to look out for and what to avoid. So there is that process
in hand but obviously, a new Directive coming in provides another
opportunity for us to get messages out about the existing rights
as well as obviously to get out details about new rights.
Q104 Lord Trefgarne: I would like
to ask you about the right of withdrawal. There are three different
aspects of that and I can either take them together or take them
one by one. The three different aspects are the prospect of a
separate, what is described as a "horizontal" Directive
from the EU which would cover much wider issues than just timeshare,
how that might impinge upon this and whether maybe some of these
proposals are anticipating that Directive, the question of charging
consumers expenses, which may have been said to be incurred as
and when they seek to withdraw and finally, what that withdrawal
period might be, whether it should be 14 days, which I think is
what is now proposed, and how indeed you actually define a day
in arriving at the defined period. Would you like to deal with
those all together or maybe one by one?
Mr Thomas: Let me deal with the expenses
to start off with, because you are right in saying that there
was and there is concern with the initial Commission idea that
there should be scope for people to be able to charge expenses
if someone withdraws from a contract. Our concern with that has
been that, if that is written into the small print, there is a
real opportunity for rogues to exploit that.
Q105 Lord Trefgarne: It would be
a very novel innovation, would it not? I cannot think of a case.
There may be some.
Mr Thomas: Indeed, and it is a concern
that other Member States have shared. I can tell the Committee
that this is a point we have made in the Council working groups
looking at this issue and the Presidency have recently agreed
to withdraw that requirement without opposition from any other
Member State and I think that is a welcome development.
Q106 Lord Trefgarne: So that has
gone.
Mr Thomas: It has gone, yes. On the question
of the harmonisation of the consumer acquis, we welcome the fact
that the review is taking place. There are about eight or nine
different Directives that make up the consumer acquis and anything
which can simplify consumers' rights and make it easier for consumers
to understand what their position is has to be sensible. Our sense,
frankly, has been that we should wait for that review to take
place, that the timeshare industry has very specific needs and
we wanted to get a revised Directive agreed as soon as was possible
and have been pressing the Commission to implement now a revised
Directive and get on with the discussions around that Directive
whilst at the same time that much broader and much wider review
is taking place. On the question of 14 days, it is ten days at
the moment in the Directive. In our law it is 14 days and, frankly,
we welcome the fact that the Directive suggests increasing it
to 14 days.
Q107 Lord Trefgarne: Is that working
days?
Mr Thomas: Kevin, would you like to come
in on what constitutes a day.
Mr Davis: Yes. There has been some clarification
in the working groups that this should mean calendar days. Also,
there is a proposal that where the last day falls on a bank holiday,
then that should not count as a day and there should be a day
added. There is now some debate as to which bank holiday, whether
it is the bank holiday where the consumer is based or where the
contract was signed. We favour the option for where the consumer
is based because, after all, it is the consumer's activity of
withdrawing from the contract that they need to establish, when
they did that, if it were to be contested, and a postmark on a
letter, if it came down to that, would be that kind of evidence.
I think we can be fairly sure that there will be clarity at the
end of this on days.
Q108 Baroness Gale: One of the consumer
groups we met was pushing for 21 days and the argument was that
people are on holiday and by the time they get back home the 14
days may have gone and perhaps 21 days would give people more
opportunities of considering the contract and withdrawing if they
wish. Had you considered the 21-day limit rather than the 14 days?
Mr Thomas: We have heard that suggestion
from consumer groups ourselves as well. What we have seen happen
with the existing timeshare industry is that when people change
their minds, they generally do so within the first few days and
we therefore thought that 14 days was a reasonable timescale to
allow people to genuinely pause to reflect on their purchase.
Given the scale of money involved, people will get into thinking
about it pretty quickly, so our sense has been that there is not
a need to extend it to 21 days. We have not seen the scale of
evidence to suggest that there is such a problem that it needs
to be extended to 21 days.
Q109 Lord Wade of Chorlton: The evidence
that we had from consumer groups said that what is happening is
that people are going on longer holidays and as it is generally
when they return home that they think again—that was their
argument, that really, the 14 days, when people are going away
for maybe three weeks or maybe even a month's holiday, becomes
a bit restrictive. The tendency is for people to have longer holidays.
I do not know if you have any comments on that. I am not putting
a view myself; I am just saying what we have received in evidence
on this matter.
Mr Thomas: There is always a balance
to be struck in these things. Given that our experience to date
has been as I described, that the vast majority of people who
do change their mind do so within the first few days, at the moment—
Q110 Lord Wade of Chorlton: While
they are still on holiday, are you saying?
Mr Thomas: Potentially, yes, or when
they have come back but it is usually within that first few days
that they do change their minds afterwards. So our sense at the
moment is that the case for an extension to 21 days has not been
made. We welcome the fact that the Directive is extending it from
ten to 14 days and that is in line with UK practice under the
1992 Act but no, I do not think we should extend it to 21 days
at this stage.
Q111 Baroness Howarth of Breckland:
The research seemed to all be based on experiential evidence as
to what had happened. I just wondered if there had been any look
at people who did confirm and who might have wanted to withdraw
had they not got themselves into a situation where they felt that
they could not, because that is the experience I have of people
I have spoken to, that they felt they could not even talk about
it because they had got themselves into a situation, they had
bought it, they had got home, the days had gone, they had paid
for it and then they had gone on with the purchase. That is why
an extension to 21 days might be helpful. I do not think that
is the group of consumers that we have heard from in any depth,
the ones who really feel not happy about what has happened to
them but have not been subject to fraud. Do you see what I mean?
Mr Thomas: I do see what you mean. I
hear what you say, Baroness Howarth. I have to say that the vast
number of representations that we have received about the case
for a revised Directive have not been around an extension to 21
days. They have been about the problem of holiday clubs, frankly.
The evidence that we have seen from the Office of Fair Trading
has backed up the concern in the minds of many that the key opportunity
with a revision to the Directive is to tackle holiday club problems—resale
agents too but holiday clubs in particular. I suppose there will
always be consumers who would have liked a longer period. I think
there is an issue of balance here and, as I say, at the moment,
on the basis of the representations that are being made to us,
we think 14 days continues to be a reasonable period.
Q112 Lord Trefgarne: However long
you put it, somebody will always want longer.
Mr Thomas: No doubt that is true.
Q113 Baroness Gale: I have two questions
on enforcement and redress so I will put the two together. From
the evidence we have been taking, it seems that at present the
UK and Spanish authorities shoulder the burden of dealing with
rogue traders and warning consumers of the problems. If this is
the case, what sort of role might there be for the Commission
to play a more proactive role? There has been a suggestion that
perhaps they could fund a task force to tackle known offenders
and any other outstanding obstacles to effective enforcement.
Bearing all this in mind, and the alleged limitations of the Enterprise
Act, how else could enforcement be improved? Would you like to
answer that one first?
Mr Thomas: We think enforcement has to
stay predominantly the responsibility of the country where the
offence takes place. In terms of the UK, we are not aware of substantial
problems within the UK timeshare industry and our enforcement
authorities, Trading Standard Officers, we are not expecting to
see placed under huge additional burdens as a result of the revision
to the Directive in terms of working overseas. One of the things
that is very striking about the process of revising the Directive
is just how engaged Spaniards and indeed other Member States where
timeshares do operate have been in the discussions because for
them there is a reputational issue in terms of their country as
a tourist destination. We have seen increasing appetite to engage
in the detail of the revision to the Directive and that continues
to give us confidence that there will be cross-border co-operation
in taking enforcement action. The Office of Fair Trading does
have the power under the Injunctions Directive to work cross-border
and it has sought formal assurances about the behaviour of particular
companies in the past and there is ongoing work taking place there.
I think there may be a role for the Commission in a sense to research
just how great the problem is. I think we need to keep that in
view, and we will do, but I do not think there is an additional
role for the Commission in enforcement. I think that still has
to be a matter for national authorities and I have to say we continue
to have good co-operation. That does not mean that every rogue
has been eliminated but it does mean, as I say, that we do get
good co-operation.
Q114 Baroness Gale: The other question
is that it has been suggested to us that a licensing scheme would
be an effective way of regulating the timeshare and long-term
holiday product market and that a licensing scheme might provide
consumers with some certainty over redress. What is the Government's
view on licensing and on redress?
Mr Thomas: We think the success of the
existing Directive means that we do not need to go down a licensing
route. We think licensing would be a bit like the point on third
parties; it would just create an additional level of bureaucracy
and expense and confusion for consumers and industry alike. We
do not think it is necessary, we think the Directive works well,
and it is not something we have therefore looked at with any degree
of enthusiasm.
Q115 Chairman: Could I just follow
that up a minute? Is that the case despite the fact that some
of the other products that are going to be included are rather
different from the timeshare product? If you buy a timeshare,
you buy, as it were, the right to go back to a certain location
and sometimes you can share timeshares with other timeshare owners
but it is a very solid thing, a timeshare. It is something that
is easy to understand. Is the same thing true? Are the new products
as easy to understand as the original timeshare product and is
the lack of licensing also virtuous with respect to these newer
products?
Mr Thomas: Some of the types of new products
that are emerging have slightly less degrees of solidity but nevertheless
are still pretty solid in that sense—boats, cruises, yachts,
etc, are perfectly reasonable things in our view to cover under
the Directive, in the sense that they share many of the same characteristics
as the fixed timeshares you are referring to. We do think they
are appropriate for bringing under the terms of the Directive.
Q116 Lord Wade of Chorlton: As I
understand it, the purpose of this Directive is to protect people
against fraud, not to interfere with the normal business operations.
It is not necessarily to protect people from what they might not
want to do any more than we try to protect people from buying
a house they cannot afford. So when you talk about the enforcement
of the Directive, clearly, there are different views in the various
countries of Europe on fraud, how important different levels of
fraud are. The laws are different. We see that from cases often
in the newspapers. How satisfied are you that this Directive actually
creates one position across Europe so that what we could consider
as an Englishman is a fraud we know the Spanish authorities will
also see as a fraud? I am not quite clear just how that is going
to happen in practice.
Mr Thomas: There has been agreement not
only with the Commission but with other Member States as to how
the revised Directive should be extended in terms of coverage,
so holiday clubs, resale agents, exchange contracts. We have not
met substantial opposition from other Member States or the Commission
in those areas. What we are engaged in is a discussion about the
detail of how they work in practice but in general terms there
is broad agreement as to what areas the Directive needs to be
extended to. What we are trying to do in a sense is to maximise
the harmonisation across Europe that we can do under this Directive
so that every consumer in every European country has a sense of
what their rights are under this Directive. We think we are on
course to get agreement with other Member States relatively soon.
The discussions are going well, we are positive and, as I said
in answer to earlier questions, in those countries where UK consumers
in particular want to see timeshares operate there has been a
particularly high level of co-operation because they are worried
about reputational damage if these people continue to operate.
Q117 Lord Wade of Chorlton: Yet anecdotal
evidence is that a large number of people who feel they have been
defrauded, and it has generally been in Spain or those countries,
are finding it very difficult for the authorities to take the
action which would certainly have happened had it been in this
country. How is this Directive going to change that position?
Mr Thomas: Let me give you an example
in the sense of evidence that has been collected by the Office
of Fair Trading in 2006. They carried out research into the problem
of holiday clubs and estimated that there are potentially 400,000
holidaymakers who could have been victims of bogus holiday clubs
and those people would have lost a total of £1.2 billion.
That is the research that they indicated. Bringing holiday clubs
into the Directive will give the coverage and give the protection
to those consumers which at the moment they do not have if they
go off to Spain. It is not an unwillingness to act by enforcement
authorities in Spain in this case; it is simply that they do not
have the powers to do so. That is why we want to bring holiday
clubs into the Directive to actually help the authorities have
the tools that they need to take action.
Q118 Lord Trefgarne: Is it not the
case, of course, that a Directive once it comes into force has
to be reflected in national legislation and if the national legislation
falls short and does not properly implement the Directive, the
nation concerned is taken to task first by the Commission and
afterwards by the European Court?
Mr Thomas: That is correct.
Q119 Baroness Howarth of Breckland:
One of the concerns that we had from some of the witnesses was
whether or not this Directive would be future-proofed against
other ideas that rogue traders would come up with. I just wondered
whether we were pressing the Commission to think imaginatively
about other products that would then slip outside of the Directive.
Mr Thomas: We are always pressing the
Commission to think imaginatively and the Commission are being
imaginative in the discussions we are having with them. That is
one of the reasons why we are spending as much time at official
level in looking at the definitions that are used in the Directive,
to try and minimise the opportunities for imaginative rogues to
operate further down the line. I do not think you can ever completely
prescribe for situations but we are trying to draw the Directive
as widely as is reasonable to minimise the scope for new scams.
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