The Association of Timeshare Owners Committees Response to the European Commission Consultation Paper

Review of the Timeshare Directive(94/47/EC)

TATOC’s primary aims and objectives:

• To promote the maintenance of high quality standards of facilities and amenities, and to encourage the efficient management of timeshare resorts through communication and education;
• To lobby and campaign on matters related to timeshare and timeshare owners by liaison with trade industry bodies and government departments;
• To actively promote the positive image of timeshare through all communications channels. At present, we represent 72 resorts and clubs across Europe and estimate that we represent almost 250,000 timeshare owners through their elected representatives. TATOC’s core activities include:
  
• The production of monthly newsletters to keep owners’ committees and their owners up to date on industry news and issues, provide case studies of best practice, report on survey results, articles on various industry conferences and TATOC’s activities.
• The production of training, education programmes and documents on various industry topics in a wide variety of formats including PDF files and printed documents.  Plans are well underway to make this information available to members as downloadable files from TATOC’s website which is presently being redesigned and via tele-conferences to be held later this year. The first one covering how to set up and run profitable rental and resales operations at resorts or through committees.
• Organises and hosts an annual conference with presentations from industry experts and various government agencies on important and timely industry issues.  These are highly thought of by both members and industry representatives.
• The production of an annual survey covering issues such as levels of management fees and other questions regarding issues such as exchange, other key financial information, refurbishment and reserve funds, facilities, disposal of repossessed weeks and points schemes. Other surveys conducted so far this year include issues related to smoking legislation and to proposed changes to timeshare legislation. On line surveys will be conducted to a wider audience as part of the new website design.
• Work closely with both VOICE and OTE to promote and support best practice throughout the industry on behalf of members and their owners.
• Promote the positive image of timeshare through production of press releases and communications with the media and other industry organisations such as OTE, VOICE, RCI and Interval International.  As an example, we recently circulated the OTE press release including a guide for owners on how to protect themselves from fraudulent resale companies for members to include in their resort newsletters and/or at AGMs and other meetings.
• Communicate and meet with members and their owners, resort representatives and industry representatives to identify their needs and concerns and to assist where possible.
• Lobbying as required.

View of the Industry and its Future:

As an organization, we have some serious concerns about the accuracy of statistics quoted.  These differ substantially from other statistics published by a number of recognised timeshare organisations over a period of a number of years.

It is of considerable concern to us that some of the opinion and statistics quoted may be out of date and/or suspect because of the method of collection, bias, sample-size, etc. We request that only recognised and approved statistics are used as justification for change, or as the basis for detailed consideration, in such an important industry, and that there should be general agreement between Stakeholders on the reliability of any opinion and statistical information used.

On specific points:

• We disagree with the consumer opinion statistics included  under Section 3 of the Consultation Paper (Perception).  More recent studies show a considerable improvement in consumer opinion.
• We disagree with the general comment in Section 3 of the Consultation Paper (Competitiveness of the industry) that resorts do not maintain acceptable standards, and this has resulted in a decline in standards of resorts and the industry in general.
• We fully recognise and welcome the relative explosion in internet based low-cost flights, and this has been as much a benefit to timeshare owners and timeshare marketing as it has to other types of holiday.
• TATOC does not accept the assertion in section 3 that accommodation at timeshare resorts is often purchased via the internet at a price (including flights) that is less than the annual maintenance fees paid by owners.  In general, rental accommodation available via the internet is a vastly different product to timeshare, and any comparisons on cost alone must be treated with extreme caution.
• Footnote No 17 at the bottom of page 11 of the Consultation Paper describes typical timeshare as being “the right to spend e.g. week 13 in resort A every second year”.  This is exactly the type of incorrect and misleading statement that causes confusion and misunderstanding of the timeshare product.

The vast majority of timeshare ownership provides for at least one holiday every year.

The footnote is also incorrect in how it describes the situation regarding “low season”.

The choice of low, mid and peak season (often referred to as white, blue and red) is a matter of deliberate choice by the purchaser depending on requirements and budget.  In this respect the purchase of timeshare is no different to any other product – the more you pay, the better you get.

The consultation Paper (along with others issued previously) seem to reflect the somewhat negative attitude adopted by the media to the timeshare industry.  It is always far easier to get coverage of negative stories rather than positive ones.  It is, however, TATOC's perception that the general view of timeshare is steadily improving as a result of improvements made within the industry and the good work carried out by organisations such as the OTE, RCI and Interval International in particular.

Further, there are now almost no negative stories about ‘classic’ timeshare products but rather about resale fraud and discount holiday clubs which are not timeshare.It is a simple fact, despite any other statistics, that the majority of timeshare is purchased by people who are already timeshare owners.

While it has to be accepted that timeshare products do not work for everyone, for the majority of existing timeshare owners it does work; and work so well that they buy additional products.

Timeshare is no different to any industry; it has the same cyclical marketing conditions with substantial changes that take place every ten or sometimes less years. There is a newly merging market sector (known as ‘Baby Boomers’).  Potential customers in this sector are far more consumer-conscious than previous owners and this, in combination with major changes in technologies (websites, internet etc.), has caused the market to change dramatically.The timeshare industry is part of the travel and tourism industry (although very distinct in the concept of shared ownership of real estate).

The World Travel and Tourism Council state that ‘travel and tourism is one of the largest sectors of the world economy, responsible for over 10 per cent of global GDP and 200 million jobs worldwide.

The industry is strategically important to virtually every country as it is growing and incoming visitors bring precious foreign currency.’  They prepare a monitoring system in order that ‘Compelling economic data such as this will assist the more dynamic nations to take positive action, stimulating their tourism economies’.

Its assessment of travel and tourism growth for Europe as a whole has been quite depressing for a number of years, expecting declines, slow growth and a lack of real recovery until this year for a variety of reasons.  Europe still does not appear to feature heavily in those performing well against WTTC criteria for successful tourism industries.

The key to overcoming this kind of market pressures is always the same.  Innovation and change in product, innovation and change in sales/marketing strategies and techniques, and finally commitment to existing customers.

There is a great deal of albeit anecdotal evidence that the timeshare industry is, in fact, embracing these concepts rapidly.The Timeshare Industry is not only in the hands of the companies within the industry who are willing to change and produce good results, but it is in the hands of legislative and enforcement bodies who need to support their efforts through legislation that is simple, effective and enforceable.  This is as essential to legitimate developers and suppliers as it is to consumers, and any changes to legislation must be judged against its potential to have a positive impact, rather than a negative impact, on the classic timeshare product and its current/potential consumers.

Timeshare is already blossoming in areas of the world outside Europe which clearly demonstrates the future viability of the product, but indicates that European businesses may not now enjoy the positive actions of more dynamic nations suggested by the WTTC. There are undoubtedly management and other issues with existing and more mature resorts, but again a great deal of anecdotal evidence demonstrates that where owners representatives work closely with resort developers and management, these issues can be satisfactorily resolved for the majority.

In any shared ownership product, it is rarely possible to please everyone.  As property ownerships develop into changing markets the needs of newer owners and older owners will sometimes diverge and sometimes converge.  Resorts/developers can only respond to the majority need. TATOC members are very conscious that timeshare owners are also very dependent upon the success of their resorts.

Most resorts have shared public areas and some areas that are the sole responsibility of the resort such as hotels, restaurants, bars, reception etc.  No matter how good the quality of the timeshare properties, if the quality of the resorts suffers, the owners will suffer in terms of the quality of their holidays and the value of their property. In conclusion, times change, products and how they are sold change, customers and consumers change.  There will always be good companies and bad companies, successful companies and unsuccessful in any industry or sector.

Timeshare has already changed for the good and is continuing to do so, and all evidence indicates it has a strong future and will continue to have good growth in the hands of reputable developers and suppliers who embrace both the spirit and the detail of the Timeshare Directive.

In Conclusion:

We believe there are three key areas of concern as follows:

TIMESHARE-LIKE PRODUCTS:

This includes Discount Holiday Clubs and Holiday Packs.

The UK Department of Trade and Industry and the European Commission have adopted a dangerous phrase “timeshare like products”. These are clearly not timeshare products within the existing definition and general understanding as there is no sharing of ownership of either a specific property or pool of properties.

The only justification given is that they are sold in a similar manner as timeshare of the 1980s.

The European Commission have proposed to extend the scope of timeshare legislation to incorporate these NON-timeshare products. As these are travel related services and are already covered by both the ‘Distant Selling Directive’ and the ‘Unfair Contract Terms Directive’, they should NOT be described as “timeshare-like” and should NOT be incorporated into Timeshare legislation.

The effect of doing so will confuse consumers, bring timeshare again into disrepute with consumers and the media, and thereby hurt existing timeshare owners alongside their resorts.

There is evidence already of negative headlines due to the consultation process.

Further, we do not agree with the inclusion of exchange services as these are clearly not timeshare as such and we believe that market pressure and competition are the solution.

LEGISLATION FOR RESALES COMPANIES:

The issue here is that companies or individuals who offer to resell owners weeks and take an upfront fee with no intention of doing so are simply fraudulent.

The UK Department of Trade and Industry and the European Commission are proposing legislation that could seriously damage the legitimate resale market.

Fraudulent resale companies target timeshare owners, your owners, and completely disregard all existing laws and legislation. No amount of new and potentially damaging legislation will resolve this as they are already breaking existing laws. Only enforcement and education will help.

Approximately 50% of our member resorts offer a resale service and it is one of our aims to encourage more resorts to do so. Further, some of our members would like to offer this service along with rentals to their owners through the new TATOC website where the resort doesn’t offer either service.

Additional legislation would not be helpful and would not apply in cases where sales are made between private owners in any event.

MANAGEMENT/RESORT ISSUES:

The UK Department of Trade and Industry and the European Commission are considering the introduction of limits on annual maintenance fees charged by resorts and management Companies, and that ownership of resorts should be transferred to the owners as the resort approaches being sold out.

Their perception of the problem is that resorts or management companies will substantially increase fees etc in order to purchase back properties or gain ownership by default in payment of fees so that they can resell these properties for outright ownership. There is no evidence that this is a major issue. Capping of fees or the transferring of resort ownership to owners we believe would be impossible to legislate in any effective way. There is no evidence that owners have any desire to manage their resorts as one of the main reasons for purchasing timeshare rather than a second home is so that others will provide the management function. In some cases, owners have been forced into this position and in others where owners wish to control a resort, buy outs have taken place. One member resort is presently investigating this option.

For some of our members, getting timeshare owners to take on the role of Owners Committee members is difficult now. Many newer timeshare resorts are managed under trustee arrangements that do provide capping future fees some to inflation; however, in all cases of which we are aware there is provision to override these caps if required. Furthermore, existing resorts who fear legislation that will cap future fees have indicated that in order to protect the quality of their resorts, they would be forced to immediately put substantial fee increases in place prior to such legislation being adopted.

For these reasons we do not support these proposals.

As such, we would support

• Policy options 2 (Non-legislative action: Information and education campaigns)
  
• Policy option 3 (Non-legislative action: Better enforcement of existing legislation
  
• Policy option 5 (Self-regulation).
  

We do not support

• Option 1 (No action at all) or
• Option 4 (Vertical revision of the Directive).
  

Detailed Response to Questions:

We have responded to the numbered questions in the Consultation Paper as below.

1. The Scope: Timeshare-like products

Consultation Paper problem statement. The definition of timeshare in the Directive is wide, and as indicated can be easily circumvented. As timeshare-like products (as defined in section V) are not covered by the definitions of the Directive, the purchasers are not entitled to have the benefits (minimum information, cooling-off period, ban of deposits, language requirements etc) that the Directive affords to the purchaser of the classic timeshare rights.

Questions and TATOC Response:

a) Do you agree with the description of the problems?

Response Question a): The definition of timeshare within the Timeshare Directive is not wide. It correctly describes, as was intended at the time, the definition and general understanding of the classic timeshare ownership product. This definition is not a problem and has worked successfully to improve practices within the timeshare industry. A further problem within the problem statement is in the use of the phrase “timeshare-like” products. Discount Holiday Membership Clubs and Holiday Packs are NOT “timeshare-like” products at all, and the use of this phrase is misleading to everyone including owners, potential owners, the media and especially the regulatory environment. The phrase “timeshare like” should no longer be used. Paragraph V of the Consultation Paper states that these products are economically similar to timeshare but this is completely incorrect.

b) Should the scope be extended to cover the products described above?

c) If yes, which of the provisions of the Directive should be applicable?

Response Question b) & c): The definition contained within Directive 94/47/EC states the Directive is for “the protection of purchasers in respect of certain aspects relating to the purchase of the right to use immovable properties on a timeshare basis.” The purpose and objective of the Directive is therefore clear and specific, and should NOT be extended to incorporate non-timeshare products. These products are specifically excluded from the carefully considered definition in the Timeshare Directive and are not timeshare within the general understanding of the classic timeshare product. There is existing legislation covering these non-timeshare products such as the Distant Selling Directive, the Unfair Contract Terms Directive and other legislation applying to the travel package industry and these should be examined to ensure they provide adequate protection for these new and non-timeshare holiday products. In addition the newly adopted Unfair Commercial Practices Directive, when fully implemented and enforced, will also impact on companies offering these non-timeshare holiday products. Any shortfall in these Directives to provide adequate regulation and consumer protection in the sale of these newly emerging and diversifying non-timeshare products should be considered for new and dedicated legislation. TATOC would be keen to assist the Commission in this task if it proves necessary. However we would suggest that the word immovable allows certain timeshare products such as boats, caravans, planes etc to avoid present timeshare legislation, and we would fully support the removal of that word and the inclusion of these products. Sales of products of less than 36 months would depend upon whether this was a rental product or if ownership for this period was in fact transferred to the purchaser. It is our understanding that this is in fact a rental arrangement and not timeshare. Further, as this is predominantly used as a marketing tool and legislation may be burdensome to TATOC member’s resorts, we would suggest that these products not be included.

d) What would be the best way of producing ‘future-proof” legislation and avoiding circumvention of the timeshare legislation?

Response Question d): TATOC does not believe the best way to ensure future-proof legislation for the timeshare industry is to extend and dilute the existing Directive by incorporating non-timeshare products. The existing Timeshare Directive should be reviewed with the specific objective of ensuring it continues to meet the requirements of genuine timeshare products. Changes to the Directive should be considered to cover any shortfall, giving due consideration to the wider scope of new Unfair Commercial Practices Directive. In addition every effort must be made to enforce existing legislation. There is no doubt that there have been considerable problems in the marketing and operation of discount holiday membership clubs and every effort must be made to ensure the appropriate existing legislation, together with the Unfair Commercial Practices Directive, provide adequate regulation and consumer protection. Our understanding is that the UCPD will in fact legislate against any aggressive sales activity that may be carried out, and as such should alleviate some of the difficulties. However, if the Commission believes that only the combination of a ban on deposits with a cooling off period needs to be introduced, we do not agree that this be contained within the timeshare directive as this is misleading as stated previously. While we appreciate that the inclusion of these products within timeshare legislation may be the quickest and easiest route, it would have no effect on those carrying out fraudulent activities and will damage timeshare owners and their resorts with further negative media coverage. Already the discussion of proposed changes itself has attracted this kind of coverage, and it would be impossible at this point to be able to assess the amount of damage caused or length of time to once again attract more positive coverage. We do agree with the possible harmonization for standard cooling off periods across all legislation, and suggest that this in conjunction with the UCPD may be sufficient to resolve this issue.

e) Do you see any need to harmonise the legal nature of timeshare? If so, which variant would you support?

Response Question e): Before being able to comment on the issue of harmonising the legal nature of timeshare it would be necessary to understand more clearly what the Commission are suggesting here.

2. The scope: Travel discount clubs

Consultation Paper problem statement: In addition to the general problems described in section VII and that these products fall outside the scope of the Directive, consumers experience problems because there are no underlying real property assets, and/or no upfront agreement with providers of transport or accommodation services. The discounts and offers made available to consumers will depend on the trader’s ability to contract “good deals” to be offered to the members. According to the complaints received, these companies do not generally have the financial capacity and/or reputation needed to procure such contracts. They often are not able to honour the promises made, and if they go bankrupt the consumers loose all the money paid. Please refer also to the questions under point 7.

Questions and TATOC Response:

a) Do you agree with the description of problems?

TATOC is the Association of Timeshare Owners Committees and therefore represents only Owners Committees associated with classic timeshare resorts or companies. We do not have any association with, or provide support to, owners of non-timeshare products. Response Question a): The description of the problem is correct.

b) Should the scope of the Directive be extended to cover travel discount clubs?

c) If yes, how should these products be regulated and which of the provisions of the Directive should be applicable to them?

Response Question b) & c): Discount holiday membership are NOT timeshare products and should not be considered as such. The existing Timeshare Directive is not the appropriate vehicle through which to achieve effective legislation on these non-timeshare products.

d) If not, do you think that these products should better be regulated in the context of the package travel directive?

Response Question d): For precisely the same reason that the Timeshare Directive was essential in legislating against bad practices within the classic timeshare arena, there is no question that there is an urgent need to protect consumers and legitimate developers offering holiday packages that lie outside of the current definition of classic timeshare. Effective, efficient and enforceable legislation is required to provide a similar degree of protection for the new non-timeshare products. The full scope of existing legislation should be reviewed to test its ability and suitability to provide adequate regulation and protection, and then rigorously enforced.

3. The scope: Resale, exchange of timeshare and certain other related contracts.

Consultation Paper problem statement – Resales, Exchange schemes and other related contracts.

It is necessary to separate this question into the three constituent parts contained within the scope of the problem definition.

Questions and TATOC Response:

Resales:

Consumers may wish to resell their timeshare or timeshare-like product for different reasons (e.g. change of preferences regarding vacation, disappointment that the product does not live up to the promises in the sales presentations, declining standards of accommodation or increasing annual costs). The resale market for timeshare and timeshare-like products in Europe is not very well developed. This has led to a market for scams, consumers wishing to sell being the targets of rogue traders. Aggressive practices are common. A substantial part of resale activity is initiated by a resale company contacting consumers who own a timeshare, offering to resell and promising a profit, sometimes falsely claiming to have a buyer at hand. Complaints relate to fees requested upfront and no buyers being found in the end. There are also numerous examples of consumers being tricked into buying an additional timeshare or timeshare-like product, the resale companies arguing that it would be easier to sell the two weeks together. The Directive and national legislation do not generally cover the activities of resale companies, who are selling as an agent of a private seller.

a) Do you agree with the description of the problems?

b) Do the lack of regulation at Community level of resale and other timeshare-related contracts constitute a consumer protection lacunae?

Response Question a) & b) The description of the problem on resale is correct. The gap between the volume of demand for timeshare resale and the volume of delivery by the legitimate timeshare resale companies is the fertile ground on which rouge traders, aggressive practices, scams and fraudulent activities have thrived. The Consultation Paper lists several reasons why owners might wish to sell their timeshare. The reasons given are largely negative in suggesting the reasons may be the failure of the product to live up to the marketing description, declining standards at resorts or escalating annual costs. No evidence is provided to support this supposition. Our experience is that one of the main reasons why owners may wish to resell their timeshare is simply because there has been a change in lifestyle or financial position often as a result of increasing age, retirement, or a decline in health. In addressing problems in the resale marketplace, it is non-productive and incorrect to suggest that the principle reason for the resale is declining standards or dissatisfaction with the product. The Consultation Paper is further correct that the Timeshare Directive and national legislation do not generally cover the activities of resale companies – even the legitimate companies operating within the code of practice laid down by the OTE. There are relatively few problems relating to the activities of the legitimate companies operating within the code of practice except, perhaps, that the volume of successful resales they achieve, together with the relatively low selling price obtained, fails to meet the needs of people wishing to sell their timeshare. The problem in the resale market is not the prevailing practices by the legitimate resale companies but the aggressive practices, scams and fraudulent activities of those companies who deliberately and knowingly disregard all legislation. There is nothing to suggest that such companies would have any greater respect for any new legislation. The answer to this problem must lie in more rigorous investigation and enforcement of existing laws.

c) Would you support EU regulation of the marketing and the contracts of exchange and resale? If yes, which aspects should be regulated (e.g. duty to disclose, right of withdrawal)?

Response Question c) The greatest problems in the timeshare marketplace are insufficient volume and fraudulent activity. TATOC does not believe that regulation would have any effective impact on the volume of resales. It is the enforcement of existing legislation and the speedy prosecution and closing of fraudulent companies that will address the problems in the timeshare resale market and serve to rebuild consumer confidence. Although it is not possible to be quantitative, it is certainly the case that concerns over fraudulent activity are having a stifling effect on the volume of timeshare resales and the legitimate resale companies. We would however recommend, because the legitimate timeshare resale companies are acting as agents in a private transaction between two individuals the responsibility of disclosure, and the opportunity for withdrawal, cooling of periods, etc. should not be considered in the same way as the sale of new products whether timeshare or non-timeshare products. Further, we believe the solution should be in education of resorts (in cases where resorts do not wish to provide these services possibly owners representatives could) that profitable rental as well as resales services can be offered that will enhance both the resort offering and the value of timeshare owners’ property(ies). One of the difficulties is in the traditionally high level of marketing costs set against an average commission for resales of around 20% of the purchase and/or rental price. By having a combination of rental and resales programmes, owners are not pressured into making quick, low value sales if rental income covers management fees and perhaps more. Also rental visitors are a good source of potential timeshare purchasers. Timeshare rentals can be achieved as they represent very good value as opposed to hotel accommodation with far better facilities in general. TATOC would always suggest that voluntary compliance of existing legislation for classic timeshare be undertaken as this is simply good business practice. There is also the question of education of timeshare owners as to the expected value that can be obtained from resales. In many cases, ownership is on a lease basis, not outright ownership and as such not an increasing asset. As an example, in the UK if someone purchased a timeshare some 15 years ago for an average price of £8,000 with an average management fee of £250, the total cost of their self-catering accommodation would be £11,750 or approximately £783 per week (for four adults, £27.85 per person, per night). This is far less expensive than decent hotel accommodation with all the space and facilities timeshare typically offers.

Exchange schemes:

The possibility of joining an exchange scheme is often used in the marketing of timeshare and timeshare-like products as a positive argument. The major problems seem to be related to “overselling” of the advantages and the possibilities, leaving consumers disappointed because the requested accommodation is not available, the timeshare/timeshare-like product they have is not of sufficient value to be exchanged for the “5 star luxury resort” shown in the marketing, or with unexpected high costs related to exchange, having to pay annual membership fees as well as fees related to search and use of exchange.

a) Do you agree with the description of the problems?

b) Do the lack of regulation at Community level of resale and other timeshare-related contracts constitute a consumer protection lacunae?

Response Question a) & b): Timeshare exchange is being presented in this section as a problem. The opportunity for exchanges is fundamental to the classic timeshare product and is available to every timeshare owner. A large number of timeshare owners enjoy holiday exchanges, and consumer complaint data does not support the view that timeshare exchange is especially problematic for timeshare owners. It is no longer the case that timeshare owners have only one company through which they can seek holiday exchanges depending on the exchange company to which their resort is affiliated. There is an increasing number of timeshare companies offering timeshare exchange facilities that provide a cheap and effective service to owners wishing to exchange their week or simply to take advantage of the exchange companies for extra bonus holidays or rentals. A number of the major resort developers offer their own internal exchange facilities, and there are a number of owner-run exchange schemes also in existence. No data is presented in the Consultation Paper to support the suggestion that exchange schemes are being over-sold in the marketing of classic timeshare or that the cost of exchange schemes is perceived as being too high.

c) Would you support EU regulation of the marketing and the contracts of exchange and resale? If yes, which aspects should be regulated (e.g. duty to disclose, right of withdrawal)?

Response Question c): There is no supported requirement for new legislation regarding exchange schemes, or that there are existing problems with exchange schemes not adequately provided for within existing legislation. Other related contracts

Other related contracts:

Consumers also experience problems with other contracts which are related to or marketed in connection with timeshare or to timeshare owners. Two examples of such products, “upgrading” and “cash-back schemes”, are described under section V.

Upgrading

a) Do you agree with the description of the problems?

b) Do the lack of regulation at Community level of resale and other timeshare-related contracts constitute a consumer protection lacunae?

Response Question a) & b): Upgrading of timeshare products involves an existing timeshare owner purchasing a new timeshare product from the same company often for a more desirable time period or a larger unit, and receiving an agreed trade-in price for their existing apartment. This new timeshare contract is therefore adequately covered by the existing Timeshare Directive giving owners who upgrade their timeshare product all rights and benefits as per their initial timeshare purchase. Upgrading therefore presents no perceived problem. The large number of owners who upgrade their initial purchase is an example of the satisfaction experienced by owners of the classic timeshare product.

c) Would you support EU regulation of the marketing and the contracts of exchange and resale? If yes, which aspects should be regulated (e.g. duty to disclose, right of withdrawal)?

Response Question c): There is no requirement for legislation.

Cash Back Schemes

a) Do you agree with the description of the problems?

b) Do the lack of regulation at Community level of resale and other timeshare-related contracts constitute a consumer protection lacunae?

Response Questions a) & b): Cash-back schemes which promise lump sum returns at a future date are not currently used by any timeshare companies (with the exception of Tresco in the Scilly Isles who has run a successful cash back scheme for a number of years due to high demand for the product whereby after four years if the owner wishes to give back the week, they are given back the full amount originally paid, but nothing further). We are aware of, although we understand they were sometimes a feature of some holiday-pack marketing in the 1980s. If the Commission perceive cash-back schemes to be a current problem it will be necessary to provide examples to demonstrate the existence and the scale of the problem. Further, we do believe that there may be some cash back element of Discount Holiday Membership Clubs and that these should be covered elsewhere than within timeshare specific legislation and only if not being used fraudulently, in which case this is a matter of enforcement. If a cash-back scheme did feature as any part of the marketing of a classic timeshare product such an offer would be a financial services product for which separate and specific financial services legislation should apply. TATOC would be generally concerned if such financial services products were wrapped up in the sale of a timeshare product, and especially concerned to ensure any such offer was not used as an unrealistic financial inducement to coerce people to purchase.

4. Information requirements and language:

Consultation Paper problem statement: Information requirements The Annex of the Directive contains an extensive list of information that must be included in the prospectus and the contract. Many complaints relate to omission of material information that the consumer needs in order to make an informed decision. For the products that are not covered by the Directive, there is no legal obligation to provide the information listed in the Annex in a prospectus and the contract. Many complaints also relate to what is perceived as unintelligible contracts and unfair contract terms. Examples of such terms are unreasonable maintenance fees, increasing after an initial period and those regulating the way the resorts are managed and how decisions are taken.

Questions and TATOC Response:

a) Do you agree with the description of the problems?

Response Question a): There is no information presented in the Consultation Paper to justify the opening phrase “many complaints relate to ....” relative to the existing number of classic timeshare owners. Considerably more information is required to demonstrate that there is any significant number of complaints. We cannot agree with the problem statement when it is contrary to our general experience and without data to demonstrate otherwise. In addition, unfair contract terms are already prohibited, and therefore anyone using misleading or incorrect terms would already be operating outside of the law. More information is required in all aspects of the problem statement to quantify the number of complaints in each category if TATOC are to be persuaded there is a current problem in this area. It is, however, correct that for non-timeshare products not covered by timeshare Directive there is by definition no legal obligation to provide the information listed in the annex to the Directive. As previously stated, existing legislation or new legislation relating to these non-timeshare products should ensure that adequate protection is in place giving due consideration to the nature of the non-timeshare product.

b) Do the divergent information requirements enshrined in national timeshare laws create confusion for consumers and increase compliance costs for business?

c) Do you think that the information in the list annexed to the Directive needs to be updated? If so, please explain how.

Response Question b) & c): There is no evidence presented to justify the suggestion that difference in national timeshare laws creates confusion for consumers. Even when purchasing in a foreign country, consumers do understand that they are doing so, and in any case, all information is presented to them in their own language as required by the Directive and national law. Purchasers rarely know or understand the timeshare legislation in force in their own country, let alone that of another country. A purchaser therefore bases his decision on the contract as presented and the information required by the Timeshare Directive. There is, however, some general merit in aligning the implementation of the individual aspects of the Timeshare Directive such as a common agreement to the length of the cooling-off period across member countries.

d) Given the large amount of pre-contractual information, how could it be ensured that important information (e.g. on the right of withdrawal) is communicated to consumers effectively?

Response Question d): The existing Timeshare Directive is quite clear about the requirements for a right of withdrawal, disclosure documentation, etc. in the marketing of the classic timeshare product. If there is any failure in the marketing process to comply with these requirements, or to communicate them to consumers effectively, the problem is one of enforcement rather than new legislation. The importance of enforcement of existing legislation cannot be over stressed.

Consultation Paper problem statement: Language (pre-contractual information, contract, post-contract) The Directive establishes language requirements for the pre-contractual information (prospectus) and the contract, to ensure that the consumer will get the information in a language that he or she understands. The drafting of the provision of the Directive is unnecessary complex , which is reflected in the way transposition measures vary and their lack of clarity. Given the complexity of the contracts and the significant financial commitment for consumers, it is essential that consumers have the possibility to understand the contents of the contract and the obligations undertaken. This is also true for information regarding decisions on management or administrative fees during the contract. For the consumer, it is also important to know in which language(s) the company can handle queries and complaints.

Questions and TATOC Response:

a) Do you agree with the description of the problems?

b) How can the provision on language of the contract and the prospectus be simplified?

Response Question a) & b): TATOC agrees with the problem statement. It is, however, simply a statement of the requirements of the existing Directive and no evidence is presented to suggest that there are any significant or perceived problems to consumers in this area. It is clear that a prospectus and contract must be presented to a purchaser in a clear and understandable way, and in a language with which they are familiar, as per the Directive, or the purchaser would not be unable to make an informed decision.

c) Should the consumer also be given the right to have all timeshare-related correspondence (not only the prospectus and the contract) in a language he/she is familiar with? If yes how should the choice of language be determined?

d) Alternatively, should the trader be obliged to inform the consumer upfront about the language(s) that will be used post-sale?

Response Question c) & d): We would fully support the situation that all post-contract information should be made available to the owner in the same language in which he/she was provided with the contract and prospectus. As far as we are aware this is already standard practice in the vast majority of cases, and there is no information to suggest there is any existing problem in this area or that any changes in legislation are necessary.

5. Right of withdrawal

Consultation Paper problem statement: The Directive provides for a cooling-off period of at least 10 calendar days during which the consumer can withdraw from the contract, without giving any reasons and without penalties. This period is extended to up to 3 months and 10 days if not all the information requirements in the Directive are fulfilled. Most Member States have adopted a 10 days cooling-off period, but a number of Member States have adopted a cooling-off period of 14 or 15 days. In addition, France requires that the offer should be maintained for at least 7 days, and only then starts the 10 days cooling-off period. Consumer stakeholders have argued that the cooling off period is too short, in particular when consumers enter into contracts while on holidays. Different length of the cooling-off period in different countries could be confusing for consumers and a burden for business. Also, the way the period is calculated, e.g. working days or calendar days and, prolongation in the case of public holidays vary. It is important to bear in mind that the length of the cooling-off period should be seen in connection with the ban on deposits. If the cooling-off period is short (e.g. 10 days), it is less of a burden for business to not receive the payment from the consumer until the cooling-off period has expired than if the cooling-off period is longer (e.g. 1 month). Different rules on how to exercise the right of withdrawal (notification in writing by registered letter, by notary etc) also causes problems to consumers. Complaints also relate to traders not providing consumers with the relevant information about this right as prescribed by the Directive. The Directive prescribes that the cooling-off period shall not start until all the information is provided. The sanctions for omitting information differ in Member States, as does the effectiveness of the rules. Some argue that using the right of withdrawal is burdensome for the consumer, and that consumer protection should be strengthened by a reflection period before signing a contract.

Questions and TATOC Response:

a) Do you agree with the description of the problems?

Response Question a): The description of the right of withdrawal in the Consultation Paper is correct. However, no evidence or quantification is provided to support the view that consumers consider the cooling-off period to be too short, or that to extend it by any reasonable degree would provide any beneficial effect to consumers. Nor is there any evidence or quantification to support the statement that different rules on how to exercise the right of withdrawal create any confusion for consumers. TATOC can not agree with the view that there are problems in these two areas without examples and information on the scale of any problem relative to the number of new timeshare sales. The introduction of a cooling-off period within the time-share directive has been most successful in curtailing the practices and consequences of salesman using misleading or aggressive sales practices. It is TATOC's view, however, that developers should be required to demonstrate that precise details of the cooling-of period have been made absolutely clear to potential purchasers including the length of the cooling-off period, the date that it starts and the effect of non-working days and public holidays etc., as must the necessary requirements for the way in which purchasers should exercise their right of withdrawal. In summary – developers should make completely clear the date by which the right of withdrawal expires and how a purchaser is required to communicate their withdrawal. Developers should also be required to confirm receipt of the withdrawal and that cancellation has been done. The failure of any companies to provide full details of the cooling-off period should be considered to contravene the Timeshare Directive and should be subject to rapid and forceful action by the appropriate enforcement agency. TATOC is not aware of any significant problems in the right of withdrawal failing to be implemented in line with the Directive and believes it has been a major success in providing consumers with protection against misleading or aggressive sales practices. The last four headings within the problem statement are qualitative statements suggesting consumer difficulties without any supporting data.

b) Do the divergent ‘cooling-off‘ periods and the modalities for exercising the right of withdrawal enshrined in national timeshare laws create confusion for consumers and increase compliance costs for business?

c) Would you support the introduction of one cooling-off period across the EU? If yes, how long should this period be, and what should be the starting point for the period?

Response Question b & c): There is nothing to suggest that divergent cooling-off periods in different countries is causing any confusion to consumers. There is a requirement for the cooling-off period to be made clear in every instance and there is no evidence to suggest that this does not take place. However, for simplicity, there is some general merit in the introduction of a common cooling-off period across member states. There seems a general consensus that a period of 14 days from the signing of the contract would be acceptable to all parties. Research indicates that most consumers will cancel within 3 to 5 days and if these periods were extended to 28 or 30 days, it may in fact discourage consumers from taking the proper advantage of this period as it is so long that they may put it aside and forget to deal with it later.

d) Should a compulsory reflection period before signing the contract be introduced?

Response Question d): There is no evidence to suggest that the introduction of an additional “reflection period” prior to signing of the contract and the start of the cooling off period would provide any greater level of protection to consumers. Indeed, there is every reason for concern that such an approach could severely damage potential timeshare sales. The example in France where the introduction of a reflection period had a drastic effect on new timeshare sales should be a warning to the industry. It is not in the long term interests of timeshare owners to have the sale of new timeshare destroyed by the introduction of such a requirement. This would have a negative effect on the long term viability of timeshare and would therefore be detrimental to new and existing owners.

e) Would you support full harmonisation of the modalities for exercising the right of withdrawal across the EU? If yes, which would be the essential requirements?

Response Question e): TATOC would support harmonisation of the right of withdrawal across the EU. The exact requirements should be no less that those currently required by the Timeshare Directive and the precise details should be subject to debate and agreement between member states.

f) What would be the appropriate legal effect of failing to provide important information (e.g. the right of withdrawal)

Response Question f): Failure to comply with any requirements of the Timeshare Directive whether this be in the provision of adequate disclosure information etc., failure to apply the right of withdrawal, or failure to cancel contracts when a consumer has correctly exercised their right of withdrawal, must release the consumer from their obligations under the contract. This is already standard practice for timeshare companies. Any companies failing to comply with the directive in these areas should be subject to the speedy and forceful action of the appropriate enforcement agency.

6. Advance payments

Consultation Paper problem statement: Pursuant to Article 6 of the Directive, advance payments are banned during the cooling off period. The Member States have transposed this provision, although the consequences arising from infringements of the provision differ from country to country. The timeshare industry argues that the ban on deposits should be lifted, as it hampers business, its negative effect has dissuaded international brand-name hotel chains from investing in timeshare and it triggers the creation and sale of products which fall outside of the scope of the Directive. Alternatives to a ban could be other mechanisms to protect funds, such as escrow accounts, trustee arrangements, third party guarantees, letters of credit etc. Consumer stakeholders argue that a relaxation of the ban on deposits would in practice undermine the right of withdrawal. Obtaining reimbursement can prove difficult, in particular from rogue traders. The ban has proved to be an effective means of allowing purchasers to make an unencumbered decision about proceeding or canceling the purchase. Also, if timeshare-like products are brought under the Directive, a ban would apply also to providers of timeshare-like products. A ban on deposits constitutes a clear rule, easy to understand for consumers, whereas if alternatives like allowing deposits paid to third parties were accepted, it would be difficult for consumers to judge whether the third party is reliable and independent from the seller.

Questions and TATOC Response:

a) Do you agree with the description of the problems?

b) Should the current rules banning deposits be amended? If yes, why and how?

Response Questions a & b): The ban on deposits during the cooling-off period introduced by the Timeshare Directive has been very effective in providing consumers with protection from aggressive marketing techniques. It also affords protection against the situation where an impulse purchase is made and almost immediately regretted. TATOC does not support any removal or dilution of the ban on the taking of deposits for timeshare products only.

7. Professional and financial requirements

Consultation Paper problem statement: Firstly, the business sector of timeshare and in particular timeshare-like products and travel discount clubs seem to attract many rogue traders. It also happens frequently that rogue traders change the company name whenever the ground starts to get too hot under their feet. Some stakeholders have suggested that a licensing system would facilitate control and improve compliance with consumer protection law and codes of conduct. Secondly, numerous consumer complaints are related to the non-delivery of services promised. It is only when the timeshare concerns a property under construction that the Directive requires information about guarantees to be provided. But financial security might also be needed for the case of non-delivery or an eventual insolvency of the company, in particular as the vendor’s services to a large extent is prepaid by the consumer and the fulfillment may extend over a very long period of time . The problem seems to be most acute in relation to the travel discount clubs, as described under V. Thirdly, with the large number of companies that may be involved in a transaction, it is difficult for the consumer to know who turn to if something is wrong. Finally, there are huge quality differences between the resorts and their amenities and infrastructures, and sometimes between different types of timeshare-weeks or user rights within one resort (e.g. classifications like “standard resorts”, “gold crown resorts” etc).

Questions and TATOC Response:

b) Do you have examples of best practices at national level, addressing these problems?
c) Do you consider a European licensing system to be a feasible option? If yes, how should this be organised?
d) If certain financial requirements and guarantees should be introduced, what should they cover and how should they be organised?

a) Do you agree with the description of the problems?

Response Question a): The Consultation Paper recognises that the main problems in this area are associated with non-timeshare products (discount holiday membership clubs etc). There is nothing to suggest that a significant problem exists in this area for genuine timeshare products. Rogue traders knowingly and deliberately operate outside of the law and it is unlikely that any licensing scheme would deter such people or provide any better protection for consumers. The answer to rogue traders is in quicker and more effective investigation and enforcement. There are indeed large differences between resorts and the amenities they provide. There may also be considerable differences between individual apartments within any particular resort. This is reflected in the purchase price of timeshare weeks at resorts and the annual maintenance fees required to maintain the resort and it's amenities. This is not a problem but simply reflects the wide options available to purchasers in the particular resort they select and the particular apartment they purchase within a specific resort. This variety is not a problem and gives the opportunity for purchasers to chose the particular product that meets with their requirements and budget. Whatever the level of annual maintenance fees charged by a particular resort TATOC strongly recommends the best practice of there being a requirement on resort developers/managers to produce properly prepared and independently scrutinised annual financial reports covering all aspects of the resort management, the income received from owners and other sources, the collection and utilisation of any reserve fund, and a budget projection for the utilisation of income and reserve fund for at least the forthcoming year. TATOC would support the inclusion of this requirement into the Timeshare Directive. It would also ask that the issue of prohibitive administration, transfer fees that would in fact deter an owner from being able to resell their ownership be reviewed or if in fact there would be a need as it may be considered covered under the UCPD.

8. Arbitration/redress

Consultation Paper problem statement: The Directive does not contain any provisions relating to redress for consumers. Consumer stakeholders report that in many cases consumers are being denied exercising the right of withdrawal and not being reimbursed monies. The major part of disputes regarding timeshare, timeshare-like products and travel discount clubs seem to be of a cross-border nature, where the consumer and the company/companies involved in the transaction belong to different countries. The European Consumer Centres (ECC) provide information and assistance to consumers, and can also assist consumers by translating the complaints to the language of the Member State where a complaint can be dealt with, and forward the complaint to the competent out of court dispute resolution body, where such a body exists. The lack of out-of-court bodies dealing with complaints related to timeshare and timeshare-like products has been highlighted as a problem by ECCs and other consumer stakeholders. Organisation for Timeshare in Europe (O.T.E.) has adopted the OTE Codes of Conduct, updated in 2005, which is linked to a dispute resolution system set up by OTE using independent arbitrators. However, it is important to bear in mind, that a large part of the suppliers, and probably most of the less serious traders, are not members of OTE.

Questions and TATOC Response:

a) Do you agree with the description of the problem?

Response Question a): The matter under consideration in this section is arbitration/redress. The opening paragraph of this section of the Consultation Paper reports complaints of consumers not being offered the right of withdrawal and not being reimbursed moneys. But the right of withdrawal and non-taking of deposits is a legal requirement under the Timeshare Directive. It is hard to imagine that any new requirement in the Directive regarding arbitration/redress could be effective against companies who are ignoring the two most fundamental principles of the Directive. The Consultation Paper recognises that the majority of problems lie in the non-timeshare products (DHMCs etc). TATOC does not believe it is in the interest of timeshare owners or their resorts for the scope of the Timeshare Directive to be extended to incorporate these non-timeshare products. On this basis there is no requirement to protect against these activities in the Timeshare Directive. However, TATOC would be keen to consider, and to assist the Commission in developing, any proposal that would provide purchasers with the opportunity and structure to seek redress, and to provide guidelines on the nature of any redress, in cases where timeshare marketers/suppliers have not complied with the requirements of the Timeshare Directive.

b) Which measures could be undertaken to encourage the development of out- of- court dispute resolution systems?

Response Question b): TATOC strongly supports the OTE Code of Conduct and the accompanying dispute resolution system. However, as with the answer to question a) above, it is hard to imagine that any company marketing timeshare who knowingly and deliberately do so outside of the requirements of the Timeshare Directive, would have any regard what so ever for any voluntary system of arbitration or out-of-court settlement procedure. It is also difficult to see how the many developers, suppliers and traders who are not OTE members would feel obliged to abide with such a code of conduct. For the non-timeshare products this is an even more challenging problem, and serves to demonstrate again that separate legislation is required for these products.

9. Criminal sanctions

Consultation Paper problem statement: As explained under section VII, serious infringements of the Directive should be dealt with under criminal law. National criminal law provisions regulating fraud should be applied. A reflection on the proper mix of administrative, civil and penal sanctions that could be effective needs to be conducted. In particular, it has to be determined whether more effective enforcement could be obtained through enhanced use of penal sanctions related to infringements of concrete provisions of the Directive, and if harmonisation of sanctions at the EU level could be a way to reach consistency and effectiveness of the sanction regime related to timeshare, timeshare-like products and travel discount clubs.

Questions and TATOC Response:

a) Do you agree with the description of the problem?

Question a) TATOC is in full agreement with the problem statement. National criminal laws relating to fraud do exist and should be rigorously applied. However, investigation and enforcement is difficult and slow, and differs between member states A study to consider the proper mix of administrative, civil and penal sanctions that could be effective in enforcing national and European laws covering both timeshare and the non-timeshare holiday products can only be helpful. TATOC would strongly support such a consideration and would be very keen to contribute to the debate.

b) Would you support the introduction of a provision whereby Member States are obliged to provide for criminal law sanctions to serious infringements of the Directive?

Response Question b): TATOC would support a harmonising of sanctions at EU level, and a requirement for member states to provide for and apply criminal sanctions, to ensure companies and consumers in the member states have the benefit and protection of regulation and enforcement on a level playing field. The situation where a member state is seen to be “soft” on investigation and enforcement could undermine the operations of other countries and lead to a focus of activity based in the “weaker” place.

10. Consumer awareness

Consultation Paper problem statement: Whilst information campaigns have raised awareness amongst consumers of possible problems related to “timeshare”, new products which are not covered by the Directive and the problems associated with them are not well known by consumers. There is obviously a need for raising awareness amongst consumers, not necessarily specifically related to “timeshare” or “travel discount clubs”, but rather to encourage consumers to study offers carefully, to think twice when the deal is “sign now, or it’s too late” and to consult legal expertise before signing contracts involving financial commitment of a considerable size.

Questions and TATOC Response:

a) Do you agree with the description of the problem?

Response Question a): TATOC fully supports the problem statement. It is agreed that consumers are better aware of their rights when purchasing a timeshare product. It is also agreed that consumers are not as aware of their rights when purchasing non-timeshare holiday products and may be particularly unaware that the improvements made in regulation of timeshare do not apply to the non-timeshare products. Such products are often market with a “don't worry – it is not timeshare” approach as though it were timeshare which is the risky product, when in reality the opposite is the case. Every effort must be made to raise awareness that non-timeshare products such as discount holiday membership clubs and travel packs are NOT timeshare, and do not benefit from the tremendous progress made through the Timeshare Directive in regulating this industry. This is why the rogues have moved on.

b) Do you think further information campaigns could contribute substantially to improve consumer awareness? If yes, by whom and how should this information be organised?

Response Question b): Information campaigns to raise awareness of the non-timeshare products and the problems/risks associated with them is strongly recommended and supported. A concerted and coordinated joint approach by the reputable travel trade, consumer associations and regulatory bodies should be put in place. A study should be commissioned to urgently consider and recommend the most effective approach and appropriate party to lead this effort. The campaign should be adequately funded, and TATOC would fully support these activities and promote them to its members.

c) Do you have examples of information activities at national level which have been successful in raising consumer awareness?

Response Question c): It is unfortunately the case for the media that “good news” does not make particularly good news. The general impression of timeshare to non-owners is still one of problems and risk. There have been a number of campaigns by OTE and owner associations to raise awareness of owners on such matters as bad practices and fraud by companies offering unrealistic resale facilities. Such campaigns, however, tend to impact on existing owners rather than the general public. Examples of good practice would be the DTI leaflet explaining the timeshare product. The creation of VOICE to advise and assist consumers across Europe, acting as a Pan European organization is also of great value. Further, TATOC would suggest that a series of media campaigns including television advertising as is currently being carried out to warn consumers of fraudulent prize competitions (little old dear and dog).

d) Would you support an insertion in the Directive of a provision obliging Member States to inform consumers about the national laws transposing the Directive (like in the Distance Selling Directive (97/7/EC) Article 16) and encourage information about codes of practice?

Response Question d): It would indeed be a good idea for Member States to have a campaign raising general public awareness of the need for caution when entering into contracts, especially where there is any type of marketing pressure or aggressive technique applied. On the specific matter of timeshare: Even though there is a general improvement in consumer awareness of genuine timeshare products this is unlikely to be as a direct result of consumer familiarity with the Timeshare Directive itself. TATOC would support an inclusion in the Directive obliging Member States to advise consumers of the national laws transposing the Directive. However, the method by which this is delivered by Member States would be crucial to any success and benefit achieved. Simply to publish a list of associated laws would be paying lip-service to the objective and would achieve little if any benefit. The real answer would be for Member States to have an awareness campaign:

• To raise consumer awareness of what the Timeshare Directive requires;
• To advise what national laws deliver this;
• To explain how these laws operate in meeting the requirements of the Directive;
• To advertise who the regulatory bodies are that investigate and enforce the laws;
• To ensure consumers are aware of any advisory bodies/consumer associations who are available to advise and assist them;
• Especially to ensure consumers are made aware of the limitations of the Directive and especially of the products/services that do NOT benefit from it's protection.
  

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