Saturday, October 25, 2008

Time called on Timeshare Touts

A key European Parliament legislative report is set to benefit those who use time shares and holiday clubs. Two thirds of time-share owners in Europe are from the UK, and the new legislation will strengthen UK consumers' rights.

LibDem MEP Graham Watson commented;

"For far too long time share touts have been conning British holiday makers. They will no longer be able to charge fees and deposits upfront and then disappear off the face of the earth. Now money won't be changing hands until after a 2 week cooling off period.

"It's going to be much easier for consumers to pull out of any contracts in the first two weeks if they change their minds.

"Companies will also have to provide contracts in the language of the customer's choosing. There will be no more dodgy contracts in foreign languages that some British tourists don't fully understand."

What rights do consumers currently have with regard to timeshare contracts?

According to the 1994 Timeshare Directive, all Member States must give buyers of timeshare the following protection and rights:

A right to a 10-day cooling-off period counted from the day buyers sign the timeshare contract. During the cooling off period, buyers have the right to cancel the contract without giving any reason and at no cost, apart from possible legal costs where Member States allow for this in their legislation.

  • Sellers are strictly prohibited from taking deposits from buyers during the cooling off period.
  • Sellers have to provide purchasers with a brochure if requested. The brochure must contain information about the timeshare property. The consumer can choose between the language of the country where the property is, or the country of which he is a national.
  • The consumer can also choose in which language he/she would like the contract. Sellers must provide consumers with a contract in writing.
  • If the timeshare seller provides or arranges for a credit agreement for the consumer to buy the timeshare, this agreement must be cancelled automatically if the buyer exercises his/her right to cancel the timeshare contract within the cooling-off period.
However, these rights only apply if the contract is for one or more weeks accommodation per year, in an immovable property (real estate), for three years or longer. Furthermore, these are basic minimum standards set out in the Directive. Member States may choose to supplement these in their national legislation.

What is the impact of the timeshare sector on the European economy?

Some figures indicating the impact of this sector on the European economy can give an idea of the importance of the timeshare industry for the EU. According to recent industry data, there are approximately 1,500 timeshare resorts, creating 85,000 timeshare units annually. The number of EU timeshare units is increasing by about 2 % annually based on 2005 estimates.

This activity yields a total economic output of EUR 10.5 billion, of which EUR 4.2 billion in Spain alone. It creates 40,000 jobs across the Union. With the corrective action taken by the EU in this legislative proposal, these numbers will become even more significant in coming years.

What is the problem with some new products that have come onto the market since the 1994 Directive was adopted?

Since 1994, a number of new products have come onto the market that fall outside the scope of the current Directive. Therefore consumers who buy them do not enjoy the same rights and protection as outlined above. For instance, they do not have a right of withdrawal and there is no ban on deposits.

Which are the products?

The new products include timeshare-like products and discount holiday clubs. Other transactions which are linked to timeshare, but that are not covered by the Directive, are resale and exchange.

What is meant by timeshare-like products?

"Timeshare-like products" are economically equivalent to timeshare, but are crafted in a way that falls outside the legal definition of the directive. Examples of new timeshare-like products are contracts that provide for repeated stays in a holiday accommodation, but the contracts
are for less than 3 years or for stays of less than one week, or contracts relating to boats or caravans (i.e. moveable property) rather than fixed location property.

What are holiday discount clubs?

Consumers signing up to become member of a holiday discount clubs, pay a substantial initial fee to join the club. The benefit of the membership is access to a booking service where they can book discounted accommodation, flights, rental cars and other services. In the marketing
of these clubs, consumers are often promised discounts of 70% or more in luxury hotels and cheap flights. However, many people end up being disappointed, as the discounts are not what they expected and the best destinations are heavily oversubscribed.

The new Directive will regulate "long-term holiday products". This is a legal term which includes many different types of contracts which are currently offered in the market place. These are known for instance as holiday discount clubs, international travel clubs, vacation exchange
clubs and sometimes have names like "Luxury Dream Holiday Exchange".

Whatever they are called, consumers who sign up for "long-term holiday products" will be granted the same rights.

The proposal would cover these products, so that consumers would for instance be able to benefit from the right to withdraw from the contract within 14 days.

Why do the new proposals also cover resale?

Resale mediation is not covered by the 1994 Directive, but there are many consumer complaints about these contracts. People who own timeshare are often approached by agents offering to re-sell their timeshare at a good price. If the consumer is interested in selling, the agent may
request a fee (either a percentage or a flat fee of EUR 500-3000). Many consumers have complained that after they have paid the fee, the agent either disappears or fails to make the sale. In either case, the consumer has no way of getting their money back.

The new proposal will deal with the mediation contract, i.e. the contract between the consumer selling his timeshare and the resale agent. Resale agents will be obliged to provide good pre-contractual information in the consumer's language, deposits will be prohibited and consumers will be entitled to a cooling-off period.

Why is there a need to regulate exchange of timeshare?

If the timeshare resort is affiliated to an exchange scheme, timeshare owners have the option of paying a fee to join the scheme. Members "deposit" their week into an exchange pool, and request exchange from the pool of weeks deposited by other members worldwide. At present these schemes are not covered by the basic rules on information, the ban on deposits or the cooling-off period.

There are fewer complaints related to exchange than to resale. Nevertheless, the complaints focus on the "overselling" of exchange schemes. Consumers are disappointed when they find out that the options are more limited than they expected. Given that almost 80% of consumers
purchasing timeshare quote the range of destinations available through exchange schemes as a "reason to purchase", it is crucial to ensure that consumers are adequately informed before making a decision. Ensuring that consumers also have a right of withdrawal from these schemes is also essential.
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