Timeshare and long-term holiday products - briefing

22 October 2008
by eub2 -- last modified 22 October 2008

Consumers across the EU will benefit from greater holiday protection - when they buy and resell timeshare holidays, or timeshare-like holidays on cruise boats, canal boats, caravans and "discount holiday clubs" - under new rules endorsed by the European Parliament today. The aim of the new Directive is to boost consumer confidence in the Timeshare industry (worth over EUR 10.5 billion and responsible for more than 40,000 jobs across the EU) and to eliminate the rogue traders who cause problems for consumers and bring legitimate operators into disrepute. Up to now, EU rules on Timeshare have given consumers basic rights with regard to clear information, the right to withdraw and change their mind, and a ban on deposits. The new Directive which the European Parliament voted in favour of today, aims to tackle loopholes in the current rules. Most importantly, it will extend the scope of the 1994 EU Timeshare Directive to cover new products which have emerged on the market – like discount holiday clubs, and "timeshare-like" holidays on cruise boats, canal boats and caravans. It will also extend protection to important areas like timeshare resale and exchange clubs. The new rules should ensure that consumers are equally well protected across the EU and will create a level playing field in the market for timeshare and certain other holiday-related products.

What is timeshare?

Timeshare is the right to spend a period of time (i.e. one or more weeks) in a holiday property for a specified period of the year for three years or longer. Timeshare holidays are very popular in many EU countries. For example, the UK, Sweden, Germany, Italy and Spain, have some of the highest number of consumers buying timeshare holidays. Spain, Portugal, Germany, Italy and France have substantial domestic timeshare industries. Countries like the Czech Republic, Hungary and Poland show a growing market for consumers buying timeshare holidays.

The 1994 current Directive protects consumers' interests by:

• Giving buyers the right to information in a prospectus before signing a contract.
• Seeking to prevent 'pressure selling' by allowing for a cooling-off period (right of withdrawal) of at least 10 days.
• Prohibiting operators from taking deposits from buyers during the cooling-off period.

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 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 € 10.5 billion, of which € 4.2 billion in Spain alone. It creates 40,000 jobs across the Union. With the corrective action taken by the EU in this new Directive, 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 a member of holiday discount clubs, currently 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 new Directive will cover these products, so that consumers will for instance be able to benefit from the right to withdraw from the contract within 14 days. It will also make sure that consumers will no longer pay substantial initial fees but instead the payment will be divided into yearly instalments. The consumer will in addition be able to cancel his membership before each yearly payment.

Why do the proposed new rules 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 500-3000 euro). 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 Directive 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.

Many of the current problems with timeshare are caused by fraudsters trying to con consumers. Shouldn't these problems be dealt with by better enforcement of the rules rather than extending them?

Some of the malpractices in this area are outright fraud, which of course should be dealt with by the police, civil law and criminal law enforcement. However, for the majority of traders who wish to operate legitimately and play by the rules, we should provide a level playing field for all operators in the market. Traders who wish to offer products that are similar or linked to timeshare should be subject to the same rules, and consumers have the same protection.

Why do we need additional regulation when the industry body - the Organisation for Timeshare in Europe has established Codes of Ethics?

The Commission values self-regulation such as the Organisation for Timeshare in Europe's Codes of Ethics. However, such codes only apply to those traders who subscribe to the code. Unfortunately, a large part of the industry, such as many holiday discount clubs, do not subscribe to the OTE Code.

What is the link between the proposed Directive on Consumer Contractual Rights and the Timeshare Directive?

The proposal for a Directive on Consumer Contractual Rights will recast four existing Directives into one single instrument: the Distance Selling Directive, the Doorstep Selling Directive, the Consumer Sale of Goods and Guarantees Directive and the Unfair Contract Terms Directive. It will provide for a number of rules on horizontal issues which are common to these Directives. The Directive on Consumer Contractual Rights will apply to timeshare only as regards unfair contract terms. If a specific clause in a timeshare can be considered to be unfair to the consumer it may be invalid under the proposed Directive. For the horizontal issues, such as the right of withdrawal, the specific rules in the Timeshare Directive will apply. These rules are however very similar to what is proposed in the Directive on Consumer Contractual Rights.

CASE STUDIES (from the European Consumer Centres unless otherwise indicated)

French consumers

The consumers were contacted in July 2006 by a company based in Portugal. The company offered to buy the timesharing-weeks of both consumers. The consumers took a flight to Lisboa in Portugal on the 18th of October 2006. After a few hours of negotiation, they signed the contract with the company. They initially paid 1.887 euro and then 7.648 euro for the alleged administrative fees. The consumers were promised to receive 17.450 euro within 6 months. Since then they have not heard anything from the company.

German consumers

The consumers had been approached on the street in Greece and were given a lottery scratch ticket. Apparently, they were advised to collect their first prize in a “tourist office”. They were taken to the “tourist office” via taxi, had a long conversation with a German representative of the company and were subject to a presentation and a tour in a hotel resort. After the tour they had another conversation with the “main representative” and were offered a holiday package of 5 weeks accommodation (for up to 4 persons) for the price of 4.950 euro. They were told that if they'd pay immediately they would be offered an additional week on Crete for free. After the consumers did not accept this offer, they were lured into a test package for 2.950 euro. They accepted this offer and signed the documents and paid via credit card an advance payment of 750 euro. The fixed period for taking the 3 weeks is 35 months. The consumers, after returning home, wanted to recede from the contract.

Portuguese consumers

A consumer contracted a week in timeshare with an operator in Algarve, after being approached on the street by the sale promoters of another company of resale of timeshare. The price of the time-share was of 10.125,39 euro, with an advance payment of 2.493,99 euro. This advance payment is forbidden. The consumer also paid in advance a maintenance fee, on a total amount of 4.338,10 euro.

The contract did not indicate the “cooling off” period. When the contract was signed, the customer was promised a guaranteed valorisation of the investment and the possibility to resale whenever he wanted.

The consumer never used the timeshare.

The operator was contacted by an ADR body on behalf of the consumer but never replied. Although until 2003, this ADR was able to settle amicably conflicts with this operator with reimbursement of consumers, since 2004 the operator does not react to mediation attempts. This case and 15 more where reported to the national enforcement authority ASAE – Autoridade da Segurança Alimentar e Económica.

Over the past 3 years, the European Consumer Centre in Portugal has handled 25 cases against this operator and denounced all situations to the national enforcement body.

Swedish consumers

The consumers signed a contract with a discount holiday club on the 1st of November 2006. They paid 5 700 euro when signing the contract.

The contract stipulated a one-week cooling off period. If the consumers were to withdraw from the contract within that period they would be charged a fee of 1250 euro.

The consumers did decide to cancel the deal, and sent the trader a letter on the 5th of November, within the cooling-off period and said that they wanted to cancel the deal and get their money back.

The company sent a letter to the consumers on November the 22, where they confirmed reception of the cancellation of the contract, and that the consumer would get 4 450 euro back, 5.700 euro – the fee 1.250 = 4 450. After that the consumers sent four letters to the company, from November 2006-february 2007 asking for the money, but so far no money has been paid back.

ECC Sweden holds the view that the consumers have cancelled the deal in a correct manner, and that they therefore are fully entitled to get a reimbursement for what they paid when signing the contract. The administrative fee of 1250 euro is far too high to be considered a reasonable administrative fee.

Italian consumers

This case concerns two consumers who were already the owners of Timeshare in Kenya. During a welcoming vacation in Spain they are offered, during a mandatory meeting, to buy an additional quota of timeshare property at the place they were residing, paying more money and signing simultaneously a proxy to sell their timeshare to the same company in Kenya (in reality the onus of the maintenance costs were still on them until the sale would occur and in spite of the exchange which had taken place). The consumers at first accept, but then later they change their mind within the time limit for this. They are then contacted again by the company trying to convince them to make the purchase, when they fail they assure the consumers that they will receive a full refund (over 2.450euro) ...however the company never returned the money: this event dates back to 2004.

UK consumers (not ECC case)

A British couple attended a three-hour long timeshare presentation while on holiday in 2005, and were persuaded to sign a timeshare contract with a three-year "trial" period for the cost of £3,495.00. Back home, a change of employment meant that the couple could not afford membership in the timeshare club anymore. They wrote immediately to the club and requested cancellation of the agreement. The company, however, replied that their request was sent four days too late, as the time limit for cancellation had expired. However, the couple was never informed that there was a cooling-off period when signing the contract, nor was this clearly stated in the sales agreement.

The couple has sought advice from the "Timeshare Consumers Association" and the "Organisation for Timeshare in Europe", but with no positive result so far.

In this case, several rights afforded by the present timeshare Directive have been violated. The sale was pushed and the information provided to the buyers was not compliant with the laws. They were not informed about the right to cancel the agreement until the cooling-off period was over. Finally, they had to deposit the requested amount before the cooling-off period had expired.

Source: European Commission