I have been encouraged to author an article about the above schemes which have entered the world of timeshare and which occupy the mind of many Consumers’. It’s not the first time I have written an article on credits, vouchers and points however matters have moved on since I last discussed it.
This article is entirely written with my TCA hat on at all times and hopefully identifies the issues.
Firstly credits vouchers and points are not timeshare products and this view was also concluded by Mr. Andy Allen of the European Consumer Centre (ECC) who stated as follows;
“This new product of a leisure credit scheme falls outside the revised legislation. We want to draw Consumer’s attention to the fact that this product is not covered by the EU timeshare directive and that Consumers need to be aware that they do not have the protection given by this legislation. If they enter into contracts for this type of product”
He also went on to state that;
“Consumers should understand that they will have no cancellation rights, cooling off period, deposit or Consumer information rights under the timeshare legislation”.
Whether Consumers agree or disagree with that summation, that in reality is the case.
Therefore should we as a Timeshare Consumer Association become embroiled in the issue, as the buying and selling falls outside the timeshare industry?
Introduction
The selling and buying of credits are not covered by the Long Term Holiday Products Regulations 2010 and neither by the Timeshare Directives. In short Consumers are buying either a club membership or a currency (I will explain later). That being said credit and voucher issues ought to be addressed by the Credit and Voucher Association not the Timeshare Consumer Association. We have contacted the UK Gift Card and Voucher Association and they have explained that the issuers of all credits points and vouchers we are aware of, are not members of their association. That being the case they see no reason to comment at this stage however, they have expressed an interest in matter. That body is an independent association like ourselves and do not have a mandate to investigate organisations.
This article is therefore is an opinion that hopefully assists enquiring Consumers.
Complexity of holidays
Years gone by, you phoned up a hotel, booked your rooms and then went on holiday, later package holidays developed and company pre booked rooms obtained a discount and sold them to holiday Consumers involving 3 parties. Nowadays, you have hotels, coach firms, airline booking agents, holiday companies, and many others so as to deliver a holiday product. So do not be deluded by the number of connected companies, brands and entities as nowadays this type of organisational system is everywhere from Pastie shops, retail outlets and holidays companies. Don’t be side tracked by irrelevant issues.
In the event some parts of the company structure are abroad is again an irrelevance to the issues and tests of fairness. In respect to Amazon and Starbucks they trade in the UK yet are based else ware and their own reasons (usually more tax effective).
In respect of credits and vouchers
These are without doubt a currency. In reality you pay a sum of money to a seller and they take your money and give you a corresponding currency which they use in their business model. Disney does this in the form of Disney dollars. Other currencies are Boots points, Marks and Spencer vouchers etc. In some amusement parks they also take your money and give their own tokens. All the aforementioned are currencies.
In an effort to be helpful timeshare Consumers should be very familiar with timeshare point systems.
Point System explained
Consumers who buy point based timeshare products pay over a sum of money to a sales man who sells you a product and that product is either a right or a membership in a club. The right/membership (in short) is to become a member of a select club. That in reality is what you are paying for and has been adjudicated historically.
The benefit which membership brings varies and is dependent upon the number of points a Consumer buys.
By way of explanation Consumer “A” buys a 1,000 points membership and his membership entitles him to 1 week in November. Consumer “B” buys a 2,000 point membership which entitles him to 2 weeks in November. The amount charged for each membership may be varied.
The cost of acquiring say a 5,000 point membership varies from Consumer to Consumer, as it is dependent upon the negotiations. I.E the seller wants £10,000 and some consumers will pay less depending on their negotiation skills. To suggest that it’s a fixed price is baboonery.
Having acquired membership the member is given an annual allocation of points (the first years points might be included in the initial sales price). The points grant may also be subject to the member complying to the terms and conditions set by the club.
Being in receipt of the allocation of points, the member can exchange those points for holiday accommodation. As the holiday club membership exceed 1 year it is regulated. The accommodation/point exchange is also subject availability.
- Consumers pay a sum of money for a membership;
- Membership entitles them to an internal currency called points;
- That currency can only be redeemed by the club, therefore is a closed loop currency;
- The redemption is subject to availability and the availability is controlled by others.
The sale of the club membership is regulated in that the Consumer is buying the membership for a purpose and that purpose is to obtain a long term holiday product.
The point’s club membership product is regulated under the Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010.
And the Timeshare Directives. Other regulations and laws may also apply.
What is a closed loop currency?
A point currency is a closed loop currency as they are only sold by companies/entities who cashed them in for the future benefits which were promised in the sales contract described above.
Closed loop currencies can come in two forms, paper or electronic.
Paper currencies have a requirement in that they have to state the redeemable value on them. No Consumer (to our knowledge) has ever been provided any corresponding currency paper. If they do not state a redeemable value they are unlawful.
The only other form of closed loop currency is electronic currency. Such currencies are regulated by The 2nd Electronic Money Regulations 2011. In the UK, those regulations are policed by the Financial Services Authority (FSA). To operate an electronic currency the issuer is required to be registered with the FSA . (Part of that registration process is a test as to the effectiveness, the manageability and (amongst other things) how fit for purpose, the product requiring the licence is). This body does have a mandate.
If a seller does not have a licence, has not made an application or had his licence revoked, a complaint should be referred to the FSA for action.
If upheld (by the FSA), the issuer could be in breach of the regulations and requirements. Therefore the contract might become unlawful and voidable.
The advice therefore should be sort from them. It’s free to do so.
Some companies selling vouchers and credits currencies however are not selling long term holiday products.
The credits and vouchers are acquired in exchange for money and those credits and vouchers can be exchanged for a varity of products, i.e spa days, hotels, air line tickets, adventure days etc.
In most sales contracts a Consumer is not committed to buy holidays in the future, they are neither committed to acquire flights. Therefore it is true to say that a Consumer buys a currency and can spend it whenever they so choose.
The correct question is do they have a currency licensed? If not the situation should be reported to the FSA not ourselves as we do not deal in the mis selling of currencies.
As stated if the currency is not licensed then the transaction might be voidable. If payment was made by credit card or linked loan the entire payment is recoverable from the lender if the FSA confirm the currency is not licensed.
That I hope deals with the issue of what is or is not a credit or voucher.
How the product is sold is a separate issue and again Consumers are entitled to rely upon regulations.
These regulations have been designed to establish rights for the Consumers as a whole (including Timeshare Consumers). They trump the laws of tort and general common law if the jurisdiction courts submit to the EU regulations.
The Regulations
All sellers, traders and suppliers who use standard contract terms with Consumers must comply with these Regulations, which implement EU Directive 93/13/EEC on unfair terms in Consumer contracts (the Unfair Contract Terms Directive).
The Regulations came into force on 1 July 1995 and have been amended several times. They were re-issued on 1 October 1999. The Office of Fair trading (OFT) enforcement role has been shared with ‘Qualifying Bodies’, including all Local Authorities (providing a trading standards service), specialist regulators and the “Which” organisation?
This TCA guidance does not state the law, only a view on how the law may or will to be interpreted by the courts.
Enforcement
Under the Regulations the OFT has an ordained duty to mull over any complaint received about unfair terms. Where a term (s) in a contract is considered unfair, enforcement action may be taken on behalf of Consumers to stop its use in part or whole and if necessary by seeking a court injunction in England and Wales or an interdict in Scotland.
The OFT cannot take action on behalf of you or seek redress for individual Consumers.
However the Regulations transmit to Consumers certain legal rights in respect of unfair terms. Being aware of this Act Consumers can take their own legal advice and take action independently of any planned or preserved action taken by the OFT or the other enforcers.
In addition, Part 8 of the Enterprise Act 2002 gives the OFT and certain other bodies (enforcers) separate powers against traders who breach and continually breach Consumer legislation.
Under Part 8, the OFT and other enforcers can seek enforcement orders against businesses that breach UK laws giving effect to specified EC/EU Directives – including but not limited to the Unfair Contract Terms Directive. This is generally actioned where there is a real (as opposed to fanciful) threat of harm to the collective interests of Consumers.
In addition, the Enterprise Act creates the legal framework enabling the OFT to perform a coordinating role to ensure that action is taken by the most appropriate body noted in Unfair contract terms guidance and dependant on each case.
1)The Test of fairness
The Regulations apply a test of fairness to all standard terms (terms that have not been individually negotiated) in closed loop currencies contracts used by businesses with Consumers, subject to certain exceptions.
The main exemption is for terms that set the price or describe the main subject matter of the contract (usually known as ‘core terms’) provided they are in plain and intelligible language. The Regulations thusly apply to what is commonly called ‘the small print’ of standard form Consumer contracts.
A standard term is unfair ‘if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of any Consumer.
Unfair terms are not enforceable against the Consumer.
The requirement of “good faith” embodies a general ‘principle of “fair and open dealing”. It means that terms should be expressed fully, clearly and legibly and that terms that might disadvantage the Consumer should be given appropriate prominence (i.e in bold).
However transparency is not enough on its own, as good faith relates to the substance of terms as well as the way they are expressed and used.
It requires a supplier of a product or service not to take advantage of Consumers and user’s who are in a weaker bargaining position or lack of experience, in deciding what their rights and obligations shall be.
Currency sales contracts should be drawn up in a way that respects Consumers’ legitimate interests.
In assessing fairness, we take note of how a term could be used. A term is open to challenge if it is drafted so widely that it could cause Consumer detriment. It may be considered unfair if it could have an unfair effect, even if it is not at presently being used unfairly. In practice and there is no “current” as per Lord Bingham of Cornhill in Director General of Fair Trading v First National Bank plc [2001]UKHL 52. For instance if a seller changed its purpose and altered its offering so that an altertative forward purpose could be introduced then those new terms would be removed from the contract.
Unfair Contract Terms
The inclusion of contractual terms are subject to a test (in the courts) so that they are used fairly. In such cases fairness can generally be achieved by redrafting the term more precisely, so that it reflects the practice and current intentions of the supplier. These are generally done if the terms do not read right and does not fully express the interests of the parties or they frustrate the purpose of the terms to the detriment of the contracting parties.
Schedule 2 to the Regulations illustrates the meaning of ‘unfairness’ by listing some types of terms which may be regarded as unfair. The 17 groups of terms covered in Part II correspond to the 17 headings used in paragraph1 of Schedule 2.
The terms listed are not necessarily unfair – it is a “grey area” not a so called ‘black’ list. That said terms are under suspicion of unfairness if they either have the same purpose or can produce the same result as terms in the ‘grey’ list. They do not have to have the same form or mechanism.
All the illustrative terms listed in Schedule 2 have the object or effect of altering the position which would exist under the ordinary rules of contract and the general law if the contract were silent. They either protect the supplier from certain sorts of claim in law which the Consumer might otherwise make, or give rights against the Consumer that the supplier would not otherwise enjoy.
The OFT’s/courts starting point in assessing the fairness of a term is, therefore, normally to ask what would be the position for the Consumer if it did not appear in the contract. The principle of freedom of contract can no longer be said to justify using standard terms to take away protection Consumers would otherwise enjoy.
The Regulations recognise that contractual small print is in no real sense freely agreed with Consumers. Where a term changes the normal position seen by the law, as striking a “fair balance” it is regarded with inquisitive suspicion.
Transparency is also fundamental to fairness. Regulation 7 says that standard terms must use plain and intelligible language. Taking account of the Directive the Regulations implement, this needs to be seen as part of a wider requirement of putting the Consumer into a position where he can make a reasonable informed choice. Thus even though a term would be clear to a lawyer, we will probably conclude that it has the potential for unfairness if it is likely to be unintelligible to normal Consumers and thereby cause detriment, or if it is misleading (in which case its use may also be actionable as an unfair commercial practice).
Moreover, unfair contract terms in guidance 11, Consumers need adequate time to read terms before becoming bound by them, especially lengthy or complex terms, and this can also be a factor in assessing fairness.
Examples of unfair terms
One point needs to be particularly stressed any revised terms should not be seen ‘cleared’ by the OFT for general use. The revisions reflect our assessment of what a court would be likely to consider fair in the particular contract under consideration. Their view and that of others are not binding on the courts, or upon other enforcers, nor does it fetter the freedom of the OFT itself to take future enforcement action in the interests of Consumers. They have a statutory duty to consider complaints about any terms brought to our attention, including any terms that have been revised as a result of our actions.
The Consumer Protection from Unfair Trading Regulations 2008
The Consumer Protection from Unfair Trading Regulations 2008, or CPRs, came into force on 26 May 2008, transposing the Unfair Commercial Practices Directive into UK law. They introduce a general duty not to trade unfairly and ban certain specified practices. The OFT and the Department for Business, Enterprise and Regulatory Reform have jointly issued guidance on the CPRs.22 www.oft.gov.uk/shared_oft/business_leaflets/530162/oft1008.pdf
Bait-and-switch is a form of fraud used in retail sales but also employed in other contexts. First, customers are “baited” by merchants’ advertising products or services at a low price, but when customers visit the store, they discover that the advertised goods are not available, or the customers are pressured by sales people to consider similar, but higher priced items (“switching”).
Legality
In England and Wales, bait and switch is banned under the Consumer Protection from Unfair Trading Regulations 2008. Breaking this law can result in a criminal prosecution, an unlimited fine and two years in jail
For more information regarding this article or assistance in any other timeshare related issues please contact the TCA on 01908 881058 or email: info@TimeshareConsumerAssociation.org.uk