In this article it must be said that we are only going to focus on loan agreements from UK financial institutions for the purchase of timeshare in Spain. Although we cannot definitively point out the exact protective legislation, we will be looking at the possible involvement of the lending regulator, the Financial Conduct Authority (FCA) and to a lesser degree the Prudential Regulation Authority (PRA). First we need to examine why Spain and what implications.
Spanish timeshare law
Much has been written concerning Spanish law 42/98 enacted on the 5th January 1999. We don’t propose to cover this law in detail as we are more interested in the legal outcome of literally thousands of court cases that have been adjudged confirming that certain timeshare contracts and subsequent ownership were deemed in contravention of the above law.
In finding timeshare developers and resorts guilty of infringing the law, judges ordered not only a refund of funds equating to the purchase price but also the annulment of said purchase contracts. Annulment is subtly different to cancelation in as much as it voids the contract, to void in law is to mean having no legal force or effect; not legally binding or enforceable. In simple terms the contract should never have existed. A straightforward cancelation would not offer financial recompense.
Spanish Court Rulings
In an interesting development, from our research we have established that on a number of occasions the Spanish courts have not only deemed the timeshare purchase contract contravened Spanish law and was therefore illegal but the associated finance contract was also illegal. These decisions were taken irrespective of the jurisdiction of the lender, which in all cases loans were facilitated by UK lenders.
It may be argued that the UK departing the EU would have an impact on EU member court judgements being enforced after the transition period. EU instruments on the recognition and enforcement of judgments will continue to apply if the judgment to be recognised is the result of legal proceedings instituted before the end of the transition period being 31st December 2020.
Funding timeshare purchase
Over the years the buying in price of timeshare has risen quite dramatically. An entry level timeshare in Spain will now be about £20,000. Given this, not many individuals have spare cash to make a purchase, enter the lending institutions.
Loans to purchase timeshare are given on an unsecured basis, these types of loans also bring with them massive interest rates when compared with secured loans. 20% or more would be the typical annual percentage rate (APR) this is because in the event of default there is no security the bank could repossess. As we have stated on many occasions, timeshare has no real intrinsic monetary value so no bank would accept one as security.
The major problem
After a successful outcome in the Spanish court the timeshare contract terminates, the good news is there is no further liability to future costs such as maintenance fees but here’s the rub. Just because the timeshare is annulled, this has no effect on the outstanding finance contract. As far as the lending institution is concerned, you borrowed money and you have to repay it. In most circumstances we can come to terms with this.
By way of analogy, you borrow money to buy a timeshare, after a number you decide you don’t want it anymore and exit your ownership. Tough luck, in this case the lender will still require the loan to be repaid and quite rightly so, but are there other circumstances that are not so cut and dried? Let’s take a look.
Due Diligence
Ever since the original introduction of the Financial Services Act in 1986, the term due diligence is referred to more and more so what is it? Put as simply as we can define, due diligence is an investigation, audit, or review performed to confirm facts or details of a matter under consideration.
In lending terms this would include a loan intermediary checking suitability, affordability, credit checks etc, but what about the lending institution? For sure their due diligence would be to check the intermediary is authorised by the FCA to deal with loans, and to a degree the primary reasons for broking loans such as mortgages, car loans or even timeshare. Beyond that not much else is investigated, so where is this all leading? Let’s look.
Consumer protection
It must be said that the UK has globally some of the strongest law in place to protect consumers from financial loss. By way of example, here is a list:
- Consumer Contracts Regulations
- Consumer Credit Act
- Consumer Protection Act 1987
- Consumer Protection from Unfair Trading Regulations 2008
- Consumer Rights Act 2015
- Consumer Rights Act travel amendments
- Data Protection Act 2018 (GDPR)
- Distance Selling Regulations
- Misrepresentation Act 1967
- Payment Services Regulations 2017 (PSD2)
- Sale of Goods Act
- Supply of Goods and Services Act 1982
- Unfair Terms in Consumer Contracts Regulations 1999
Given this plethora of protection there must be somewhere that offers protection in relation to lending relating to illegal Spanish timeshare contracts. On top of this there are laws that specifically cover unlawful lending and it’s this area that we believe needs investigating.
Our thinking
First we need to set the scene. An individual borrows money to purchase a timeshare in Spain that later is proved to contravene law 42/98. A court case takes place and the contract is deemed null and void. However, as we pointed out above the finance contract is still in force and needs to be repaid, how can this be fair?
Time to revisit due diligence. The lender has checked the intermediary and is satisfied that they are regulated and compliant with FCA rules. The lender has also established that the borrowed funds will be unsecured and used exclusively for the purchase of timeshare, so far so good. Where the lenders due diligence falls down is the failure to ascertain that the funds were being used for a product with a purchase contract, the terms of which broke Spanish statutory law, would this not be an unlawful loan?
Whether money is borrowed to fund a Columbian drugs cartel or a timeshare, the law is the law. Both examples should be equally illegal, although one is far more reprehensible than the other. In our opinion there must be UK laws in place to protect the timeshare consumer in such a case.
It may be argued that a UK lending institution doesn’t need to drill deeper than the primary reason for lending; being a timeshare purchase, but surely the well worn phrase “Ignorance is no defence of the law” comes into play. Let’s look once again at the definition of due diligence:
Due diligence is an investigation, audit, or review performed to confirm facts or details of a matter under consideration.
Presumably from this we can ascertain that certain facts and details were overlooked. If the lender had carried out more comprehensive due diligence then maybe loans to purchase timeshare in direct contravention of Spanish law would not have been granted.
The FCA
Direct day to day regulation of lenders falls under the remit of the FCA, although the regulation of the business itself may also require authorisation from the PRA. The FCA has the onerous task of making sure that any company it regulates must follow a comprehensive set of rules, virtually all of which surround consumer protection.
The FCA has produced a document entitled “Approach to consumers”. We came across an interesting paragraph which we reproduce below:
“We protect consumers by consistent monitoring and engagement with the firms we regulate. The focus of our supervisory work is to maintain continuous oversight of regulated firms to identify, reduce or prevent harm to consumers and markets. To do this, our supervisors take a forward- looking and strategic approach. We aim to mitigate conduct risks before they cause significant harm to customers or markets.”
“We aim to mitigate conduct risks before they cause significant harm to consumers” is what the FCA says. Would you not agree that being lent a considerable sum of money at ridiculously high interest rates to purchase an illegal product is a breach of conduct? Furthermore, still having to continue repayments when a national court and its judges have annulled the contract, does this not represent significant harm? If it doesn’t then we don’t understand the English language.
In essence, the FCA monitoring is, and we quote, to “reduce or prevent harm to consumers”
Enter the Financial Ombudsman Service (FOS)
Many readers have had dealings with the FOS but for those that haven’t, let’s explain who and what they are. The FOS was created in 2000, and was given statutory powers in 2001 by the Financial Services and Markets Act 2000, to help resolve disputes between consumers and UK -based companies that provide financial services, such as banks, building societies, insurance companies, investment companies, advisors and financial companies.
Looking at timeshare, in the event that a complaint or claim against a lending institution comes to an impasse the case may then be referred to the FOS to adjudicate and make a final decision. Last year a freedom of information request was delivered to the FOS with the direct question “how many timeshare disputes are you reviewing at present” the answer surprised us in as much as the number quoted back then was a staggering 4,759!
It may be an assumption on our part, but if the FOS was looking at 4,759 cases, and bear in mind these cases are only referred to the FOS because of a failed claim or complaint at the hands of the lending institution. It may be estimated that when adding the cases still under investigation by the lenders are added, this figure will easily double.
Taking a reasonable guess at the value of each claim and setting this at £20,000, the resultant figure of timeshare related finance claims could well be in excess hundreds of millions pounds. From this the only conclusion is that far from the TCA investigating the FCA should be taking a serious interest in this matter.
Our thoughts
Contained within Section 75 of the Consumer Credit Act is the phrase “jointly and severally liable” we believe that in the case of timeshare lending for an illegal contract the lenders should also be held jointly and severally liable for putting things right. In the case where the Spanish court sentence has been carried out and the awarded monies have been paid, we would expect that the lender should extinguish the remaining loan.
In the case where the timeshare company has filed for administration and/or the court award has not been paid, then the lender should be held jointly and severally liable for not only extinguishing the loan but should refund the whole amount borrowed including capital and interest paid then add the statutory 8% interest.
Finally
With all the consumer protection in place and an extremely strong regulatory framework we cannot understand why the FCA haven’t acted, or at the very least investigated this scandal. We all appreciate that the “city” has an admirable global reputation for excellence in the field of financial services. We further agree that this reputation needs protecting but surely not at the expense of the consumer.
In the recent Barclays Partner Finance Azure lending case, the FCA didn’t come out unscathed, their original intransigence to side with the consumer was noticeable, and from this we would rather hope that they have learnt their lesson.
Given that the Spanish timeshare industry, and lenders collectively decided to ignore statute law for over 15 years since the inception of said law in January 1999, we would once again state that “ignorance is no defence of the law” or putting it another way, ignoring is no defence of the law.
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