We recently became aware of an interesting development in relation to a seemingly straightforward finance contract claim against Barclays Partner Finance (BPF) for the lending of funds to purchase a fractional timeshare with Club la Costa (CLC). The claim was presented on the grounds that a fractional contract was sold intimating that ownership would represent an “investment”. Either using the word or implying that a timeshare contract is an “investment” is against the EU Timeshare Directive 2008. When adopted into UK Statute Law this created The Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010,
Within the legislation, section 14 (3) makes it abundantly clear that referring to a timeshare as an investment is not allowed, and we quote:
“(3) A trader must not market or sell a proposed timeshare contract or long-term holiday product contract as an investment if the proposed contract would be a regulated contract.”
By inferring that the ownership would be an investment, as stated above this would constitute an investment and would therefore be a “regulated activity”meaning that CLC would come under the rules of the Financial Services and Marketing Act 2000 (FSMA) and would need to be regulated by the Financial Conduct Authority, which of course they are not, at least not for investment advice.
What happened next?
The claim was duly submitted five years ago to BPF who, as to be expected, rejected it. Despite numerous defences by the lawyer, in this case a lawyer collaborating with M1 Legal, all fell on stony ground as BPF stood their stance. Not satisfied, the lawyer took the only course available and that was to escalate the claim to the Financial Ombudsman Service (FOS).
After due consideration,a decision was reached in October 2021. The investigator, and later an Ombudsman at the FOS upheld the claim andinstructed BPFto refund the client in full plus 8% interest as standard, however this is where it gets interesting.
An unprecedented move
As a consequence of the FOS decision, and in an unprecedented move Barclays Partner Finance applied for a judicial review against the FOS through the High Court in London. In another leading case of FOS involving Diamond Resorts and Shawbrook, Shawbrook made the same move and requested a judicial review against the FOS shortly after the case of Barclays Partner Finance. Apparently Barclays Partner Finance together with Shawbrook Finance and Hitachi Finance, joined forces against the FOS and the consumers. One has to ask why Hitachi became involved, when in reality the case in question has absolutely nothing to do with them, we will look at this later but initially, as the title of this article suggests, maybe there is safety in numbers.
Judicial review (JR) is the process of challenging the lawfulness of decisions of public authorities.The finance companies requested the JR in order to challenge the decision-making process of the Ombudsman citing that he had exceeded his remit and had not correctly adhered to the law.
On 12 May 2022, the judge presiding over the decision to allow the judicial review refused to give permission to proceedbased on the grounds that the Ombudsman should be allowed to reach a decision considering what, in the opinion of the Ombudsman, is fair and reasonable in all the circumstances of the case and the decision of the Ombudsman should be read as a whole. The judge also confirmed that the timeshare was sold as an investment.
Where to now?
Needless to say, BPF have requested a further hearing in accordance with the limited time frame window afforded them by the judicial review. Now both the claimant and FOS will have to wait for a hearing date and of course the outcome.
Questions that need answers
BPF is already a major supplier of finance to the timeshare industry both in Europe and also the USA, BPF was familiar with the product and was happy to lend on an unsecured basis. Names mentioned above being Shawbrook and Hitachi (now Novuna Personal Finance) are also very actively engaged in lending UK owners funds to purchase timeshare. It’s interesting to note that the in the High Court of Justice application for judicial review the following parties are quoted:
- Claimant – Clydesdale Financial Services trading as Barclays Partner Finance.
- Defendant – Financial Ombudsman Service Limited
- Interested Parties – Club la Costa (CLC) Resort Developments Ltd
In the other lead case mentioned the parties are: Claimant – Shawbrook Bank Limited; Defendant – Financial Ombudsman Service Limited; Interested Parties – Diamond Resorts (Europe) Ltd and for some unknown reason Hitachi are also cited by Shawbrook as an interested party, why? Whilst we stated above that BPF are a major supplier of timeshare finance, would it not be fair to ask whether their understanding of fractional contracts retailed by developers, such as CLC, are indeed timeshare or investments. It becomes clear that both the FOS and presiding Judge, Mr. Justice Calver reject that timeshare sold as fractional contracts are investments but if presented as such would clearly create an unfair relationship between the fractional product and the lender.
Our thoughts
It doesn’t take a mathematics professor to figure out that fractional ownership doesn’t offer any real form of investment potential. At what is now known as Ramada Hotels & Suites (CLC Mijas Costa) Apartment sale prices start at €150,000. If one of these apartments were sold in 50 one week fractions (2 weeks kept back for maintenance) then each fractional owner would pay €3,000. At CLC sale price of one the fraction would be nearer €20,000 per week meaning our €150,000 apartment has in fact sold for €1,000,000 Given that a fractional contract is normally for a term of 15 years, is it possible that a €150,000 apartment will be worth €1,000,000 in 15 years? Even if this should be the case it only means a return of capital, hardly an investment. This of course doesn’t include the cost of finance which we will look at below.
As we stated in previous articles, because of the cost of entry level timeshare purchase, in many cases loans are necessary. Since timeshare has little or no asset value, loans cannot be secured by the purchase. Unsecured loans regularly bring with them interest rates of 19%+ APR . With entry level timeshare now around £20,000, a ten year loan at 19% would mean a total repayment of £44,800 which includes interest payable of £24,800 this interest alone is greater than the principle borrowed. To service the monthly repayments will cost £374; affordability must be a big issue.
Surely in the light of this case it’s time for both the lending institutions and the FCA to look deeper into loans for timeshare purchase, especially those where there is explicit terminology intimating that it’s not timeshare but an investment. Car loans are also unsecured but at least if circumstances change and the repayments become unaffordable the car has a residual value to at least pay off some of the outstanding balance, not so timeshare. Resorts and developers won’t buy them back and it’s surprising what you can buy on eBay for $1 because there is virtually no resale market, our comments on the resale market may be viewed here.
The ramifications of this case could well send shockwaves through the timeshare industry and associated finance companies and in our opinion not before time. Those sitting in the ivory towers of developers’ offices or finance companies don’t have to listen to distraught owners, some of whom are in tears; we do, via calls to our helpline, many who purchased timeshare with a loan are now in financial dire straits. Most just want to get rid of their timeshare and whilst this may be possible, we have the unfortunate task of informing them that exiting will not cancel the finance, most think they go hand in hand, but of course they don’t. Believe us, it’s really not a nice experience to hear distraught owners crying down the phone in anguish. TCA hear almost every day those who have been cajoled into purchasing timeshares on finance and can no longer afford to pay for them, maybe this case may bring a glimmer of hope.
Our thoughts are that timeshare purchase under any circumstances is not really a good idea in this day and age, but to buy one with overpriced unsecured finance, well that is something that should not even be considered and avoided at all costs, costs being the operative word.
As always if you would like to share your thoughts on this story or any other timeshare related matter the TCA would be happy to hear from you.
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