Recently we published an article on the subject of timeshare finance and what happens when it goes wrong. We admit we were critical of the “tiger without teeth” approach of the FCA; we were particularly concerned about contacts deemed illegal in Spain still being funded by regulated finance providers in the UK with what appears to be no redress from the regulator.
We recently found out the overworked FCA has now taken on more regulation duties in the form of legislation being passed to regulate the pre paid funeral industry. The new rules apply from 29th July 2022. The FCA announcement may be viewed here.
Research and the numbers
Firstly we have to admit that ascertaining the numbers for timeshare owners who purchased with finance is practically impossible but that won’t stop us looking at comparisons. In relation to funeral plans, we can take a more accurate stab.
According to research carried out by the Fairer Finance organisation, they estimate there are 1.2m active holders of funeral plans in the UK. They further estimate that there is about £2bn of funds managed on behalf of plan holders. On this basis, each plan holder possibly has a fund of £1,666.
Relating to timeshare, in the past decade the average cost of an entry level timeshare was between £15 and £20,000. In many cases, bar a small deposit, most of this is funded by finance, as we said earlier, we cannot say with any degree of accuracy how many UK timeshare owners purchased with finance. Being simplistic, if the entry level is £20,000, when we divide this into £2bn then the number could be 100,000 timeshare owners.
From this it may be ascertained that numerically, more people could be affected if the funeral plan industry goes rogue, but financially the timeshare owner is far more susceptible to financial loss, £1,666 plays £20,000. Doesn’t seem to make sense, does it?
What the FCA says
At this juncture, we thought it would be good to look at the areas the FCA will be regulating and compare it with the timeshare market, timeshare comments are in red:
- Plans that do not meet consumers’ needs or expectations, for example those paid by instalment that do not guarantee a funeral service.
- What about timeshare ownership that doesn’t meet the owners’ needs and certainly not their expectations, but financed nevertheless? Regular finance instalments and maintenance fees don’t guarantee a holiday.
- The use of high-pressure sales tactics by some intermediaries, including cold calling of potentially vulnerable consumers, resulting in consumers taking out plans unsuitable for their needs.
- No laws in place regards cold calling, high pressure sales are rife resulting in a long term contract which may be unsuitable plus finance plans that are equally unsuitable and extremely expensive.
- Consumers paying high prices relative to product benefits, driven by high rates of commission and fees.
- The relative benefits of timeshare versus the product cost have always included high. Commission rates to resort representatives, normally around 15 to 20%. This doesn’t include the developer or resorts commission paid to them by the finance company.
- Poor governance and controls within plan providers, including oversight of intermediaries and potential conflicts of interest where an intermediary gets a high commission.
- There is absolutely no governance or control of timeshare developers, or resorts, barring the inadequate EU law of 2008 coupled with a non enforceable code of conduct from the Resort Development Organisation. Resort sales reps will say anything to get a sale AKA commission, no conflict here is there?
- Plans going unclaimed because the consumers’ families do not know about them, which increases the risk of harm as families cannot use plans they discover at a later date.
- What about perpetual contracts that families may not know about but ownership may be forced on them caused by the demise of the owner.
- Poor financial management of trusts, meaning that there may not be sufficient funds available to cover funeral costs, with unclear and potentially poor outcomes for consumers if firms fail.
- What happens when a timeshare company fails e.g. Club Paradiso. The owners of timeshare stand to lose considerably more than £1,666. Add to this that any parallel finance contract with sums outstanding will still need to be repaid.
Conclusion
We are not daft enough to realise that the majority of timeshare resorts and developers are based abroad so completely out of range of UK regulation or laws, however the majority of the financial institutions who facilitate timeshare funding are UK based.
The estimate is there are 650,000 timeshare owners in the UK plays 1.2m funeral plan holders. In population terms we have 1% versus 1.9%, out of the 1% we cannot say with any degree of certainty how many purchased their timeshare with finance, but pound to a penny we reckon that financially the figure in total would be well in excess of £2bn.
In just one single case it was demonstrated that Azure in Malta had missold finance to the tune of £48m with Barclays Partner Finance being held responsible. Upon investigation by Barclays Partner Finance we now understand that this figure is likely to rise to nearer £190m. Azure was a single resort developer and the loans in question originally only spanned a two year period. Imagine the loans brokered by the big boys without a two year window, doesn’t take long to fathom out the potential numbers. We won’t be drawn into guessing, but for sure it may well make £2bn pale into insignificance.
So tough new rules will come into place in July this year to protect 1.9% of the UK population but UK lenders can still carry on peddling misery by not facing a tougher regime surrounding timeshare lending. Being cynical we could say that one soon to be regulated product will bring peace of mind during life, the other, albeit regulated to a degree, will potentially bring a life of misery, or at least a good number of years until expensive loans are paid off.
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