On Friday 11th August The Times ran an article, the headline of which read:
“Shawbrook warns timeshare compensation may hit £25m”
The stark headline comes as a result of a Judicial Review, the outcome of which we reported on in May 2022. In short, the High Court ruling found Shawbrook and other banks broke timeshare regulations and consumer protection laws with loans they had provided for fractional ownership timeshare schemes. For those not familiar with this type of timeshare product, fractional ownership enables part ownership of a property.
Partial ownership of bricks and mortar would seem to infer that there is an element of “investment” with resort staff often implying there was, this however is in contravention of the EU Timeshare Directive 2008 which clearly states that any form of timeshare or long term holiday product must not either infer or be sold as an investment, rather than just a holiday product.
The impact for Shawbrook
The Times reported Shawbrook has advanced about £200 million in loans for timeshare financing in total, naturally, not all of this amount is related to fractional products.
Shawbrook disclosed its half-year results on Thursday 10th August and revealed that it had set aside £11.4 million for potential redress. It also went on to state remediation costs could rise by a further £14 million depending on other timeshare claims it may face. The main three lenders in the timeshare market are of course Shawbrook together with Barclays Partner Finance and Novuna, formally known as Hitachi, no doubt the other two players will be making similar reserves to cover potential claims.
Section 75, these claims are not
Whilst timeshare finance comes under the general remit of the Consumer Credit Act 1974, claims such as those facing Shawbrook are certainly not as simple as say Section 75 claims. It has to be remembered that lending institutions are not charities; the acceptance of liability across the board could have a severe impact on the lenders bottom line.
Although unrelated, this is not the first time finance for timeshare purchase as been in the spotlight. In May 2022, both the Financial Times and The Telegraph both reported that Barclays Partner Finance had ‘taken a provision’ of a further £181 million to compensate improperly sold customers of timeshare loans in Malta. This brought the total to £229 million pounds.
The last thing lenders will do is make the action of a claim a smooth ride. From both a business and financial point of view, lenders would far rather reject a claim than accept liability. Both regulated claims management companies and regulated solicitors must, by law, explain that you don’t need to engage their services to present a claim; however there are some “do it yourself” claims that should be avoided and the sort of claim surrounding fractional purchase is one very good example.
Third party assistance
As we said earlier, lenders would far rather reject a claim than accept one. Upon rejection the customer still has the right to make a formal complaint to the Financial Ombudsman Service (FOS), however this in itself causes problems. The FOS is an understaffed organisation and as such the expectation of submitted complaints being dealt with swiftly should be dismissed. Past service indicators suggest that maybe as long as eighteen months may be expected before even a review, let alone a decision forthcoming.
Of late we have experienced a rise in the number of customers being contacted directly by the lender. On the one hand this is to be applauded, but on the other, the customer only has to make one mistake for the lender to reject the claim. The more complex the claim, the more TCA would advocate getting expert assistance. When handling claims with UK lenders, claims management companies by law must work on a no win no fee basis. Fees are of course payable upon a successful claim. The incentive for the claims intermediary is to arrive at a successful claim result for the customer as this is the only way they are remunerated for their work. Regulated solicitors can work on a no win no fee basis but may also offer a “cost per case” upfront fee as a solution.
Beware of scam companies
The sort of article published by The Times is manor from heaven for scam companies; however their Achilles heal is the fact that to survive scammers must take upfront fees, which for this type of claim is illegal. There are exceptions where upfront fees may be payable, let us explain.
There is a popular misconception that the timeshare ownership contract and the finance contract are co related, they are not, both are free standing entities. Potentially there are two jobs of work to be done, one is to present a claim against the lender, which as we have already described must be handled on a no win no fee basis. The other is extracting the timeshare owner from the contract, for this service it’s quite normal to charge an upfront fee.
TCA receive many enquiries from timeshare owners who just want out. One of our first questions is to ascertain if there was finance used to buy the timeshare, if yes, and there is still an outstanding balance, we have to point out that terminating the timeshare does not automatically terminate the finance, in fact, quite the reverse. The outstanding balance must still be cleared either by carrying on monthly repayments or extinguishing the loan with a lump sum payment.
If you are approached regarding claims of this nature then doing your homework is actually quite simple. Ask the name of the claims management company or solicitor, checking is then a straightforward case of looking at the relevant register.
For FCA regulated claims management companies the register may be accessed here.
For solicitors the SRA register may be accessed here.
Needless to say, if your search yields no results, then logic dictates that you go no further.
TCA comment
If fractional ownership was simply timeshare in a different wrapper then why does it exist? Developer purchase contracts go to lengths to explain that fractional ownership is NOT an investment, that being the case why was there an accepted allowance of sales staff playing on words that inferred fractional ownership was different to timeshare, in that there is a return at the end of the term?
As a supposed investment fractional ownership cannot work, as we demonstrate here but as we point out in the article, to be an investment, returns can go two ways, up or down. The Financial Services and Markets Act (FSMA) has a requirement for all investment related products to have a clear wealth warning such as:
The value of investments, and the income arising from them, can go down as well as up, and is not guaranteed, which means that you may not get back what you invested.
By witness statement and evidence given at the Judicial Review, the judge was well aware that despite the defence from both the developers and the banks, many owners of fractional contracts confirmed that the potential investment return was a primary factor in their purchase decision process. For now at least Shawbrook have accepted that this may be the case and is making provision for recompense.
Going forward, TCA believe that those lending institutions who have historically had quite heavy involvement in lending for timeshare related products may well be rethinking their lending strategy and policy, not before time.
If you feel you have been affected by the contents of this article, make us your first point of contact. If before you get in touch you are contacted by cold call, do your homework extensively before committing. Scams are only scams because personal research and due diligence have not taken place.
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