A huge blow has been dealt against major financial institutions involved in providing loans for timeshare products, these were brokered by the same staff selling the timeshare. This follows a decision from the Financial Ombudsman Service that the timeshares were “mis-sold”, finding in favour of two consumers with claims against the loan providers.
Barclays Partner Finance along with Clydesdale Financial Services, Shawbrook Bank and Mitsubishi HC Capital UK, disagreed with the FOS finding and lodged an appeal for a Judicial Review. This was heard by High Court Judge Rowena Collins Rice (Dame Rowena Collins Rice, DBE, CB, KC, or the Honourable Mrs Justice Collins Rice), who has rejected their appeal for a review.
In this review two cases were examined; this is out of the hundreds of complaints received by the FOS involving the mis-selling of timeshare. The FOS has also stated that many of these contracts were unfair and violated consumer law, a point many consumers have claimed in the past.
In these cases, the three financial institutions were BPF (Clydesdale Financial) and Shawbrook Bank, they claimed the FOS had misinterpreted underlying consumer law. This basically states that timeshare should not be sold as an investment, or something for which the consumer can also “expect” a return i.e. rental income. A very basic selling technique in timeshare.
The products financed in this case are “Fractional” ownerships sold by Diamond Resorts (Europe) Ltd and CLC Resorts Development Ltd, (Club la Costa). These products in many cases were marketed as the “way out” of your timeshare, but aimed at “keeping” existing members who wanted out. The main selling point was the “investment,” and it was not “timeshare” you owned a “fraction” of the property.
The inference was that it was “real estate” a point which was not lost on the Spanish Supreme Court which ruled it was timeshare and came under the relevant timeshare laws. This made it an illegal product in Spain and resulted in many claims to have the contract declared null and void with the return of all costs.
For the judicial review to succeed the banks had to prove the FOS had made an “error in law,” arguing it is possible for “timeshare arrangements” to be sold without the “investment element” being present. However, the High Court agreed with the FOS that this was not what happened in the case of these consumers.
In the words of Judge Rice:
“Just because it was possible to sell (timeshare investments) without breaching Regulation 14(3) of the timeshare regulations doesn’t mean that’s what happened in practice, or in the present case.”
“And I still think that, on the balance of probabilities, the supplier actively relied on the (timeshare investment’s) potential to provide an investment return as a significant selling point in its presentation.”
On the point of the contracts being “unfair”, the banks claimed the FOS made a mistake in their test as to whether the contract was “unfair”. Their argument implies that the “obligations” are the responsibility of the sellers, and not the banks supplying the loans. This argument has been used in the past by BPF in rejecting claims on the grounds of “due diligence” or the normal checks that should be made as to affordability with income & expenditure considered. Their stock answer has always been that was done by the “broker” and is their responsibility.
Once again, the judge disagreed, stating that the law does not limit “the responsibility in this way and that, properly construed, it makes sense that these obligations of fairness extend to the relationship between the bank and the consumer, as well as between the timeshare seller and the consumer.”
Further stating: “It was open to (the Ombudsman) to proceed to make an assessment as to whether the relationship between the banks and the consumers was made unfair because of the acts or omissions of the timeshare companies in the antecedent negotiations.”
In simple terms, this means the seller acted in a way which secured the sale and therefore the loan agreement (along with commissions to the broker) and is down to the FOS to determine if the arrangement was unfair to the consumer.
In this case, the judge did agree with the Ombudsman that the relationship between the banks and the consumer was unfair, a point many have in the past agreed with.
However, the court did disagree with the Ombudsman regarding points which were not crucial to this case and the decision to dismiss the appeals. One example where the court agreed with the banks was regarding pre-contractual information to the consumer about the timeshare products themselves, the court agreed the banks did not violate this law. It is down to the timeshare sellers to provide full disclosure, but as we know this does not happen.
This is a good result for the two consumers, but what implications it will have on other cases is yet to be seen, this appeal was against the Ombudsman Service and their decision. It does not mean that every case will follow the same course, what it does mean is the FOS now has clearer guidelines for future cases.
The FOS would have become involved when the client’s original claim either direct to the institutions or through the Financial Conduct Authority is rejected. This allows the consumer making the claim, to appeal the rejection. In the past many of these rejections were just “rubber stamped” by the FOS, there are many articles on the FOS and the FCA on our pages.
For the consumer with a claim nothing has really changed, the consumer will still have to go through the standard claim procedure, either directly with the bank or through the FCA, then when it is rejected use the right to place an appeal with the FOS. It does not mean that the consumer will win every claim, there is still a long way to go before that happens.
At the time of writing, we have found no reference to this case on the FOS website or any other trusted source in the UK, this is not surprising as the information we have used is from an article published by Law360 in the US and was only published on 5 May at 9:58 pm BST.
It is perfectly reasonable for the FOS and the banks to assess the judgment before commenting, we will however keep you updated on any response.
The title is “Banks Lose Timeshare Misselling Bellweather Cases” By Lucia Osborne-Crowley.
The cases heard are:
Shawbrook Bank Ltd. v Financial Ombudsman Service and others.
Case number CO/506/2022.
Clydesdale Financial Services Ltd. v. Financial Ombudsman Service and others.
Case number CO/4312/2021.
In the High Court of Justice of England and Wales.
It is not rocket science to realise that this news will be taken and twisted by the scammers to suit their own ends. We can expect a flood of cold calls, especially to Diamond and CLC Fractional owners, yes, they will have your details, offering “legal services”. They will smell the potential to make a fortune and will take it.
- treat every cold call as a potential scam,
- question where they got your information, guaranteed it will have been stolen and sold many times,
- do not give away any personal information or information about your timeshare, they use this to confirm what they have and to adjust their “pitch” to suit you,
- record as much information on who they say they are, take note of the number, any email addresses and most importantly the correct company name and registration number.
Then do your research, if you require any guidance on what to look for then drop us an email, the important thing is to not fall into the trap of believing what they tell you.
A few previous articles on Timeshare Loans, follow the links in the articles for more information.
We hope you all had a great weekend and were not dampened by the rain if you attended the coronation and while sorting out this article, Baby Dog was left alone, he was glued to the TV with his favourite Attenborough.