Takeaways by Sheri in Minnesota and Irene in Florida
The Consumer Financial Protection Bureau (CFPB) is a U.S. government regulatory agency that oversees consumer-related financial products and services. Created in 2010, the CFPB implements and enforces federal consumer financial law.
We listened to CFPB Director Rohit Chopra’s lecture, Reining in Repeat Offenders on March 28, not expecting to hear a CFPB Director sound as frustrated as we are with the lack of regulatory enforcement. Despite thousands of reports of predatory timeshare lending, the majority of timeshare members are unable to file a complaint with the CFPB. This is because monthly loan payments are typically payable to the timeshare company. The actual lender is unknown. When a borrower files a CFPB complaint, the filer must select the name of a company from a drop-down menu. The list includes banks, credit card companies, credit reporting agencies, etc., but timeshare companies are not an option, except for Westgate Resorts. One CFPB representative advised that timeshare complainants should Tell Your Story.
One Westgate purchaser instructed us to follow the instalment loan prompts to file a complaint. The CFPB investigated Westgate Resorts for two years beginning in 2015. The investigation was dropped shortly after the 2020 presidential election.
Pictured front row, stage right of candidate Donald Trump in 2016, Westgate Resorts owner, David Siegel.
When attempting to enter the name of other timeshare developers, the message “The company is not signed up to receive complaints” appears. The closest we could find to Wyndham is Wyndham Rewards Signature VISA Card or Barclays Bank of Delaware as they are the credit card vendor for Diamond Resorts and others. These are only back doorways to file a complaint. The 556 timeshare complaints listed on the CFPB database are about debt collections. The Filers selected a credit reporting or debt collection agency. The developer’s name is censored.
It is next to impossible to sell a timeshare with a loan outstanding. If life takes an adverse turn, the borrower soon realizes that their only choice is to default if unable to meet their obligation, or were sold deceptively and unable to resolve their dispute. Timeshares are typically financed at 12% to 19%.
Timeshares are especially risky for members of the military. An active duty service member can lose their security clearance and be separated from service because of a timeshare default. In the last few months, eight active duty service members have reported a forced timeshare default. They reported that they were up-sold falsely, and promised the ability to rent or sell the timeshare easily. A few owned a resort that refused to take their timeshare back, even when the timeshare had been paid in full.
One egregious timeshare report concerns an active duty Navy service member who purchased the minimum number of Diamond Resort points in October of 2017. He retained a law firm after being forced to mandatory arbitration. In an extremely adverse ruling, this Navy family of six learned that the judgment issued against them was $66,000, including Diamond’s attorneys’ fees. Their $10,000 loan in dispute was financed by Diamond Resorts.
Mandatory arbitration is a violation of the Military Lending Act (MLA). Lawsuits have been filed against Westgate and Bluegreen Vacation Club accusing the companies of violating the MLA.
Sponsored by the Penn Program on Regulation at the University of Pennsylvania
Reigning in Repeat Offenders
Mr Chopra began his lecture by mentioning his studies at Penn Law, adding that his fellow classmates, students, and other alumni went on to become “financiers and convicted felons – and everything in between.” He said he was not alone when viewing financial regulators as “clueless and even a little corrupt when it came to the lawyers and economists who were seen as auditioning for a future job in finance – to exploit the inside knowledge they got in government, that would help dominant financial firms evade accountability for wrongdoing, and extract special favors, even when those firms violated the law repeatedly.
Small firms face serious consequences, but corporate boards shield big company executives. Mr Chopra believes big and small companies should be treated alike, rather than have a two-tiered system. He described small companies as “low-hanging fruit” as they can get hit hard with fines and even imprisonment. Large companies are viewed as “too big to jail – too big to fail.” The system becomes corroded, allowing big corporations to repeatedly violate a court order.
A “vexing problem” Mr Chopra described: How to stop large, dominant corporations (like Facebook), from violating the law repeatedly, with financial penalties merely the cost of doing business. Corporate recidivism becomes normalized in what he termed a “rinse/repeat cycle.”
Timeshare lawyers can relate to Mr Chopra’s comments about how a calculated risk leads to bigger rewards – defended by lawyers trained to “spin wheels and run out the clock.” The biggest problem is the normalization of bad practices and the attitude of, “If you assume there are no consequences, or the likelihood of getting caught is so low, why not do it?” There’s a lot of this that goes on in timeshare marketing, sales and lending.
A term Mr Chopra used that The Manhattan Club timeshare owners can relate to, is “headline-grabbing penalties” that in reality have little effect. In 2017, the New York Attorney General fined the Eichner family and other defendants $6.5 million, which sounds impressive, until put in the context of over $100 million paid to a shell company with no employees, harvesting 30% of maintenance fees, according to court documents. This figure didn’t include rental income earned, when buyers who paid $23,000 to $53,000 for a timeshare interest, could not book a stay, but the general public could. The Eichners were banned from the timeshare industry, but are still in the management of the company today, five years later.
The lecture ended on a proactive note. Mr Chopra suggested enforcement by means other than penalties to try to convince offenders that it is “cheaper and better to obey rather than break the law.” He mentioned putting caps on the size of a company and bans on business practices. One example, LendUp Loans which he described as being “the darling of venture capitalists.” They were ordered to stop making new loans and are now shutting down. He also mentioned divesting product lines, limitations on leverage or the raising of funds, revocation of government-granted privileges, and individual liability.
Mr Chopra served at the Federal Trade Commission as a commissioner beginning in May of 2018. He described the FTC as being in “deep decay and disarray” and that penalties had become “a meaningless paper tiger when regulators were not willing to enforce or postponed prosecution on the condition of better behavior.”
Unfair and deceptive business practices fall under the domain of the FTC. Lina M. Khan was sworn in as Chair of the Federal Trade Commission on June 15, 2021. One Insider I spoke with felt Mr Chopra was able to make an impact while at the FTC and that, “Khan previously served as a Legal Fellow for Commissioner Chopra at the Federal Trade Commission.” Let’s hope changing attitudes prevail!
Timeshare Obligations, Regulations, and Challenges – National Association of Attorneys General
AARP Top Ten Scams as reported by the FTC
Thank you Irene and Sheri for your efforts in having this article ready for today, from your brief description of what Director Chopra was saying, certainly gives me the impression that he does see a very disturbing problem when it comes to timeshare. If a full copy of his lecture becomes available I’m sure it will be an interesting read.
Once again we are seeing the problems faced by timeshare owners on both sides of the Great Lake, problems which are caused by an industry that is insufficiently regulated and needs to be, they certainly can’t police themselves. The latest articles on this subject are the three-part “Smoke & Mirrors” series about the RDO and Wednesday’s “Timeshare Consumer Protection: Is the EU Model the Way Forward for the US?“
These articles along with all those highlighting the financial problems associated with loan agreements, brokered by timeshare sales agents for contracts that are and have been deemed illegal and the never-ending spiral of dealing with so-called “regulating bodies”. In the UK this problem is increasing as more and more consumers are filing complaints and claims, most of these are doing it themselves, and the system run by the FCA & FOS is at a total loss. They have no understanding of what these loans have paid for.
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That is all for this week, have a great Easter Weekend it is time to take a break and Baby Dog is expecting treats!