Forward
Due to the diligence and persistent hard work of Andy Allen and his dedicated team, in UK European Consumer Centre they were able seek information and obtain conclusions in respect to the new “mutation” of selling what everyone knows is timeshare.
This team sent the message out to the world and likeminded associations. These associations (dedicated to cleaning up the industry) assisted Mr Allan and his team to alert the consumer public as to the mutation.http://www.ukecc-services.net/conwarn.cfm
Noteworthy is once the information was out and “the mutation” was identified; “mindtimeshare” got a grip of the possible injustice and throughout its own network, assisted consumers with the knowledge of the mutation.
I should give just praise to the personnel at “mindtimeshare” as it was as a result of their works and publications which alerted me and which sent me off into the legal research pools so as to report on the legal implications of this active “mutation”.
It is my understanding that in cases such as this, advice is sought by the UK ECC from various government departments so as to obtain definitive advice as to the legal nature of the selling of leisure vouchers and their application and/or implied purpose (that being a vehicle to sell timeshare products).
It is this advice (noted below) which invites me to comment, as I do not concur with the assumptions and advice proffered by the ECC advisors. I say this with the greatest respect and set out the discussion applying the relevant regulations and Acts. The purpose of my investigation is to advise TCA visitors in respect to CVP’S.
UKECC states: –
“This new product of a leisure credit scheme falls outside the revised legislation. We want to draw consumers’ attention to the fact that this product is not covered by the EU Timeshare Directive and that consumers need to be aware that they do not have the protection given by this legislation if they enter into contracts for this type of product.
Consumers should understand that they will have no cancellation rights, cooling-off period, deposits or consumer information rights under this legislation.”
So what are Leisure Credit Schemes?
Description of Issues
Issue 1
“Credits are sometimes bought outright or represent a product discount. Normally one-off purchases, the credits can cost consumers up to £15,000 and can then be exchanged for leisure products such as holiday accommodation, spa days and theatre trips.
Issue 2
Hallmarks of these schemes can include: being verbally sold as a way of offloading or trading-in a timeshare or holiday club membership, when consumers have second thoughts they can find themselves unable to cancel their contracts.
In any legal conundrum the first matter is to look at the issues and separate them so as to deal with that issue alone and test its validity against existing legislation, authorities and/or regulations.
In respect to Issue 1
This is a singularity of a transaction in that credits are bought by a buyer from a seller. (The sums involved in the sale and acquisition is mute to the issue)
In short a transaction has taken place whereby a currency has been exchanged. In the case of £ Stirling this has been exchanged for a private currency in the form of Credits, Vouchers, Points (CVA’s) etc.
As this event has taken place the exchange will be either in a closed loop or an open loop arrangement.
Closed loop arrangement
In the event that company “A” issues the Credit, Voucher or Point (CVP) and company “A” or its legal subsidiaries and parents are the redeemers of the CVP this is a closed loop.
Open loop arrangement
In the event that Company “A” issues CVP’s and a variety of other companies/entities redeem the CVP’s issued by company “A”- this is an open loop.
Once the loop has been identified you can apply the correct governance which that loop system is subject to.
In the event of a closed loop the issuer is permitted to operate two systems – “paper” and “electronic”.
In the event of an open loop, the issue is only permitted to operate an electronic system.
If a closed loop is being operated as a paper system, then there are governances as to the amount of paper in the closed loop system before that system is forced to adopt the electronic system.
In closed loop systems the redeemable value has to be stated on the paper which has been acquired so as to keep the consumer abreast of its redeemable worth.
Therefore, at this stage I want to separate the paper system and simply say that if a consumer has acquired a paper CVP it will state the redeemable value on it. If that redeemable value is less than the consumer has paid, the consumer is only entitled to the value on the paper (and should have been wiser as in truth they have purchased a product for say £10.00 which is openly worth say £5.00). If on the other hand the paper does not contain the redeemable value then the consumer should direct a complaint to the Financial Service Authority (FSA) and rescind the transaction. This will give a full recovery of monies paid.
Electronic system
Open and closed loops systems are regulated (in respect to validity) by electronic data commonly referred to as “e” money. All open (and some closed) loops have to comply too the 2nd Electronic Money Regulations 2011. In the UK those regulations are policed by the Financial Services Authority (FSA). To operate a currency like CVP’s the issuer is required to be registered with the FSA and part of that registration process is a test as to the effectiveness, the manageability and (amongst other things) how fit for purpose, the product requiring the licence is.
If a seller does not have a licence, has not made an application or had his licence revoked, the complaint will be referred to the FSA for action.
If they uphold a complaint, and find that the issuer is in breach of the regulations or requirements then the contract will be void. At that point the issuer will have to refund all the money paid for the CVP. Equally if that issuer is insolvent and the consumer has paid via a credit card, again the claim can be directed against the credit institution under the The Consumer Credit Act 1974 “CCA74.
A redemption fee can be charged if a refund is requested before the contract ends, but only if the contract contains such terms. In any event the fee must be proportionate and reflect the cost actually incurred by the e-money issuer.
Refund conditions, including any redemption fees, must be clearly and accurately reflected in the e-money issuer’s terms and conditions and the customer informed of them before entering into the contract.
Therefore in conclusion of the first issue
The taking of the consumers’ money in exchange for CVP’S is not part of the Timeshare Regulations 1992 and in truth should not be, as the consumers are fully protected under the 2nd Electronic Money Regulations 2011. (now under 3rd review) and the 2nd payment service directive 2007/64/EC (discussions for the 3rd are underway), the FSA and the Consumer Protection Act 1974.
In respect to the second issue
“they can then be exchanged for leisure products such as holiday accommodation”
As detailed above, the acquisition of the CVP’s is a separate issue, than the exchange of those CVP’s for products on offer. The buyer can opt to acquire with his CVP’S any product which he so chooses.
At this point the buyer is at liberty to acquire a Varity of products on offer in exchange for the CVP’S, no binding obligation has been entered into which link the two transactions (issuing and redeeming) therefore they are distant and separate transactions.
The promotion for CVP’s is different in that the consumer is being invited to acquire a credit for a future opportunity which that consumer has not chosen at the time the CVP was acquired.
In the event that the 1st issue is conditional on the 2nd issue then the two issues can only be regarded as process to conclude the acquisition of a timeshare. This is the case as the process in all transactions is cacophony of homogenised events.
“Put simply if a supplier wants to sell and a buyer wants to acquire the buyer will tender currency with the seller in exchange for the goods. If the seller only accepts US Dollars and the buyer only has UK Stirling then the seller might chose to offer the seller an exchange. That being a possibility the seller sells currency to the buyer; the buyer then exchanges that currency for goods he wishes to acquire”.
Therefore if the conditional arrangement occurs (and is part of the sale of timeshare) the transaction is subject to the Timeshare Regulations.
If the timeshare is acquired by way of a credit exchange for the timeshare then the consumer is exchanging the seller’s nominated currency for their product and is again covered by the timeshare regulations.
The timeshare regulations do not identify what currency has to be exchanged in a timeshare acquisition (and so it should not), as the parties are able to agree on those matters.
Therefore in conclusion
The taking of the consumers money in exchange for CVP’S is not part of the Timeshare Regulations 1992 and in truth should not be, as the consumer is protected under the 2nd Electronic Money Regulations 2011. However the exchange of the CVP’S into timeshare are policed by The Timeshare Regulations. One might suggest that the discussion above is time sensitive and is complex.
This proposition is not unfamiliar with HMRC who have briefed on the issue of timeshare and CVP’S.
When the conversion from one currency to another takes place, the issuer of the CVA’s are not required to account for transaction, as in fact, a sale has not taken place, the transaction is merely an exchange of one type of currency for another.
It is an “off balance sheet transaction”.
In respect to vat
VAT becomes due at the effective sale date (tax point) HMRC have published advice as to the treatment and amended treatment of vouchers under Schedule 10A to the VAT Act 1994 and http://www.hmrc.gov.uk/briefs/vat/brief1212.htm.
I therefore see little change in the effectiveness of The Timeshare Regulations if and when a consumer acquires by way of Leisure Credits or vouchers.
I applaud all parties who have broadcast the mutation and sincerely hope that I have assisted and added to the legal discussion and better understanding of CVP’S.
David
For and on behalf of the Timeshare Consumer Association
Dated 12 of June 2014
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