GE Money “GE”
(Previously First National Bank)
GE have been providing end-user loans to selected companies in the timeshare industry for over 20 years having previously provided development funds for new resorts. It is probable that GE has provided loans of more than £250 million to consumers for timeshare purchases.
Although GE have been more cautious than Barclays (see later) as to which developer they work with, their caution failed when they started lending through St Frances Marketing (Exeter) for the purchase of Classic Cruisers (owned by Shakespeare Classic Line). St Frances Marketing were convicted of fraud in Exeter Crown
Court and ceased to trade leaving GE with a number of claims of misrepresentation by consumers.
In 2007 GE announced that they had set aside £80 million for loans to Club la Costa purchasers over the following two years although it is not known how much was actually taken up by borrowers. But as a result of substantial complaints of misrepresentation by Club la Costa and St Frances Marketing, GE withdrew from lending for timeshare in 2010.
Barclays’ Partner Finance “Barclays” (trading name of Clydesdale Financial Services Ltd., a wholly owned subsidiary of Barclays’ Bank plc).
Even by banking standards, Barclays conduct has been disgraceful:-
No checks are made on the information provided on the loan application form which was often adulterated by the timeshare salesman to ensure that they received the introductory commission.
No check was made on the ability of the borrower to repay the loan. Monthly repayments of £400 were expected of a couple with a monthly income of £1,100 and 15 year loans were made to 86 year old consumers
Failing to check that the purchase complied with the relevant laws – many sales were made in complete disregard of the timeshare law which could have made the purchase and loan invalid.
Failing to satisfy themselves that the sales procedures complied with best practice in the banking industry Sales people were telling purchasers that the loan repayments were £200 a month when they were actually £500 Overall Barclays failed to conduct the necessary due diligence that would be expected of a responsible bank leaving borrowers exposed to criminal acts by sales staff.
When Barclays were alerted in 2007 to their involvement in the Resort Properties fraud they moved quickly to protect their own interests by imposing a “recourse” agreement with Resort Properties so that Barclays could claw back money from Resort Properties in the event a borrower defaulted on their loan repayments. But the lending for fraud continued, This is now the subject of a court case in the UK
The scale of Barclays lending for timeshare purchases is unknown but is probably just under £100 million.
Hitachi Capital Surprisingly for a Japanese bank, normally considered to be more sensitive to criticism than thick skinned European banks. Hitachi had a very brief flirtation in 2009 (lasting no more than a few weeks) as a provider of end user finance to customers of St Frances Marketing but quickly withdrew and cancelled all loans that had been taken out when Hitachi were advised about its involvement in a fraud. But subsequently Hitachi became briefly involved with Club la Costa when GE Money withdrew.
Paragon ventured into end-user timeshare finance in the 1990’s but was caught out by its involvement in a timeshare scam – Universal Vacation Club – where claims for misrepresentation are still on-going. Paragon rapidly withdrew from the timeshare market.
HMC have operated as “brokers” within the timeshare industry for a great many years providing timeshare developers with access to end-user loans. The business, based in the UK, is run by Ron Howell, an ex –employee of First National Bank (now GE Money)
Not only have HMC set up lending agreements between banks and developers but they have also colluded with them to remove the protection of the Consumer Credit Act 1974 from borrowers. Typically HMC contact a borrower within the cooling off period offering an alternative, lower cost, loan to that signed up for during the purchase process – often with the same bank as the original loan. So a purchaser who signed up with Barclays at 19.87%/annum interest would be offered an alternative loan at 15% with Barclays. If the purchaser takes up the new loan (by cancelling the original loan) they are no longer protected by the Consumer Credit Act 1974.
And HMC have persuaded purchasers to sign a blank loan application form on the grounds that HMC were shopping around for the best deal which HMC then completed the form and sent it to the bank. It wasn’t until a number of years later, when the borrower is in dispute with the bank that they obtain a copy of the application form to see the purpose of loan as ”home improvements”. The bank then argues that it was the borrower who had made the false declaration.
Falsification of bank loan applications
Examples exist of sales people falsifying loan application forms in order to receive the commission provided by the bank.
Salesmen create an entirely new loan application form, with incorrect income figures and forged borrower signature, to ensure that the loan is approved. Because some lenders provide a six or twelve month repayment holiday the false application only comes to light long after any cooling of period has expired when the borrower realised they could not meet the repayment terms. On other occasions salesmen adulterated the form signed by the borrower to add a “one” in front of a annual salary figure of, say £7,500, to bring the apparent income up to the level required by the bank.
The scale of loan falsification is not large but has been the cause of much distress for the victims who were then bullied unmercifully by the banks.
Aggressive debt collecting by Banks.
Complaints about misrepresentation by a timeshare trader (under the Consumer Credit Act 1974) to a bank result in both the trader and the bank robustly denying any wrongdoing. The banks then enter into an aggressive; harassing stage of debt collecting despite it being clear that a true dispute does exists. The debt collection tactics of the banks are quite extraordinary and border on harassment
Half a dozen telephone calls every day – including to the consumers workplace – from the bank threatening legal action
Stating that their home is at risk
Saying that they will contact the consumers employer
Placing a default notice on the consumers credit record despite the matter being in dispute
Passing the “debt” to debt collectors who continue the harassment.
A number of consumers report that these tactics have been used for a period of more than 5 years – still without any legal action being started. But in a great many cases these tactics eventually result in the consumer paying the money to avoid the distress and sleepless nights.
Even consumers who have formally demonstrated to the bank that they do not have the resources to pay off the loan continued to be harassed.
Credit Card companies
There is a wide divergence in attitude to timeshare by credit card companies.
Almost all UK based card companies now refuse to provide timeshare traders with card facilities although some traders have obtained such facilities by providing a false statement as to their business.
But in Spain even the most dishonest of timeshare operators appear to have no difficulty obtaining a card facility – much to the chagrin of the UK banks who, routinely have to pay out under the Consumer Credit Act 1974. It is understood that attempts by MasterCard to discourage the granting of card facilities by Spanish banks was rejected by the banks on the grounds that it would lose them substantial commission income!.
For many years some card companies have resisted claims for misrepresentation under the Consumer Credit Act
1974 but recently this resistance has eased with most card companies now being much more helpful to their customers. Even the Royal Bank of Scotland, previously one of the most difficult of banks for consumers to claim against, has realised that the majority of claims of misrepresentation were valid. However some card companies still appear to have a policy of rejecting every claim, however valid it might appear resulting in the claims going to the Financial Ombudsman Service.
Generally a consumer who persists with a well argued and well supported claim under the Consumer Credit Act
1974 against a credit card company – taking a disputed claim to the Financial Ombudsman Service – appears likely to succeed.
Developers providing extending payment terms (“In-house” loans)
Developers financing their own customers is standard practice in the US but is very uncommon in Europe. The low level of in-house loans in Europe is probably due to their negative impact on cash flow – sales commissions etc. .Having to be paid out before the loan repayments start – and the lack of a bonus payment to sales people as is common when selling using an independent bank loan.
The main self-funding lenders are First Holiday Finance Ltd. (Club la Costa) and Anfi Sales SL (Anfi Group) and
Minster Investments (Pueblo Evita) . Finance International plc (Petchey Leisure) ceased lending in 2007 due to “high level of bad debts”. A few of the smaller developers do provide extended payment terms but on a very limited scale. Corporate Fraud
Tax Evasion on a Grand Scale.
At least €400 million tax evaded – nearly all in Spain.
Nearly all the major timeshare businesses operating in Europe have their principle company(s) and banks registered in off-shore regimes such as the Isle of Man; Guernsey; Luxembourg, Andorra; Gibraltar; Seychelles;
British Virgin Islands “BVI”; Panama; Belize and the Cayman Islands.
These off-shore havens provide facilities for tax evasion, money laundering, protection of assets and secrecy of ownership and control. Just what dishonest traders need to maximise their personal wealth. But all these traders also register a number of companies in the European countries in which they are trading as their “front face” through which a nominal amount of revenue is transacted to satisfy local authorities. The rest (sometimes as much as 85%) is being siphoned off-shore.
In 2000 leading developers were achieving a net profit (before tax) of between 35% and 50% on sales. If they didn’t bother to pay tax then all of this went straight into the pocket of the developer. By 2010 the net pre-tax profit had fallen to single digits with some showing a negative figure.
How tax evasion works in the two main tax fields:-
a. Many (in some cases all) sales personnel employed by a resort are recorded as “self employed agents” not as “employees”, often using false names. These people are paid from an off-shore account (usually Gibraltar or the Isle of Man) having been given a cash dispenser card to enable them to withdraw cash at any ATM. These payments are not disclosed to the tax authorities.
b. Administration employees are put on the “books” but with disclosed salaries only a fraction of what their job is truly worth. A minimal amount of tax is paid on these disclosed “nomina” salaries whilst the salary is topped up, tax free, from the off-shore bank.
c. To enable these payments to be made timeshare purchasers are required to make a substantial portion of their payments to the off-shore bank account.
With a large proportion of sales income sidestepping the local banks and going directly into an off shore account the trader can claim that they are operating at a loss or just a tiny profit – on which little or no tax is payable. Resort Properties are known to use a Tenerife based company, Tensel SL to act as the nominal front, loss making business, whilst some 90% of sales income is actually paid directly into a Lloyds TSB bank account in the Isle of Man..
Examples of tax evasion
The value of tax evaded by the European timeshare industry over the last 30 years is close to half a billion Euro. Most being due to the Spanish Government.
A fraction of this tax has been collected but the vast bulk is still outstanding. The few examples of tax recovery that have surfaced are the tip of the iceberg. Sunterra (now Diamond Resorts) admitted to two counts of tax evasion amounting to about €13 million but as this only related to a few years the amount still outstanding is uncertain. John Palmer (12 resorts on Tenerife) received tax bills of approximately €25 million which, as he failed to pay, resulted in embargoes being placed on his resorts; Horst Hummel (Palms Golf & Country Club, Tenerife)understood to have dodged tax amount to just over €3 million which he eventually paid. And Palm Oasis, Gran Canaria, received a bill for unpaid tax amounting to €12 million which it is understood to have eventually paid.
Of the enormous sums still to be collected, Silverpoint/Resort Properties, Tenerife probably heads the league by evading tax amounting to between €100 & €140 million and unconfirmed reports suggest that Club la Costa may also have avoided substantial tax on its Spanish operations. Others such as Anfi, Gran Canaria and Diversified
Resorts, Spain, are also reported as having dodged their full tax liabilities.
Add in the holiday club scams (typically Incentive Leisure Group and Club Class) together with a whole army of resale fraudsters and a further €125 – €150 million of tax is also waiting to be collected. Although, as this is spread over many hundreds of businesses, collection will be difficult if not impossible.
It is not known how many of the smaller timeshare companies indulge in tax evasion but there does not appear to be any real evidence that many do. In part this may be down to the small scale of their business which would not warrant the setting up and managing of tax evasion schemes and, in part, because their managers are honest –which often meant that they stayed small !
Sales Tax evasion
Although there is generally no VAT payable on the purchase of a timeshare the annual management fees do attract VAT (or its regional equivalent) on most of their content in most regions.
There is almost certainly considerable evasion of VAT. Incentive Leisure Group, for example, failed to remit VAT collected on sales made in the UK by getting their customers to pay to a bank in Andorra, And a number of traders in Spain are understood to have provided tax inspectors with falsified accounts in order to minimise their VAT liability. However the amount of VAT evaded is unknown and possibly incalculable.
Having defrauded consumers of huge sums of money and then failed to pay the relevant tax, the money is “laundered” so that it can be used to buy properties and businesses in the UK, Italy, Jamaica, Florida etc. without the true source of the money being visible to the authorities in those countries. Laundering is a two stage process. Firstly y the money is, quite legitimately, paid by consumers into accounts in offshore havens as Jersey, Guernsey, Isle of Man and Gibraltar. However, this does not provide the fraudsters with the anonymity they want so the money is then transferred to jurisdictions which do not require the owner of the money to be publically disclosed – countries such as Panama and, the favourite, the British Virgin Isles “BVI”.
The cost of transferring the money from consumer to its final destination being the very low rates of tax charged by the off-shore countries From Panama and the BVI the money can now be introduced into the country where the property or business to be purchased is based.
Many of the first stage transfers to the Isle of Man were set up by FNTC – who may also have advised on the setting up of companies and bank accounts in Panama and BVI – knowing full well the purpose of these banking arrangements.
Posted on: August 29, 2014
For more information regarding this article or assistance in any other timeshare related issues please contact the TCA on 01253 804 318 or email: info@TimeshareConsumerAssociation.org.uk