The Explanatory Memorandum from Ian McCartney relating to the above Proposal was considered by Sub-Committee G at its meeting of 5 July 2007.

  Bearing in mind the importance of this Proposal for UK consumers in particular, we have decided to make it the subject of a short inquiry. I attach a copy of the Call for Evidence that we are issuing for that inquiry. Our intention is that the evidence we publish in an Inquiry Report, during the autumn of 2007, will both inform our scrutiny role and make a valuable contribution to the EU's decision-making process. We therefore retain this document under scrutiny.

  We hope that you will be willing to attend a Sub-Committee G meeting in order to give us oral evidence for our Inquiry.

  Please would you keep us informed about significant developments that arise in your discussion of the Proposal with the Commission, other Member States and the European Parliament.

5 July 2007

  Thank you for your letter of 5 July to Stephen Timms. I am replying as this matter falls within my portfolio.

  I am grateful for the news that your Committee has chosen to make the above proposal the subject of a short enquiry and look forward to attending a Sub-Committee G meeting which has now been arranged for 18 October.

  I and my officials will be pleased to keep the Committee informed about significant developments which arise in the course of ongoing discussions on the proposal.

26 July 2007

  I am writing to provide an update on progress and on the Government's position in the continuing Council Working Group meetings in respect of the above proposal, in advance of my attendance on 18 October at your Committee's Inquiry into the Revision of the EU's Timeshare Directive.

  The Presidency has taken a keen interest in this dossier; holding four meetings of the Council Working Group since the introduction of the proposal in June this year. There is general support across Member States for the Commission's proposal. Discussion has therefore concentrated on the detail of coverage.

  Subject to concerns over the accuracy of the definitions in Article 2 and "fine tuning" of the required pre-contractual and contractual information in the relevant annexes we have continued to support the proposed approach in respect of timeshare agreements and the extension of the Directive to other long-term holiday products.

  However, in line with our initial position set out in paragraph 4 of EM 10686/07+ADD1 & ADD2 (ie that we support the objectives of the proposal and would work to ensure that the directive provides effective and proportionate solutions to identified problems in this sector), the Government has identified three main areas of concern with the detail of the proposal—definitions, application to exchange contracts and application to resale contracts. On these we have been arguing for greater clarity and for provisions which more closely fit the differences in the services to which the Directive is extended.

  We believe that by seeking to apply the whole range of provisions of the Directive to timeshare related services (services other than the original purchase of the timeshare), the proposal seeks to apply requirements and restrictions on business which are disproportionate or inappropriate given the cause and nature of the consumer detriment they are designed to deal with.

DEFINITIONS

  The Government has been keen to ensure that the definitions proposed in Article 2 properly cover the activities intended to be covered and do not inadvertently include other activities. For example, we have concerns that the term "accommodation" is too wide and would prefer this to be qualified as "overnight" or "living" accommodation. Similarly we believe the proposal fails to define timeshare exchange agreements accurately and have been working to achieve a workable definition.

APPLICATION TO EXCHANGE CONTRACTS

  In respect of exchange systems (described in paragraph 11 of the Explanatory Memorandum) the government has argued for a more proportionate approach.

  In order to deal with the identified causes of complaint (overselling the prospects for and standard of exchange accommodation which are accessible under the contract) our view is that the answer lies in ensuring that adequate accurate information is provided to the consumer and that this information forms part of the contract. For example, information about, among other things, the consumer's actual entitlement which may be limited by the location and time of the timeshare they are exchanging, and other restrictions such as demand for particular destinations in peak periods.

  We believe the case for applying a separate cooling off period to exchange contracts is not made. When membership of an exchange scheme is sold at the same time as a timeshare purchase the exchange contract falls within the definition of an "ancillary contract" under the proposal. The cooling off-period during which a consumer can withdraw from the timeshare contract (14 calendar days proposed) simultaneously applies to the exchange contract because the effect of withdrawing from a timeshare contract is to terminate ancillary contracts. Accordingly a separate cooling off period for exchange contracts does not appear to be needed in these circumstances. Indeed, because an exchange contract is generally concluded after the 14 day timeshare cooling off period has lapsed, the exchange contract would in practice be subject to 28 days cooling-off.

  Further consultation with the two main exchange schemes (both have their European headquarters in the UK) has confirmed that the vast majority of timeshare owners who join an exchange system do so at the time they purchase their timeshare. In addition, generally, there is no extra charge for the first period of membership and the consumer is provided with their exchange terms and conditions at the point at which they sign up to a timeshare purchase. They say that the imposition of a separate cooling-off period is unnecessary and would cause them significant administrative difficulties.

  Consumers can also join exchange schemes after they have bought and used their timeshare. In this case the consumer is generally making a far more informed choice within their home State as they have experienced their own timeshare and will have learned of the experiences of others in exchange schemes. It should also be noted that the financial outlay for membership of an exchange scheme (€100-200) is far less than for the purchase of a timeshare.

  For the reasons noted above concerning the small (initially often nil) financial outlay, in respect of exchange contracts a ban on advance payment is not needed, and would not necessarily fit sales practices in any case.

APPLICATION TO RESALE CONTRACTS

  For a description of resale services please see paragraph 10 of the Explanatory Memorandum. The proposal seeks to ensure that information and contracts be provided setting out basic information about who the contract is with, the price for the service etc. We support this element of the proposal.

  We do not consider that a cooling off period is needed in respect of resale contracts. Under the proposal the consumer is not required to pay until the sale has been completed or the contract is otherwise terminated, there is therefore no financial risk. Furthermore, a cooling-off period might be counter productive because the reseller would be reluctant to undertake any work on behalf of the consumer until the completion of the cooling-off period—delaying the delivery of the service.

  The Government agrees with the provision in article 6.2 which prohibits payments before a sale has taken place or the contract is terminated. This would have the essential effect of not only providing protection for consumers' money, but also providing consumers with the means by which they will be alerted to the rogue traders and fraudsters who currently prey on timeshare owners by requesting up-front fees, not facilitating any sale, and leaving the consumer out of pocket.

Ongoing Consultation

  Since the publication of the proposal BERR officials have arranged further meetings with stakeholder representative groups and businesses and have kept the Office of Fair Trading informed of developments in the meetings of the Council Working Group.

  Both the Association of Timeshare Owners' Committees (TATOC) and the Timeshare Consumers Association have said that they support our approach to resale and exchange outlined above. In some respects both organisations would prefer stronger information requirements than those currently proposed. For example, they believe that information on exchange should be more closely tied to the individual consumer's actual entitlements, and that there should be more information about any restrictions on a consumer's ability to benefit from entitlements. We shall continue to take their views into account as we consider the most proportionate approach to achieving the objectives of the proposal.

  Interval International and RCI, the two worldwide exchange companies, which cover by far the biggest proportion of exchanges between them, have expressed strong views that the proposal as it stands does not reflect how their business operates or the types and levels of detriment to which their customers may be exposed. For example, there are no long-term contracts with exchange, they are renewable usually annually, and the information requirements in the Commission's proposal clearly had not been adapted from information requirements more appropriate for timeshare sales. They have said that the separate application of a cooling-off period would cause them considerable difficulties and would amount to a "double" cooling-off period. They therefore support our approach to exchange. They are content that exchange agreements should be considered ancillary and should fall in the event that the consumer exercises their right to withdraw from a timeshare agreement within that cooling-off period. They have confirmed that this essentially reflects the current situation in any case—if a consumer has nothing to exchange then they cannot belong to the exchange scheme. One company said they provided pro-rata refunds for consumers who sold their timeshare mid-contract.

  They also support the formalisation of information and contractual provisions, though they have some concerns that, as their international operations take in very many different resorts worldwide, there is a danger that they will be required to provide a very great amount of information, pre-contract, which would add considerably to their costs. We have acknowledged these concerns and continue to seek to ensure that requirements on this sector are proportionate while providing consumers with adequate information in advance of agreeing to membership.

  We are also aware of another exchange business model (operated by Dial-an-Exchange, the European franchise of which is based in the UK). BERR officials have met this company, which allows direct access to exchanges via a web site and does not involve ongoing membership but an administration fee per exchange. We are conscious of the need to ensure that such alternative business models are not disproportionately affected by the proposals.

  While continuing to argue that they would prefer that other long-term holiday products should not be covered under this proposal the Organisation for Timeshare in Europe (OTE) appears to have accepted the general support for the proposal across Member States and has provided input to the Commission and the European Parliament on the detail of the proposal. We understand that they too generally agree with our approach to exchange and resale.

16 October 2007

  The Chairman and Members of EU Sub-Committee G were most grateful for the clear and helpful evidence you gave them, relating to the Committee's Inquiry into Timeshare and related holiday products, when you attended their meeting on 18 October. There had been insufficient time before that meeting for Sub-Committee Members to study your letter to me of 16 October 2007, and I am writing now to follow up on some of the points you raised in that letter.

  As you know, the transcript of your 18 October oral evidence to the Sub-Committee will be published with the Inquiry Report. In the same way, we will publish your letter of 16 October and our subsequent correspondence, in order that the points made will be on the record as a source of further evidence to be drawn upon in drafting the Committee's Inquiry Report.

DEFINITIONS

  You refer to the Government's concern over the too wide meaning of the term "accommodation", and your preference for this to be qualified as "overnight" or "living" accommodation. It would be helpful for our Report if you could let us have a little background about your thinking on this, giving some examples which illustrate the type of problems that might arise if the existing unqualified definition were retained.

  It would also be helpful if you could clarify your concerns about the proposed definition of timeshare exchange agreements.

EXCHANGE CONTRACTS

  Our understanding from evidence received is that the exchange contract automatically terminates (under Article 7) if the consumer withdraws from the main contract, and that Article 5 has the effect of creating an additional, consecutive, cooling-off period for exchange contracts. In your evidence to the Committee you suggested that there may be issues of principle here, rather than of drafting. It would be most helpful to have clarification on what these might be.

  Please could you also let us know whether, in Council Working Group discussions, concerns have been raised about possible demands for advance payments for exchange contracts being made at the point at which the consumer signs the timeshare contract, and whether the absence of withdrawal rights might present a loophole. Do you see it as a problem, for example, that traders might change the balance of pricing, with higher advance payment in respect of the exchange contract, which could be a disincentive to consumers from using their rights of withdrawal from the main timeshare contract.

RESALE CONTRACTS

  You refer to the Government's reservations concerning a cooling-off period in respect of resale contracts. We understand that the Commission's proposed definition of "resale" at present covers both timeshares resold by traders and timeshares sold by consumers, and it has been suggested to the Committee that these two issues would be better dealt with separately within the Directive. We would welcome your views on this point.

  Evidence submitted to the Committee suggests that a previously-owned timeshare being resold by a business to a consumer would be covered by the Directive on the same basis as a new timeshare, including in respect of the cooling-off period provisions. Can you please clarify for us whether the Government shares this interpretation and, if so, whether it supports the cooling-off provisions in respect of previously-owned timeshares being resold by a business to a consumer.

  If this is the case, please could you clarify whether we would be correct to conclude that the Government's objection to a cooling-off period in respect of the resale contracts applies only to the sale of a timeshare by a consumer to a trader.

23 October 2007