An ASIC report released today provides detailed insights into the risks of harm at each stage of a consumer’s journey with time-sharing schemes (timeshare).
Report 642 Timeshare: Consumers’ experiences (REP 642) presents key findings from qualitative research commissioned by ASIC to explore consumers’ experiences with timeshare from the initial approach and sale through to membership use and the exit process.
The key findings from the research were that, while some research participants were satisfied with their timeshare membership, there was a high level of discontent overall. Many consumers felt that they were not getting the expected value from their membership and that they had experienced financial stress because of unexpected changes to membership fees, or in some cases, to their personal circumstances.
ASIC Commissioner Danielle Press said, ‘Timeshare memberships are complex and give rise to long-term financial commitments. They typically involve high upfront fees and ongoing annual costs. Nearly half the consumers borrow to make a purchase. This presents significant risks’.
According to 2018-19 data sourced from the Australian Timeshare Holiday Owners Council (ATHOC), consumers pay $23,000 on average for their timeshare membership and about $800 in ongoing annual membership costs. The loan interest rate is 13.5 per cent on average, and 48 per cent of consumers who bought or upgraded their membership took a loan to do so.
‘ASIC is concerned about the sales tactics used by timeshare operators that harness a range of well-known behavioural techniques to propel consumers toward a purchase decision such as the use of time-bound ‘exclusive’ offers. We saw consumers spend large sums of money on a purchase they did not expect to make and then enter into ongoing financial commitments under time pressure,’ Ms Press said.
Timeshare memberships generally range from 20 to 99 years. While most research participants were generally aware of the long-term contract period, they had not considered their options if they could no longer afford their membership or if the financial liability was to be transferred to a family member in the future.
Commissioner Press said, ‘This consumer research has reiterated long-held concerns and provided a deeper understanding of the issues. Timeshare is a ‘sticky’ product – it is easy for consumers to get into but harder to get out of.
‘Timeshare operators need to ensure the way they design and sell their products, provide services and respond to complaints, leads to good outcomes for their members. Financial advisers involved in the sale of timeshare products must comply with the law and put their clients’ interests first when providing personal advice. We will take action to address mis-selling, poor advice or lending practices that result in significant financial loss to consumers.
‘ASIC is considering regulatory options to deal with the identified consumer harms and reconsidering the policy settings to improve consumer outcomes. We are focusing on issues such as the ability for consumers to have their timeshare application voided where it is subject to obtaining finance but finance is not approved or the consumer decides not to proceed with the finance application, exit arrangements for consumers facing hardship and other measures to address consumer harms in this sector,’ Ms Press said.
The research for REP 642 was undertaken by Heartward Strategic and involved in-depth interviews with 50 consumers who had all received personal advice to purchase timeshare membership from one of the five main points-based timeshare operators in Australia — Accor Vacation Club, Classic Clubs, Marriott Vacation Club, Ultiqa and Wyndham.
Background
REP 642 is part of ASIC’s broader work on timeshare which includes:
- a targeted review of personal advice given by timeshare operators;
- release of updated policy settings in Regulatory Guide 160 Time-sharing schemes in the first half of 2020; and
- a formal investigation, which will consider enforcement action.
ASIC will issue a consultation paper also in the first half of 2020 seeking feedback on proposals to address known risks of consumer harm occurring at different stages of timeshare membership. As part of this, we will consult on an enhanced cooling-off regime or whether a deferred sales model is necessary to replace the current cooling-off ‘opt-out’ model.
From April 2021, timeshare operators will need to comply with the design and distribution obligations in Pt 7.8A of the Corporations Act, which seeks to ensure that issuers and distributors take a consumer-centric approach to financial product design and distribution.