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Tuesday 17 May 2022

22-111MR Federal Court finds timeshare company Ultiqa failed consumers with multiple breaches of financial services laws

The Federal Court has made declarations that timeshare company Ultiqa Lifestyle Promotions Ltd breached financial services laws by failing to ensure that financial advice given to consumers was in the consumers’ best interests.

Between October 2017 and March 2019, financial advisers acting as authorised representatives of Ultiqa advised consumers to invest in the Ultiqa Lifestyle Scheme, a timeshare scheme, despite such advice not being in the consumers’ best interests and not being appropriate to their circumstances.

Consumers reported the upfront cost of joining the Scheme was between $10,000 to $25,000 with ongoing annual fees of up to $800. Most consumers who bought into the timeshare scheme took out a loan with a company related to Ultiqa to pay for their timeshare interest. 

ASIC Deputy Chair Karen Chester said, ‘This is an important decision for consumers and ASIC’s first financial advice action against a timeshare provider. Timeshare schemes are complex financial products. They can be difficult to understand and compare. They involve significant long term financial commitments of tens of thousands of dollars, are often loan-financed, and can be difficult to exit. When sold alongside financial advice, it is fundamental – and legally required – that the advice is in the consumer’s best interest and appropriate to their circumstances.’

In handing down her decision, Justice Downes found that Ultiqa’s authorised representatives prioritised sales objectives and targets over their clients’ best interests, saying, ‘That they gave such priority also manifested by the authorised representatives engaging in tactics to pressure the consumers to sign up at the presentation, including (in one instance) preventing the consumer from obtaining external advice, (in two instances) misleading the consumers by representing that the interest in the Scheme was not a time-share scheme, in generally not giving the consumers sufficient privacy and time to discuss and debate the proposed acquisition of interests in the Scheme, and by offering inducements to the consumers to sign up at the presentation. That they were required by Ultiqa to give such priority is apparent from the content of the documentation provided by Ultiqa […] The focus in giving the advice was on making a sale, and not on acting in the consumer’s interests.'

Justice Downes’ decision also quoted a sales manual provided to Ultiqa’s authorised representatives that said, ‘Once your client is on the Sales Deck they come to the grim realization that this is a sales environment and what is going through their mind is “How can we get out of here?”, and, if you give them the chance, they will. DO NOT GIVE THEM THE CHANCE! Do everything you can do to amuse, interest, excite, relax, humour, flatter and if necessary cajole your clients into staying.’

Deputy Chair Chester said, ‘Ultiqa prioritised sales over appropriate advice and ultimately consumers’ best interests. Pressure sales tactics used, and even documented in their sales manuals, encouraged sales agents to “corner” consumers into investing in a timeshare scheme that many could not afford. Despite paying tens of thousands of dollars in upfront costs and ongoing fees, many could not even book holidays in their timeshares due to lack of availability – meaning they got nothing for their money.’

The Court declared that Ultiqa failed to:

  • act efficiently, honestly and fairly;
  • provide relevant training to its authorised representatives;
  • monitor and supervise its authorised representatives appropriately; and
  • put in place documented policies and procedures to support the advice process

Ultiqa ceased promoting the sale of interests in the Ultiqa Lifestyle Scheme on 28 January 2020 and was placed into members' voluntary liquidation on 30 April 2021. The Scheme remains active and Ultiqa currently holds an AFS licence, which allows consumers to access dispute resolution services through the Australian Financial Complaints Authority.

The matter will return to Court for a case management hearing on 27 May 2022.

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Judgment (355 KB)

Background

ASIC commenced civil penalty proceedings against Ultiqa for failing to ensure that financial advice to consumers to buy timeshare products was in the consumers’ best interests on 3 November 2021 (21-288MR).

Timeshare schemes are managed investment schemes and financial products that commonly involve property in the form of holiday accommodation. They are complex products that typically involve high upfront fees and ongoing annual costs.

Timeshare financial advisers typically sell timeshare ‘memberships’ by providing personal product advice to consumers and can use persuasive sales tactics. In many cases, consumers do not recognise they have received financial advice, which presents a significant risk, as consumers are not aware of the financial commitment of the product and whether it is suitable for them. ASIC’s Report 642 Timeshare: Consumers’ experiences showed a high-level of discontent amongst timeshare participants.

Report 642 looked at consumer experiences with timeshare following consumer research conducted in 2019.  

It also indicated that many research participants were dissatisfied with their timeshare membership and that timeshare memberships contain significant risks, including:

  • the long-term nature of contracts, which typically range from 20 to 99 years
  • the high upfront costs of joining which average $23,000
  • the ongoing annual costs of membership which average $800
  • the fact that many consumers often need to borrow to make the membership purchase, with 48% of consumers taking out a loan to buy a membership
  • the high cost of loans taken to purchase membership, with an average loan cost of $19,699 and an average interest rate of 13.51%
  • the fact that timeshare memberships are often difficult to exit.

The Scheme is one of approximately 15 registered timeshare schemes currently operating in Australia. Up until January 2020, it was one of approximately five schemes issuing interests to new members. Data provided to ASIC by the Australian Timeshare and Holiday Ownership Council indicated that there are currently approximately 180,000 timeshare members in Australia.

ASIC previously fined an Ultiqa Lifestyle timeshare lender for responsible lending failures in 2018 (18-253MR) and raised concerns with Ultiqa Lifestyle's disclosure and sales practices in 2016 (MR16-418).

ASIC’s Moneysmart explains what to look out for when buying and selling timeshares.

 

Editor's note: 

The matter has been listed for penalty hearing in the Federal Court on 8 September 2022.

Last updated: 30/05/2022 11:25