Consumer Protection (Holidays) (Hansard, 21 May 2002)

I welcome the opportunity to initiate this debate on consumer protection and the sale of holidays.

For most of us, the purchase of a foreign holiday is our largest annual financial outlay. These holidays are eagerly looked forward to, and, frequently, carefully saved for. Most of us dream that, in our retirement, we will be able to take more frequent breaks at the time of our choosing, because we will be free from the constraints of work. Foreign holidays account for 30 per cent. of the holidays that are taken each year; the annual worth of that business is £29 billion.

The vast majority of those foreign holidays are booked with reputable companies, which provide a first-class product, to the satisfaction of their consumers. However, the growth of the foreign holiday market has led to practices that can only be described as unscrupulous—and, in some cases, downright fraudulent.

One sector that earned such a reputation was the sale of timeshare holidays. Following much publicity and complaint, regulations were enacted by European institutions, and they were added to by the Timeshare Act 1992 and by timeshare regulations in April 1997. They have rightly given consumers protection, and they have done much to clean up a sector that had a bad reputation.

The issue that I wish to highlight in this debate is the sale of holidays through what are known as holiday clubs. Many of the techniques that are used to sell membership of such clubs are identical to the worst sales techniques of the bad days of timeshare selling. Though many holiday clubs are selling access to timeshare accommodation, they are not covered by current legislation governing such sales. One could come to the conclusion that the sale of membership of holiday clubs is a new way for those involved in the more disreputable end of the timeshare market to avoid the regulations that now govern the timeshare industry.

To highlight the problems, I wish to draw attention to a company called On-Line Vacations, which has been operating in north-east England. However, as I will explain, that is just one of the names that that company trades under. It has left many of my constituents feeling dissatisfied, and out of pocket by many thousands of pounds.

On-Line Vacations first appeared in the north-east, where it traded as G M Leisure from an office in Monkwearmouth in Sunderland. It then moved to Vermont house in Washington in Tyne and Wear, and its name was changed to On-Line Vacations. After having disappeared without explanation at the beginning of this year, the company is now based at 2 Deemouth centre, South Esplanade, east Aberdeen where it is trading as Dream Vacations Ltd.

Although the company has often changed its name, it is one and the same company; the common individual throughout is a director, Mr. William Millar. The company's product is membership of a holiday club. For a fee of between £1,950 and £4,800, customers receive a PIN number that gives them exclusive access to 64WH an agency website offering discount accommodation in "holiday exchange properties"—a new name for timeshare accommodation, I am reliably informed. The accommodation itself was not provided directly by On-Line Vacations but by a company ironically called either Qualycon or Qualyeurope. Again, the name changes throughout the saga depending on the company with which one is dealing.

As I said earlier, many of the techniques used to sell membership are reminiscent of the worst techniques used in the sale of timeshares that resulted in legislation. One such method is to cold call individuals by telephone using the classic bait and trap tactic—individuals are offered a free holiday in return for attending a company's presentation. Once at the presentation, all who have complained to me state that the technique was hard sell. Mr. Martin Alexander and his wife of Seaham, County Durham attended a sales session. They said that the pressure was unrelenting, at no time did a member of their staff leave you alone during the three hour session. Mr. Alexander and his wife signed an agreement with the company in order to be allowed to leave the room. Very wisely, they did not hand over any money, saying that they wished to have time to think about what was on offer.

On further investigation, Mr. Alexander discovered information that questioned the legitimacy of what was offered. Although the company claimed to be long established, the consumer credit licence was only five days old. Also, no mention was made of the fact that On-Line Vacations was acting as an agent for Qualyeurope. On making inquiries, Mr. Alexander found that the trading standards department in Durham county council had received numerous complaints about the company's activities.

Mr. Alexander wrote to the company declining to take the matter further and what followed over the next few months can be described only as a heavy-handed and threatening approach. Threatening letters and telephone calls stated that the bailiffs would be instructed if the Alexanders did not pay £3,500 to On-Line Vacations. All credit to the Alexanders, they stood their ground and, with the help of their solicitor, did not give in.

Alas, some of my constituents have not been so fortunate. Mr. and Mrs. Cooper, of Chester-le-Street, attended a presentation in May 2000 at On-Line Vacations' Washington offices, following an invitation sent to them by post promising a free holiday in return for attending. They paid £4,000 to On-Line Vacations for the unique PIN number that enabled them to book discount accommodation. The sales person stressed that it was not timeshare accommodation. They received the PIN number but could not access the website, so they went to the company's offices in Washington to try and book their free holiday, only to be told by a member of staff that there were problems with the computer, so it was not possible.

To date, Mr. and Mrs. Cooper have received nothing in return for their £4,000 some two years after being signed up by the company, which was called GM Leisure at the time. They were left to pay off the loan that they had taken out to pay their joining fee. That is one of many cases reported to Durham county council's trading standards department. I pay tribute to its 65WH representatives, especially Sue Constable, for their persistence in trying to unravel the web of dishonesty that surrounds the activities of that company in Durham.

Clearly, the activities of On-Line Vacations has left many honest, hardworking people in the north-east out of pocket and feeling that they have been victims of a sophisticated con. That does not stop at those who have purchased membership. A constituent who has a holiday cottage in the village of Plawsworth in north Durham is owed outstanding rent from On-Line Vacations, which used the cottage to house staff while operating in the north-east.

The web of companies involved in the operation of On-Line Vacations is complex. On the face of it, it appears that those involved are avoiding their responsibilities. The main director, Mr. Millar, signed a trust deed on 10 April 2000, effectively signing his assets to a trust deed to be realised in favour of his creditors. The only problem for those owed money by On-Line Vacations is that they do not appear as creditors, despite Mr. Millar's numerous promises that they would receive their money back in full. The trading standards department of Durham county council told me that Douglas Cooke, who was involved in On-Line Vacations, is now running a similar operation in Coventry. The other director, Ronald Mathews, is still in the north-east. It is ironic that, as of yesterday, the website of On-Line Vacations was still up and running, and giving a local telephone number for people to contact.

This week, I have again written to Durham police asking them to look into the case of On-Line Vacations. To date, both they and Northumbria police have considered it a civil matter, but clearly the work undertaken by the trading standards department of Durham county council raises serious questions about whether the operation was not an elaborate fraud from the start. Will the Minister's Department investigate, as a matter of urgency, the operation of the company? One question needs to be answered: why was a credit licence issued to the company by the Office of Fair Trading, despite objections from the trading standards department of Sunderland city council?

At present, the activities of holiday club operations such as On-Line Vacations seem to fall outside the law or regulations. They are not covered by the Package Travel, Package Holidays and Package Tours Regulations 1992 because they are not package holidays as defined under the regulations. Likewise, although in many cases such operations trade in timeshare accommodation, they are not covered by the Timeshare Act 1992 or the Timeshare Regulations 1997. To the credit of the trading standards department of Durham county council, it alerted the Office of Fair Trading in April 2001 to the fact that no appropriate OFT code covers that type of holiday club.

The Department of Trade and Industry has produced a leaflet warning that holiday clubs are not cancellable agreements and has consulted on proposed changes in the law. Clearly, the case of On-Line Vacations demonstrates the urgent need for laws or regulations to protect consumers. Regulation of the timeshare industry has done much to clear up its reputation. It seems that holiday clubs have been used as a way in which to avoid such regulations. It is interesting that one 66WH of the companies supplying accommodation to On-Line Vacations, Timelinx.com, is based in Spain, an area that was notorious for the mis-selling of timeshare accommodation in the late 1980s and early 1990s.

Will the Minister consider the points that I have raised in today's debate and ensure that legislation or regulations are brought forward urgently to prevent more hardworking, honest people such as my constituents from being defrauded of money that they can ill afford to lose?

§ The Minister for Employment Relations, Industry and the Regions (Alan Johnson)

I congratulate my hon. Friend the Member for North Durham (Mr. Jones) on securing a debate on such an important issue, which is of great worry to his constituents, especially Mr. and Mrs. Alexander and Mr. and Mrs. Cooper. The cases that he outlined are extremely distressing and show the fraudsters' guile in trying to bypass consumer protection legislation. I shall start by describing existing legislation.

The Timeshare Act 1992 regulates the timeshare market in the UK, while the timeshare directive of 1994 ensures that consumers throughout Europe are protected. The legislation gives consumers important protections at the point of sale, when they are often most vulnerable. It insists on a 14-day cooling-off period in which to cancel the contract. In the rest of Europe, the period is a minimum of 10 days. It also insists on a ban on timeshare sellers asking for or taking deposits during the cooling-off period, and on the right to a brochure and written contract with basic information on the timeshare property in the consumer's own language.

The legislation has been very successful. In a way, the emergence of new scams designed to avoid the law is testimony to how successful it has been. It has greatly helped to tackle the unscrupulous practices that have tarnished the timeshare industry in the past. However, the Department of Trade and Industry has been made aware of several new products that have been introduced to the market that have similar characteristics to timeshare but are often not covered by timeshare legislation. In many cases, as my hon. Friend said, they seem to have been deliberately designed to get round the legislation.

In the case of holiday clubs, the schemes involve consumers purchasing what amounts to a promise by the club to provide them with holidays for a long period into the future—sometimes a lifetime. As membership of the club does not give rights to purchasers for a particular property, it is not covered by timeshare legislation. Indeed, as my hon. Friend said, many companies use the fact that the product is not timeshare as a selling ploy.

Although the products are not covered under timeshare legislation, they may be covered by other consumer legislation. The Trade Descriptions Act 1968 and the Unfair Terms in Consumer Contracts Regulations 1999 also provide protection. Indeed, consumers have successfully pursued court cases against holiday club companies using the Property Misdescriptions Act 1991. Protections are also provided for sales promotions that take place in hotels away from a company's business premises under the doorstep selling regulations.

67WH My Department issued a consultation paper in April 2000 to find out more about how the timeshare legislation had worked and the extent of any problems experienced in the sector. The European Commission recently announced that it will review and amend the timeshare directive by 2003 to ensure that consumers are fully protected.

Extending the scope of existing timeshare legislation to cover holiday club products is best done at EU level. British consumers are often targeted while on holiday in Europe, or the company is registered in Spain. My Department will work closely with the Commission during the review to ensure that British consumers are better protected, as my hon. Friend suggests.

The Government are also asking for more rigorous enforcement by the Spanish authorities of timeshare and other relevant legislation, such as the misleading advertising directive. As my hon. Friend said, part of the problem is tracking down people who set up different companies in different countries.

Officials from the Office of Fair Trading recently returned from Madrid, where they presented evidence to the police on the perceived fraudulent activities of certain Spanish companies involved in the sale of holiday clubs and timeshare resale. Working closely with their Spanish counterparts, the police authorities in Spain and Interpol, the OFT is trying to protect UK consumers who choose to purchase timeshare products, and to improve consumer confidence in the market through the eradication of unlawful practices.

Under the gloriously named Stop Now Orders (EC Directive) Regulations 2001, which came into effect on 1 June 2001, the Office of Fair Trading has the power to apply for orders to stop traders in the United Kingdom and other member states infringing legislation implementing 10 specific European Community consumer protection directives, including distance selling, doorstep selling and timeshare if the collective interests of UK consumers are harmed. That gives the OFT even more power to crack down on fraudulent companies targeting UK consumers.

Some of the more disreputable companies that engage in fraud will be covered under criminal law. Company investigations in my Department are also able to investigate companies under the powers of the Companies Act 1985 if fraud or misconduct is suspected. If the public are at risk, the Secretary of State may ask the court to stop a company trading at once by appointing a provisional liquidator. If there is evidence of misconduct by a company's directors, the Secretary of State can also ask the courts to disqualify them. In other cases, my Department may use the information that it has obtained to prosecute offenders, or it can pass the information to the Crown Prosecution Service for further consideration. The DTI has recently wound up 68WH other holiday clubs, such as Diamond VSI Ltd, Somerville Leisure plc, Hever Worldwide Properties plc and Expanding Horizons Ltd.

I urge my hon. Friend to forward any details or information that he has about such companies for my Department's further consideration. My hon. Friend the Minister with responsibility for consumers, competition and markets will look carefully at the points raised in today's debate. However, my hon. Friend will appreciate that investigations conducted by my Department are strictly confidential and are never disclosed to any party except for the statutory purposes provided under the Act, such as for the institution of civil or criminal proceedings. It is departmental policy not to confirm or deny that such investigations are taking or have taken place, for the obvious reason that a company under investigation might be found innocent.

My hon. Friend also raises the question of consumer credit licences, and he cites a situation in his area. I emphasise that licences are awarded by the Office of Fair Trading if it is satisfied that the trader is a fit person to engage in the activities covered by the licence. The OFT can refuse or take away a licence if a trader is considered unfit. It is entirely a matter for the OFT, and I am unable to disclose details of particular cases.

I am sure that my hon. Friend will agree that prevention is always better than cure. Well-informed consumers are the best means of tackling bad practice and of preventing problems before they arise. Last June, the Government relaunched the leaflet "Timeshare—Making the Right Choice". That leaflet informed consumers about developments in the market and the undesirable practices at the margins of the industry, some of which have been mentioned today. The leaflet was distributed with the help of the industry, and it is included in UK holidaymakers' airline ticket wallets in order to draw such scams to their attention. The responsible timeshare industry is working hard on developing robust codes of practice. Holiday clubs, vacation packs and sellers of timeshare points who belong to the main trade association voluntarily provide consumers with the same protections afforded under the timeshare directive.

I am sure that my hon. Friend appreciates that rogue traders will always seek ways to avoid legislation in order to exploit the unwary consumer. The Government will be working closely with the European Commission on its forthcoming review of the timeshare directive in order to ensure that a future definition of timeshare encompasses new products such as holiday clubs. The DTI will also continue to work with the Office of Fair Trading and other enforcement bodies to ensure better enforcement of existing legislation. It will also continue to encourage the industry to develop more effective self-regulation, and to work in partnership with the industry in order to improve information and publicity for consumers on their rights under the law.