Mitsubishi HC Capital UK Plc · DRN-6247667

The complaint Mr F’s complaint is, in essence, that Mitsubishi HC Capital UK Plc (the ‘Lender’) acted unfairly and unreasonably by (1) being party to an unfair credit relationship with him under Section 140A of the Consumer Credit Act 1974 (as amended) (the ‘CCA’) and (2) deciding against paying a claim under Section 75 of the CCA. What happened I issued a provisional decision on this complaint on 26 February 2026 in which I set out the background to the matter along with my provisional findings on it. A copy of that provisional decision is appended to and forms part of this final decision1, so it’s not necessary for me to go over all the details again. However, to summarise the events leading up to the complaint briefly: • Mr F entered an agreement (the “Purchase Agreement”) to buy a timeshare from a timeshare provider (the “Supplier”) on 6 December 2017 (the “Time of Sale”) for £17,433. He took a loan (the “Credit Agreement”) from the Lender of £16,433 to finance the balance payable after trading in some “promotional weeks” he had held with the Supplier already. • The timeshare Mr F purchased – a membership of the “Fractional Club” – came with holiday benefits but was also asset backed, meaning it entitled Mr F to a share in the net sale proceeds of a property named on the Purchase Agreement (the “Allocated Property”) when his membership came to an end. • Mr F later complained to the Lender, in August 2019, about a number of mis-selling concerns relating to the timeshare and the associated Credit Agreement. Broadly speaking, Mr F’s concerns were: o That the Supplier had made certain misrepresentations to him, entitling him to redress from the Lender under Section 75 of the CCA. o That various improper acts or omissions by the Supplier or Lender had meant the Lender had participated in an unfair credit relationship with him within the meaning of Section 140A of the CCA. o That the Lender had lent to him irresponsibly. The complaint was subsequently referred to the Financial Ombudsman Service. In my provisional decision I said I was minded to uphold the complaint. The full reasoning can be found in the appended provisional decision but again, to summarise: • I thought the Supplier had, more likely than not, breached Regulation 14(3) of the Timeshare Regulations at the Time of Sale, when selling Mr F the Fractional Club 1 An error in the original provisional decision, where a formatting issue caused part of a line to disappear, has been corrected in the appended version.

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membership. I thought the Supplier had marketed or sold the product to Mr F as an investment, which was prohibited under that regulation. • I thought the Supplier’s improper marketing or selling of the product, in breach of Regulation 14(3), had had a material impact on Mr F’s decision to go ahead with his purchase of the Fractional Club membership and entry into the associated Credit Agreement. I thought this rendered the resulting credit relationship between Mr F and the Lender, unfair to him and warranted remedial action. The remedial action I said I was minded to direct the Lender to carry out was, in essence, to unwind the purchase as far as reasonably practicable. The full details are in the appended provisional decision, but the steps involved refunding payments made towards the Credit Agreement and timeshare management fees, with benefits received from the membership netted off against this. I considered compensatory interest ought to be paid on the net refund, and that the Lender should take steps to make appropriate amendments to Mr F’s credit file and to ensure he was not responsible for the Fractional Club membership going forward. I asked the parties to respond to my provisional decision. PR, on Mr F’s behalf, accepted the provisional decision. The Lender did not. I could summarise its arguments as follows: • Its interpretation of a witness statement which I’d relied on to draw conclusions about what may have happened at the Time of Sale, and what Mr F’s motivations were when making his purchase, was different to mine. Specifically: o It thought that, based on what Mr F had said, the Supplier had probably described the product in a way that was compliant with Regulation 14(3). While Mr F had referred to property prices always going up, it wasn’t clear that this was something the Supplier had told him – he could just have easily arrived at that conclusion himself following a compliant description of the product. o While Mr F had referred to thinking of the product as “an investment for our future” when making his purchasing decision, he hadn’t explained why he had thought this or what he meant by “investment”. It thought it more probable that Mr F was referring to investing in holidays with his family rather than an investment in the financial sense. o Mr F had given more attention and focus to the holiday benefits of the product – referring to “cheap holidays for ourselves and our family”. It thought this was the more likely motivation for his purchase, not any prospect of the product being an investment that could or would lead to a financial gain. • The Supplier’s internal notes from the Time of Sale were broadly supportive of its interpretation of the witness statement. Notes from a purchase a year later, which was later cancelled, also suggested a consistent motivation for Mr F was the prospect of using the Supplier’s products for holidays. The Lender opined that it was more likely Mr F had complained about the purchase later because his personal circumstances had changed, not because he was genuinely concerned the product had been sold to him in a way which didn’t comply with Regulation 14(3) of the Timeshare Regulations. The case has now been returned to me to decide.

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What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, I’ve arrived at the same conclusions as I did in my appended provisional decision, and for essentially the same reasons. I note the Lender has not disputed my analysis of the Supplier’s sales and training materials which helped to inform my conclusions regarding how the Fractional Club product was likely to have been sold to Mr F at the Time of Sale. I took the view that these materials were representative of how the Supplier’s sales staff were likely to have been trained, and that there was a likelihood that the language used during the sales process would have been consistent with the idea that Fractional Club membership was an investment in the sense that a financial gain might be realised from it and that this was a good reason to purchase it. My analysis of that material – and what it means for Mr F’s case – remains unchanged. While I appreciate Mr F may not say in his witness statement – directly – that the Supplier’s representatives told him the product was an investment, the Supplier doesn’t need to have done so in order to have breached the prohibition in Regulation 14(3). As explained in my provisional decision, it is enough for the Supplier to have implied that future financial returns (in the sense of profit) were a good reason to buy the product, to fall foul of the relevant regulation. It’s apparent, in my view, that Mr F came away from his meeting with the Supplier with the impression that the Fractional Club product was an investment in the financial sense. The Lender suggests that the idea of financial gains may have occurred to him without the Supplier’s prompting or inference, but I think the opposite is more likely given my analysis of the Supplier’s sales process and Mr F’s witness statement. And while I acknowledge it’s possible that, when Mr F refers to the concept of “investment” he is talking about investing in holidays with his family, this is not the most obvious or natural meaning associated with “investment”. I think it’s more likely he was referring to the prospect of a future financial gain. I appreciate the Lender has a generally different interpretation of Mr F’s witness statement. I’ve considered the Lender’s other arguments as to why its interpretation is the more compelling one carefully, but ultimately I don’t find its arguments sufficiently persuasive to depart from the interpretation I arrived at in my provisional decision. Finally, I’ve considered the Lender’s points around the Supplier’s internal notes, which it has supplied as evidence at this late stage. Having read the notes, I don’t think they make a strong case for either the Lender’s interpretation of the witness statement and what happened at the Time of Sale, or the interpretation I set out in my appended provisional decision. Ultimately, they don’t change my findings on the key questions in this case. It follows that my conclusions remain that the Supplier breached Regulation 14(3) of the Timeshare Regulations when selling the Fractional Club membership to Mr F, that this was a material motivating factor in his purchasing decision, and that this rendered his credit relationship with the Lender unfair to him. Fair Compensation What I consider to be fair compensation has not changed since my provisional decision, so the following directions are copied directly from the appended document:

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Having found that Mr F would not have agreed to purchase Fractional Club membership at the Time of Sale were it not for the breach of Regulation 14(3) of the Timeshare Regulations by the Supplier (as deemed agent for the Lender), and the impact of that breach meaning that, in my view, the relationship between the Lender and the Consumer was unfair under section 140A of the CCA, I think it would be fair and reasonable to put him back in the position he would have been in had he not purchased the Fractional Club membership (i.e., not entered into the Purchase Agreement), and therefore not entered into the Credit Agreement, provided Mr F and the joint purchaser of the timeshare agree to assign to the Lender their Fractional Points or hold them on trust for the Lender if that can be achieved. Here’s what I think needs to be done to compensate Mr F with that being the case – whether or not a court would award such compensation: (1) The Lender should refund Mr F’s repayments to it under the Credit Agreement, including any sums paid to settle the debt, and cancel any outstanding balance if there is one. (2) In addition to (1), the Lender should also refund the annual management charges Mr F paid as a result of Fractional Club membership. (3) The Lender can deduct: i. The value of any promotional giveaways that Mr F used or took advantage of; and ii. The market value of the holidays* Mr F took using his Fractional Points. (I’ll refer to the output of steps 1 to 3 as the ‘Net Repayments’ hereafter) (4) Simple interest** at 8% per annum should be added to each of the Net Repayments from the date each one was made until the date the Lender settles this complaint. (5) The Lender should remove any adverse information recorded on Mr F’s credit file in connection with the Credit Agreement reported within six years of this decision. (6) If Mr F’s Fractional Club membership is still in place at the time of this decision, as long as he and the joint purchaser agree to hold the benefit of their interest in the Allocated Property for the Lender (or assign it to the Lender if that can be achieved), the Lender must indemnify them against all ongoing liabilities as a result of their Fractional Club membership. *I recognise that it can be difficult to reasonably and reliably determine the market value of holidays when they were taken a long time ago and might not have been available on the open market. So, if it isn’t practical or possible to determine the market value of the holidays Mr F took using his Fractional Points, deducting the relevant annual management charges (that correspond to the year(s) in which one or more holidays were taken) payable under the Purchase Agreement seems to me to be a practical and proportionate alternative in order to reasonably reflect his usage. **HM Revenue & Customs may require the Lender to take off tax from this interest. If that’s the case, the Lender must give the consumer a certificate showing how much tax it’s taken off if they ask for one.

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My final decision For the reasons explained above, and in the appended provisional decision, I uphold Mr F’s complaint and direct Mitsubishi HC Capital UK Plc to take the actions set out in the “Fair Compensation” section above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr F to accept or reject my decision before 21 April 2026. Will Culley Ombudsman

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COPY OF PROVISIONAL DECISION I’ve considered the relevant information about this complaint. Having done so, I’ve arrived at the same overall conclusions as our Investigator, but I’ve explained my reasons in more detail. Because of this, I’m issuing this provisional decision to give the parties to the complaint a further opportunity to make submissions, before I finalise my decision. The deadline for both parties to provide any further comments or evidence for me to consider is 5 March 2026. Unless the information changes my mind, my final decision is likely to be along the following lines. If Mitsubishi HC Capital UK Plc accepts my provisional decision, it should let me know. If Mr F also accepts, I may arrange for the complaint to be closed as resolved at this stage without a final decision. The complaint Mr F’s complaint is, in essence, that Mitsubishi HC Capital UK Plc (the ‘Lender’) acted unfairly and unreasonably by (1) being party to an unfair credit relationship with him under Section 140A of the Consumer Credit Act 1974 (as amended) (the ‘CCA’) and (2) deciding against paying a claim under Section 75 of the CCA. What happened Mr F purchased a timeshare from a timeshare provider (the ‘Supplier’) on 6 December 2017 (the ‘Time of Sale’). He entered into an agreement with the Supplier to buy 1,300 fractional points at a cost of £17,433 (the ‘Purchase Agreement’). But after trading in some ‘promotional weeks’ he had previously been granted by the Supplier, he ended up paying £16,433 for membership of the Fractional Club. Fractional Club membership was asset backed – which meant it gave Mr F more than just holiday rights. It also included a share in the net sale proceeds of a property named on his Purchase Agreement (the ‘Allocated Property’) after his membership term ends. Mr F paid for the Fractional Club membership by taking finance of £16,433 from the Lender (the ‘Credit Agreement’), repayable over 120 months at £229.09 per month. Mr F – using a professional representative (‘PR’) – wrote to the Lender on 6 August 2019 (the ‘Letter of Complaint’) to complain about: 1. Misrepresentations by the Supplier at the Time of Sale giving him a claim against the Lender under Section 75 of the CCA, which the Lender failed to accept and pay. 2. The Lender being party to an unfair credit relationship under the Credit Agreement and related Purchase Agreement for the purposes of Section 140A of the CCA. 3. The decision to lend being irresponsible because (1) the Lender did not carry out the right creditworthiness assessment and (2) the money lent to him under the Credit Agreement was unaffordable for him. (1) Section 75 of the CCA: the Supplier’s misrepresentations at the Time of Sale Mr F says that the Supplier made a number of pre-contractual misrepresentations at the

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Time of Sale – namely that the Supplier: 1. told him that Fractional Club membership had a guaranteed end date when that was not true. 2. told him that he was buying an interest in a specific piece of “real estate” when that was not true. 3. told him that Fractional Club membership was an “investment” when that was not true because it is simply a timeshare. Mr F says that he has a claim against the Supplier in respect of one or more of the misrepresentations set out above, and therefore, under Section 75 of the CCA, he has a like claim against the Lender, who, with the Supplier, is jointly and severally liable to him. (2) Section 140A of the CCA: the Lender’s participation in an unfair credit relationship The Letter of Complaint set out one main reason why Mr F says that the credit relationship between him and the Lender was unfair to him under Section 140A of the CCA. This was the inclusion of allegedly unfair terms within the Purchase Agreement. However, I note that some of the other matters Mr F complained of under the heading of misrepresentation, could also be matters which could render his credit relationship with the Lender unfair to him. This includes the alleged sale of the Fractional Club membership as an investment. If the membership was sold or marketed in this way, it would have been a breach of Regulation 14(3) of the Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010 (the ‘Timeshare Regulations’). As I’ve said above, Mr F also complained the Lender had lent to him irresponsibly. The Lender dealt with Mr F’s concerns as a complaint but failed to respond to the complaint within the eight weeks permitted under the relevant complaint handling rules. Mr F then referred the complaint to the Financial Ombudsman Service. A few months later, I’m told the Lender responded to the complaint. No copy of the response has been provided, but I understand the Lender disagreed with the complaint. The complaint was then assessed by an Investigator who, having considered the information on file, upheld the complaint on its merits. The Investigator thought that the Supplier had marketed and sold Fractional Club membership as an investment to Mr F at the Time of Sale in breach of Regulation 14(3) of the Timeshare Regulations. And given the impact of that breach on his purchasing decision, the Investigator concluded that the credit relationship between the Lender and Mr F was rendered unfair to him for the purposes of section 140A of the CCA.

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The Lender disagreed with the Investigator’s assessment and asked for an Ombudsman’s decision – which is why it was passed to me. I could summarise the Lender’s arguments against the Investigator’s assessment as follows: • It had reviewed the sales materials in use by the Supplier at the Time of Sale, and it disagreed that these marketed or sold the Fractional Club product as an investment. • It considered the documents Mr F signed at the Time of Sale were very clear about the product not being an investment. • There was no witness statement from Mr F in his own hand or his own words. All that had been submitted were blanket, templated assertions. Later in its response to our Investigator, the Lender appeared to recognise there was in fact a witness statement from Mr F, but questioned whether the words were his, and criticised a lack of detail about who had said what to whom and when. • There were factual errors in the complaint and/or the witness statement. For example, the Letter of Complaint had said Mr F had a previous timeshare with the Supplier, when he hadn’t. And Mr F had said the Allocated Property would be sold in 15 years when it was actually 16 years. • It disagreed, even if there had been a breach of Regulation 14(3) of the Timeshare Regulations by the Supplier (which it denied), that this had led to an unfair credit relationship. The Supplier’s internal notes had suggested Mr F was happy with his membership. The legal and regulatory context In considering what is fair and reasonable in all the circumstances of the complaint, I am required under DISP 3.6.4R to take into account: relevant (i) law and regulations; (ii) regulators’ rules, guidance and standards; and (iii) codes of practice; and (where appropriate), what I consider to have been good industry practice at the relevant time. The legal and regulatory context that I think is relevant to this complaint is no different to that shared in several hundred published ombudsman decisions on very similar complaints – which can be found on the Financial Ombudsman Service’s website. And with that being the case, it is not necessary to set out that context here. What I’ve provisionally decided – and why I have considered all the available evidence and arguments to decide what is fair and reasonable in the circumstances of this complaint. And having done that, I currently think that this complaint should be upheld because the Supplier breached Regulation 14(3) of the Timeshare Regulations by marketing and/or selling Fractional Club membership to Mr F as an investment, which, in the circumstances of this complaint, rendered the credit relationship between him and the Lender unfair to him for the purposes of Section 140A of the CCA. However, before I explain why, I want to make it clear that my role as an Ombudsman is not to address every single point that has been made to date. Instead, it is to decide what is fair and reasonable in the circumstances of this complaint. So, while I recognise that there are a number of aspects to Mr F’s complaint, it isn’t necessary to make formal findings on all of them. This includes the allegations that the Lender lent to him irresponsibly, or that the contract with the Supplier contained unfair terms. And that’s because, even if any other aspects of the complaint ought to succeed, the redress I’m currently proposing puts Mr F in

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the same or a better position than he would be in if the redress was limited to what would be fair had any other aspect of his complaint been upheld. Section 140A of the CCA: did the Lender participate in an unfair credit relationship? Having considered the entirety of the credit relationship between Mr F and the Lender along with all of the circumstances of the complaint, I think the credit relationship between them was likely to have been rendered unfair for the purposes of Section 140A. When coming to that conclusion, and in carrying out my analysis, I have looked at: 1. The Supplier’s sales and marketing practices at the Time of Sale – which includes training material that I think is likely to be relevant to the sale; and 2. The provision of information by the Supplier at the Time of Sale, including the contractual documentation and disclaimers made by the Supplier; 3. Evidence provided by both parties on what was likely to have been said and/or done at the Time of Sale; 4. The inherent probabilities of the sale given its circumstances. I have then considered the impact of these on the fairness of the credit relationship between Mr F and the Lender. The Supplier’s breach of Regulation 14(3) of the Timeshare Regulations The Lender does not dispute, and I am satisfied, that Mr F’s Fractional Club membership met the definition of a “timeshare contract” and was a “regulated contract” for the purposes of the Timeshare Regulations. Regulation 14(3) of the Timeshare Regulations prohibited the Supplier from marketing or selling Fractional Club membership as an investment. This is what the provision said at the Time of Sale: “A trader must not market or sell a proposed timeshare contract or long-term holiday product contract as an investment if the proposed contract would be a regulated contract.” But Mr F says that the Supplier did exactly that at the Time of Sale – saying the following in a witness statement dated 16 July 2019: “…[they said it] would give us cheap holidays for ourselves and our family. Like a saving bond, it would not lose its value, when it came to cash it in. He told us that unlike timeshare it was linked to property. It was like owning a share in a property in a luxurious resort. We would get points each year which we could use for holidays and we could (like any property) sell it if we wanted at any time. In any event the property would be sold in 15 years and the proceeds would be “divvied up” between the owners. Property prices can go down as well as up, but ling [sic] term property prices go up.” Mr F alleges, therefore, that the Supplier breached Regulation 14(3) at the Time of Sale because: (1) There were two aspects to his Fractional Club membership: holiday rights and a financial return on the sale of the Allocated Property. (2) He was told by the Supplier that he would get his money back or more during the sale of Fractional Club membership.

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(3) While he was told by the Supplier that Fractional Club membership could go up or down in value, it also told him property prices go up over the long term, suggesting it was more likely the membership would increase in value. The Lender has been critical of Mr F’s witness statement. I found the Lender’s submissions in relation to the witness statement difficult to follow in places. It appears to have denied that Mr F provided a witness statement in one part of its submissions, while in another accepting that there is a witness statement but questioning its accuracy and whether it represented Mr F’s recollections. The witness statement is signed by Mr F, and it contains various details that I would only expect him to be aware of, such as him having an attack of rheumatism while on holiday with the Supplier. The statement was also taken within two years of the Time of Sale, when recollections would still be relatively fresh. I don’t see any reason to doubt that they are Mr F’s genuine recollections of what happened and what he was told by the Supplier at the relevant time. The Lender has pointed to inaccuracies within the witness statement and inconsistencies between it and PR’s Letter of Complaint. For example, the Lender has said the Fractional Club membership was for a 16 year term while Mr F recalled it being 15 years. While this may be correct, I don’t think Mr F’s recollection of the membership term being out by one year is a reason to cast significant doubt on the rest of his witness statement. And while there is an apparent inconsistency between the statement and the Letter of Complaint, I note that it is Mr F’s narrative which is more substantially correct – which is that he did not have any previous timeshares with the Supplier, but he had been given some promotional weeks with the Supplier as a free gift for making a purchase from a glazing company. Overall, I don’t share the Lender’s concerns over the witness statement. Turning to the meaning of “investment”, the term is not defined in the Timeshare Regulations. In Shawbrook & BPF v FOS, the parties agreed that, by reference to the decided authorities, “an investment is a transaction in which money or other property is laid out in the expectation or hope of financial gain or profit” at [56]. I will use the same definition. Mr F’s share in the Allocated Property clearly constituted an investment as it offered him the prospect of a financial return – whether or not, like all investments, that was more than what he first put into it. But the fact that Fractional Club membership included an investment element did not, itself, transgress the prohibition in Regulation 14(3). That provision prohibits the marketing and selling of a timeshare contract as an investment. It doesn’t prohibit the mere existence of an investment element in a timeshare contract or prohibit the marketing and selling of such a timeshare contract per se. In other words, the Timeshare Regulations did not ban products such as the Fractional Club. They just regulated how such products were marketed and sold. To conclude, therefore, that Fractional Club membership was marketed or sold to Mr F as an investment in breach of Regulation 14(3), I have to be persuaded that it was more likely than not that the Supplier marketed and/or sold membership to him as an investment, i.e. told him or led him to believe that Fractional Club membership offered him the prospect of a financial gain (i.e., a profit) given the facts and circumstances of this complaint.

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There is evidence2 in this complaint that the Supplier made efforts to avoid specifically describing membership of the Fractional Club as an ‘investment’ or quantifying to prospective purchasers, such as Mr F, the financial value of his share in the net sale proceeds of the Allocated Property along with the investment considerations, risks and rewards attached to them. There were, for instance, disclaimers or declarations in the contractual paperwork which stated that Fractional Club membership was primarily for the purpose of holidays and that the Supplier made no representations as to the future value of their share in the Allocated Property. The Lender has attributed a great deal of importance to these disclaimers. On the other hand, another of the Supplier’s disclaimers which I’m aware of, warned that its representatives were “not licensed investment advisors” and “all information has been obtained solely from their own experience as investors and is provided as general information only…” This appears to be an unusual disclaimer in the context of the Fractional Club product. To me, the fact the Supplier considered this disclaimer necessary suggests it expected or considered it likely that its representatives would talk to potential customers about the concept of financial investment when promoting the Fractional Club product. So, to some extent at least, I think the documents dating to the Time of Sale contained mixed messages on the topic of investment. In any event, weighing up what happened in practice is, in my view, rarely as simple as looking at the contemporaneous paperwork. So, I have considered: (1) whether it is more likely than not that the Supplier, at the Time of Sale, sold or marketed membership of the Fractional Club as an investment, i.e. told Mr F or led him to believe during the marketing and/or sales process that membership of the Fractional Club was an investment and/or offered him the prospect of a financial gain (i.e., a profit); and, in turn (2) whether the Supplier’s actions constitute a breach of Regulation 14(3). And for reasons I’ll now come on to, given the facts and circumstances of this complaint, I think the answer to both of these questions is ‘yes’. How the Supplier marketed and sold the Fractional Club membership During the course of the Financial Ombudsman Service’s work on complaints about the sale of timeshares, the Supplier provided information on how it sold membership of timeshares like Mr F – which includes a document called the “Fractional Property Owners Club Fly Buy Manual 2017” (the ‘2017 Fractional Training Manual’). As I understand it, a slightly earlier version of the 2017 Fractional Training Manual was actually used from November 2016 during the sale of the Supplier’s second version of the Fractional Property Owners Club (which I will continue to refer to as simply the Fractional Club) – which was the version Mr F appears to have purchased. It is not entirely clear whether he would have been shown the slides included in the Manual. But it seems to me to be reasonably indicative of: (1) the training the Supplier’s sales representatives would have got before selling Mr F Fractional Club membership; and 2 Neither party to his complaint has provided a complete set of documentation dating to the Time of Sale (the Lender, in fact, has provided nothing at all despite seeking to rely on specific disclaimers). However, I am familiar with the standard paperwork the Supplier used for sales of this product, and I have used my knowledge of this where appropriate.

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(2) how the sales representatives would have framed the sale of Fractional Club membership to him. Having looked through the Manual, my attention is drawn first to page 19 (of 74) – which includes two slides called “Why holiday with [the Supplier]? Renting or buying?”. They were the first slides in the Manual that seems to me to set out any information about Fractional Club membership, albeit without expressly referring to the Fractional Club, because they suggest that sales representatives were likely to have made the point to Miss I and Mr S that holidaying with the Supplier combined the best of (1) and (2), including, amongst other things, ownership of a physical property and money back – which were benefits that were front and centre of Fractional Club membership. From the off, therefore, it seems likely that sales representatives would have demonstrated that there were financial advantages to Fractional Club membership rather than being a member of a ‘standard’ timeshare. Indeed, the slides above presented a very similar prospect to that presented in a slide used in one of the Supplier’s earlier training manuals that was used to help it sell the first version of Fractional Property Owners Club: All three indicate that sales representatives would have taken prospective members through three holidaying options along with their positives and negatives: (1) “Rent Your Holidays” (2) “Buy a Holiday Home” (3) The “Best of Both Worlds”

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I acknowledge that the slides incorporated into the 2017 Fractional Training Manual don’t include express reference to the ‘investment’ benefit of Fractional Club membership. But they allude to much the same concept. One of those advantages referred to in the slides on page 19 of the 2017 Fractional Training Manual is the “ownership of a physical property”. And as an owner’s equity in their property is built over time as the value of the asset increases relative to the size of any mortgage secured against it, this particular advantage of Fractional Club membership was portrayed in terms that played on the opportunity ownership gave prospective members of the Fractional Club to accumulate wealth in a similar way. This seems to be consistent with how Mr F remembers the Supplier pitching this aspect of the product to him – not expressly telling him that he would make a profit, but playing on the fact that the purchase involved a share in property and that property prices went up over the long term, leaving the impression of there being an overall financial gain in the end. When the Manual moved on to describe how membership of the Fractional Club worked between pages 26 and 36, one of the major benefits of Fractional Club membership was described on page 35 as: “A major benefit is that after 19 years of fantastic holidays, the property in which you own a fraction is sold and you will receive your share of the sale proceeds according to the number of fractions owned.” And on page 36 there were notes that encouraged sales representatives to summarise this benefit in the following way: “So really FPOC equals a passport to fantastic holidays for 19 years with a return at the end of that period. When was the last time you went on holiday and got some money back?”. After discussing some of the other aspects of membership, such as the different resorts available to members, page 53 of the Manual indicates that sales representatives would have moved onto a cost comparison between “renting” holidays and “owning” them. Sales representatives were encouraged to tell prospective members how much they would spend over 19 years (i.e., the length of Fractional Club membership) on holidays with “no return” in contrast to spending the same amount of money as Fractional Club members – thus demonstrating the financial advantages of membership. Page 53 included the following slides and accompanying notes: “We aren’t only talking about 10 years, we are talking about 10 years, we are talking about 19 years. So in actual fact, with the travel agent over 19 years you would have spend over £… with no return. However, with [the Supplier] you would still have spent the same £… because once your fraction is paid for, the remaining years of holiday accommodation is taken care of.

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We also agreed that you would get nothing back from the travel agent at the end of this holiday period. Remember with your fraction at the end of the 19 year period, you will get some money back from the sale, so even if you only say £5,000, it would still be more than you would get renting your holidays from a travel agent wouldn’t it.” I acknowledge that the slides above set out a “return” that is less than the total cost of the holidays and the “initial outlay”. But that was just an example and, given the way in which it was positioned in the 2017 Fractional Training Manual, the language did leave open the possibility that the return could be equal to if not more than the initial outlay. Furthermore, the slides above represent Fractional Club membership as: (1) The right to receive holiday rights for 19 years whose market value significantly exceeds the costs to a Fractional Club member; plus (2) A significant financial return at the end of the membership term. And to consumers (like Mr F) who were looking to buy holidays anyway, the comparison the slides make between the costs of Fractional Club membership and the higher cost of buying holidays on the open market was likely to have suggested to them that the financial return was in fact an overall profit. What’s more, I think the Supplier’s sales representatives were encouraged to make prospective Fractional Club members (like Mr F) consider the advantages of owning something and view membership as a way of generating a return, rather than simply paying for holidays in the usual way. That was likely to have been reinforced throughout the Supplier’s sales presentations by describing membership as a form of property ownership referring to the prospect of a “return”. And with that being the case, I think the language used during the Supplier’s sales presentations was likely to have been consistent with the idea that Fractional Club membership was an investment. I acknowledge that there may not have been a comparison between the expected level of financial return and the purchase price of Fractional Club membership. However, if I were to only concern myself with express efforts to quantify to Mr F the financial value of the proprietary interest he was offered, I think that would involve taking too narrow a view of the prohibition against marketing and selling timeshares as an investment in Regulation 14(3). When the Government consulted on the implementation of the Timeshare Regulations, it discussed what marketing or selling a timeshare as an investment might look like – saying that ‘[a] trader must not market or sell a timeshare or [long-term] holiday product as an investment. For example, there should not be any inference that the cost of the contract would be recoupable at a profit in the future (see regulation 14(3)).”3 And in my view that must have been correct because it would defeat the consumer-protection purpose of Regulation 14(3) if the concepts of marketing and selling a timeshare as an investment were interpreted too restrictively. So, if a supplier implied to consumers that future financial returns (in the sense of possible profits) from a timeshare were a good reason to purchase it, I think its conduct was likely to have fallen foul of the prohibition against marketing or selling the product as an investment. Indeed, if I’m wrong about that, I find it difficult to explain why, in paragraphs 77 and 78 followed by 99 and 100 of Shawbrook & BPF v FOS when, Mrs Justice Collins Rice said the following: 3 The Department for Business Innovation & Skills “Consultation on Implementation of EU Directive 2008/122/EC on Timeshare, Long-Term Holiday Products, Resale and Exchange Contracts (July 2010)”. https://assets.publishing.service.gov.uk/media/5a78d54ded915d0422065b2a/10-500-consultation-directive-timeshare- holiday.pdf

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“[…] I endorse the observation made by Mr Jaffey KC, Counsel for BPF, that, whatever the position in principle, it is apparently a major challenge in practice for timeshare companies to market fractional ownership timeshares consistently with Reg.14(3). […] Getting the governance principles and paperwork right may not be quite enough. The problem comes back to the difficulty in articulating the intrinsic benefit of fractional ownership over any other timeshare from an individual consumer perspective. […] If it is not a prospect of getting more back from the ultimate proceeds of sale than the fractional ownership cost in the first place, what exactly is the benefit? […] What the interim use or value to a consumer is of a prospective share in the proceeds of a postponed sale of a property owned by a timeshare company – one they have no right to stay in meanwhile – is persistently elusive. “[...] although the point is more latent in the first decision than in the second, it is clear that both ombudsmen viewed fractional ownership timeshares – simply by virtue of the interest they confer in the sale proceeds of real property unattached to any right to stay in it, and the prospect they undoubtedly hold out of at least 'something back' – as products which are inherently dangerous for consumers. It is a concern that, however scrupulously a fractional ownership timeshare is marketed otherwise, its offer of a 'bonus' property right and a 'return' of (if not on) cash at the end of a moderate term of years may well taste and feel like an investment to consumers who are putting money, loyalty, hope and desire into their purchase anyway. Any timeshare contract is a promise, or at the very least a prospect, of long-term delight. [...] A timeshare-plus contract suggests a prospect of happiness-plus. And a timeshare plus 'property rights' and 'money back' suggests adding the gold of solidity and lasting value to the silver of transient holiday joy.” Given what I’ve already said about the Supplier’s training material and the way in which I think it was likely to have framed the sale of Fractional membership to prospective members (including Mr F), I think it is more likely than not that the Supplier did, at the very least, imply that future financial returns (in the sense of possible profits) from a Fractional Membership were a good reason to purchase it. So, overall, I think the Supplier’s sales representative was likely to have led Mr F to believe that Fractional membership was an investment that may lead to a financial gain (i.e., a profit) in the future. And with that being the case, I don’t find him either implausible or hard to believe when he says that he was told that he was buying a share in property and that although it could go up or down in value, property prices over the long term went up, suggesting that he would make a financial gain. On the contrary, in the absence of evidence to persuade me otherwise, I think that’s likely to be what Mr F was led to believe by the Supplier at the relevant time. And for that reason, I think the Supplier breached Regulation 14(3) of the Timeshare Regulations. Was the credit relationship between the Lender and the Consumer rendered unfair? Having found that the Supplier breached Regulation 14(3) of the Timeshare Regulations at the Time of Sale, I now need to consider what impact that breach had on the fairness of the credit relationship between Mr F and the Lender under the Credit Agreement and related Purchase Agreement. As the Supreme Court’s judgment in Plevin makes clear, it does not automatically follow that regulatory breaches create unfairness for the purposes of Section 140A. Such breaches and their consequences (if there are any) must be considered in the round, rather than in a narrow or technical way. This is a point the Lender has emphasised in its submissions. It also it seems to me in light of Carney and Kerrigan that, if I am to conclude that a breach of Regulation 14(3) led to a credit relationship between Mr F and the Lender that was unfair to him and warranted relief as a result, whether the Supplier’s breach of Regulation 14(3) led

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him to enter into the Purchase Agreement and the Credit Agreement is an important consideration. Returning to Mr F’s witness statement, it appears the prospect of the Fractional Club membership being an investment (in the sense of something that might make him a financial gain in the future) was a deciding factor in his decision to go ahead with the purchase: “During the meeting the price was lowered 3 or 4 times when we said we could not afford it, every time a different person came over with a one day only offer, a bonus. After several hours we did seem to think maybe we did have an investment for our future.” Mr F doesn’t specifically refer to thinking about any of the other aspects of the product at the point he made his decision. That doesn’t mean he was not interested in the other important things the product had to offer, such as holidays. And that is not surprising given the nature of the product at the centre of this complaint. But as Mr F says (plausibly in my view) that Fractional Club membership was marketed and sold to him at the Time of Sale as something that offered them more than just holiday rights, on the balance of probabilities, I think his purchase was motivated by his share in the Allocated Property and the possibility of a profit as that share was one of the defining features of membership that marked it apart from the more ‘standard’ type of timeshare on the market at the time (and which Mr F emphasised that he had no interest in buying). And with that being the case, I think the Supplier’s breach of Regulation 14(3) was material to the decision he ultimately made. Mr F has not said or suggested, for example, that he would have pressed ahead with the purchase in question had the Supplier not led him to believe that Fractional Club membership was an appealing investment opportunity. And as he faced the prospect of borrowing and repaying a substantial sum of money while subjecting himself to long-term financial commitments, had he not been encouraged by the prospect of a financial gain from membership of the Fractional Club, I’m not persuaded that he would have pressed ahead with his purchase regardless. Conclusion Given the facts and circumstances of this complaint, I think the Lender participated in and perpetuated an unfair credit relationship with Mr F under the Credit Agreement and related Purchase Agreement for the purposes of Section 140A. And with that being the case, taking everything into account, I think it is fair and reasonable that I uphold this complaint. Fair Compensation Having found that Mr F would not have agreed to purchase Fractional Club membership at the Time of Sale were it not for the breach of Regulation 14(3) of the Timeshare Regulations by the Supplier (as deemed agent for the Lender), and the impact of that breach meaning that, in my view, the relationship between the Lender and the Consumer was unfair under section 140A of the CCA, I think it would be fair and reasonable to put him back in the position he would have been in had he not purchased the Fractional Club membership (i.e., not entered into the Purchase Agreement), and therefore not entered into the Credit Agreement, provided Mr F and the joint purchaser of the timeshare agree to assign to the Lender their Fractional Points or hold them on trust for the Lender if that can be achieved.

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Here’s what I think needs to be done to compensate Mr F with that being the case – whether or not a court would award such compensation: (7) The Lender should refund Mr F’s repayments to it under the Credit Agreement, including any sums paid to settle the debt, and cancel any outstanding balance if there is one. (8) In addition to (1), the Lender should also refund the annual management charges Mr F paid as a result of Fractional Club membership. (9) The Lender can deduct: iii. The value of any promotional giveaways that Mr F used or took advantage of; and iv. The market value of the holidays* Mr F took using his Fractional Points. (I’ll refer to the output of steps 1 to 3 as the ‘Net Repayments’ hereafter) (10) Simple interest** at 8% per annum should be added to each of the Net Repayments from the date each one was made until the date the Lender settles this complaint. (11) The Lender should remove any adverse information recorded on Mr F’s credit file in connection with the Credit Agreement reported within six years of this decision. (12) If Mr F’s Fractional Club membership is still in place at the time of this decision, as long as he and the joint purchaser agree to hold the benefit of their interest in the Allocated Property for the Lender (or assign it to the Lender if that can be achieved), the Lender must indemnify them against all ongoing liabilities as a result of their Fractional Club membership. *I recognise that it can be difficult to reasonably and reliably determine the market value of holidays when they were taken a long time ago and might not have been available on the open market. So, if it isn’t practical or possible to determine the market value of the holidays Mr F took using his Fractional Points, deducting the relevant annual management charges (that correspond to the year(s) in which one or more holidays were taken) payable under the Purchase Agreement seems to me to be a practical and proportionate alternative in order to reasonably reflect his usage. **HM Revenue & Customs may require the Lender to take off tax from this interest. If that’s the case, the Lender must give the consumer a certificate showing how much tax it’s taken off if they ask for one. My provisional decision For the reasons explained above, I’m minded to uphold this complaint. Will Culley Ombudsman

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