Shawbrook Bank Limited · DRN-5725952

The complaint Mr B’s complaint is, in essence, that Shawbrook Bank Limited (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 claims under Section 75 of the CCA. What happened Mr B with his late wife, purchased membership of a timeshare (the ‘Fractional Club membership- FCM’) from a timeshare provider (the ‘Supplier’) on 18 August 2016 (the ‘Time of Sale’), using finance provided by the Lender. Mr B brings the complaint in his own name, so I will refer just to him in the remainder of the decision. He entered into an agreement with the Supplier to buy 4240 fractional points at a cost of £7,986 (the ‘Purchase Agreement’), after trading in his existing Vacation Club membership for membership of the Fractional Club. FCM was asset backed – which meant it gave Mr B 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 B paid for his FCM by taking finance of £7,986 from the Lender (the ‘Credit Agreement’). Mr B – using a professional representative (the ‘PR’) – wrote to the Lender on 8 June 2022 (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. A breach of contract by the Supplier giving him a claim against the Lender under Section 75 of the CCA, which the Lender failed to accept and pay. 3. 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. 4. 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 B says that the Supplier made a number of pre-contractual misrepresentations at the Time of Sale – namely that the Supplier: 1. told him that FCM 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 property” that would be sold on a set date in the future, when that was not true. 3. told him that FCM was an “investment” when that was not true. 4. told him that the Supplier’s holiday resorts were exclusive to its members when that was not true.

-- 1 of 20 --

Mr B 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 Mr B. (2) Section 75 of the CCA: the Supplier’s breach of contract Mr B says that the Supplier breached the Purchase Agreement because there is no guarantee that he will receive his share of the net sale proceeds of the Allocated Property. Mr B also says that he found it difficult to book the holidays he wanted, when he wanted. As a result of the above, Mr B says that he has a breach of contract claim against the Supplier, 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 Mr B. (3) Section 140A of the CCA: the Lender’s participation in an unfair credit relationship The Letter of Complaint set out several reasons why Mr B says that the credit relationship between him and the Lender was unfair to him under Section 140A of the CCA. In summary, they include the following: 1. FCM was marketed and sold to him as an investment in breach of regulation 14(3) of the Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010 (the ‘Timeshare Regulations’). 2. The contractual terms setting out (i) the duration of his FCM and/or (ii) the obligation to pay annual management charges for the duration of his membership were unfair contract terms under the Consumer Rights Act 2015 (‘CRA’). 3. He was pressured into purchasing FCM by the Supplier. 4. The Supplier’s sales presentation at the Time of Sale included misleading actions and/or misleading omissions under the Consumer Protection from Unfair Trading Regulations 2008 (the ‘CPUT Regulations’) as well as a prohibited practice under Schedule 1 of those Regulations. 5. The decision to lend was irresponsible because the Lender didn’t carry out the right creditworthiness assessment. 6. The Supplier failed to provide sufficient information in relation to the Fractional Club’s ongoing costs. 7. The Supplier did not advise Mr B of any commissions that may have been paid in respect of the finance. The Lender dealt with Mr B’s concerns as a complaint and issued its rebuttal of his claims on 11 September 2022, rejecting it on every ground. Mr B then referred the complaint to the Financial Ombudsman Service. It was assessed by an Investigator who, having considered the information on file, upheld the complaint on its merits.

-- 2 of 20 --

The Lender disagreed with the Investigator’s assessment and asked for an Ombudsman’s decision – which is why it was passed to me. I issued a provisional decision explaining why I thought the complaint should be upheld. In response, the Lender said that it didn’t intend to challenge my decision, noting the specific facts of Mr B’s complaint. It did share observations on points in the provisional decision, which it said raised concerns at the approach I had taken. It asked that I consider the matters it had raised carefully in the assessment of future complaints. Mr B’s PR said in response that he accepted the provisional decision. 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 set out in an appendix (the ‘Appendix’) below – which forms part of this decision. Appendix: The Legal and Regulatory Context The Consumer Credit Act 1974 (as amended by the Consumer Credit Act 2006) (the ‘CCA’) The timeshare(s) at the centre of the complaint in question was/were paid for using restricted-use credit that was regulated by the Consumer Credit Act 1974. As a result, the purchase(s) was/were covered by certain protections afforded to consumers by the CCA provided the necessary conditions were and are met. The most relevant sections as at the relevant time(s) are below. Section 56: Antecedent Negotiations Section 75: Liability of Creditor for Breaches by a Supplier Sections 140A: Unfair Relationships Between Creditors and Debtors Section 140B: Powers of Court in Relation to Unfair Relationships Section 140C: Interpretation of Sections 140A and 140B Case Law on Section 140A Of particular relevance to the complaint in question are: 1. The Supreme Court’s judgment in Plevin v Paragon Personal Finance Ltd [2014] UKSC 61 (‘Plevin’) remains the leading case. 2. The judgment of the Court of Appeal in the case of Scotland v British Credit Trust [2014] EWCA Civ 790 (‘Scotland and Reast’) sets out a helpful interpretation of the deemed agency and unfair relationship provisions of the CCA. 3. Patel v Patel [2009] EWHC 3264 (QB) (‘Patel’) – in which the High Court held that determining whether or not the relationship complained of was unfair had to be made “having regard to the entirety of the relationship and all potentially relevant matters up to the time of making the determination”, which was the date of the trial in the case of an existing relationship or otherwise the date the relationship ended. 4. The Supreme Court’s judgment in Smith v Royal Bank of Scotland Plc [2023] UKSC 34 (‘Smith’) – which approved the High Court’s judgment in Patel. 5. Deutsche Bank (Suisse) SA v Khan and others [2013] EWHC 482 (Comm) – in Hamblen J summarised – at paragraph 346 – some of the general principles that apply

-- 3 of 20 --

to the application of the unfair relationship test. 6. Carney v NM Rothschild & Sons Ltd [2018] EWHC 958 (‘Carney’). 7. Kerrigan v Elevate Credit International Ltd [2020] EWHC 2169 (Comm) (‘Kerrigan’). 8. R (on the application of Shawbrook Bank Ltd) v Financial Ombudsman Service Ltd and R (on the application of Clydesdale Financial Services Ltd (t/a Barclays Partner Finance)) v Financial Ombudsman Service [2023] EWHC 1069 (Admin) (‘Shawbrook & BPF v FOS’). My Understanding of the Law on the Unfair Relationship Provisions Under Section 140A of the CCA, a debtor-creditor relationship can be found to have been or be unfair to the debtor because of one or more of the following: the terms of the credit agreement itself; how the creditor exercised or enforced its rights under the agreement; and any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement) (s.140A(1) CCA). Such a finding may also be based on the terms of any related agreement (which here, includes the Purchase Agreement) and, when combined with Section 56 of the CCA, on anything done or not done by the supplier on the creditor’s behalf before the making of the credit agreement or any related agreement. Section 56 plays an important role in the CCA because it defines the terms “antecedent negotiations” and “negotiator”. As a result, it provides a foundation for a number of provisions that follow it. But it also creates a statutory agency in particular circumstances. And while Section 56(1) sets out three of them, the most relevant to this complaint are negotiations conducted by the supplier in relation to a transaction financed or proposed to be financed by a debtor-creditor-supplier agreement. A debtor-creditor-supplier agreement is defined by Section 12(b) of the CCA as “a restricted- use credit agreement which falls within section 11(1)(b) and is made by the creditor under pre-existing arrangements, or in contemplation of future arrangements, between himself and the supplier […]”. And Section 11(1)(b) of the CCA says that a restricted-use credit agreement is a regulated credit agreement used to “finance a transaction between the debtor and a person (the ‘supplier’) other than the creditor […] and “restricted-use credit” shall be construed accordingly.” So, the negotiations conducted by the Supplier during the sale of the timeshare(s) in question was/were conducted in relation to a transaction financed or proposed to be financed by a debtor-creditor-supplier agreement as defined by Section 12(b). That made them antecedent negotiations under Section 56(1)(c) – which, in turn, meant that they were conducted by the Supplier as an agent for the Lender as per Section 56(2). And such antecedent negotiations were “any other thing done (or not done) by, or on behalf of, the creditor” under s.140A(1)(c) CCA. Antecedent negotiations under Section 56 cover both the acts and omissions of the Supplier, as Lord Sumption made clear in Plevin, at paragraph 31: “[Section] 56 provides that [when] antecedent negotiations for a debtor-creditor-supplier agreement are conducted by a credit-broker or the supplier, the negotiations are “deemed to be conducted by the negotiator in the capacity of agent of the creditor as well as in his actual capacity”. The result is that the debtor’s statutory rights of withdrawal from prospective agreements, cancellation and rescission may arise on account of the conduct of the negotiator whether or not he was the creditor’s agent.’ […] Sections 56 and 140A(3) provide for a deemed agency, even in a case where there is no actual one. […] These provisions are there because without them the creditor’s responsibility would be engaged only by its own acts or omissions or those of its agents.”

-- 4 of 20 --

And this was recognised by Mrs Justice Collins Rice in Shawbrook & BPF v FOS at paragraph 135: “By virtue of the deemed agency provision of s.56, therefore, acts or omissions ‘by or on behalf of’ the bank within s.140A(1)(c) may include acts or omissions of the timeshare company in ‘antecedent negotiations’ with the consumer”. In the case of Scotland & Reast, the Court of Appeal said, at paragraph 56, that the effect of Section 56(2) of the CCA meant that “negotiations are deemed to have been conducted by the negotiator as agent for the creditor, and that is so irrespective of what the position would have been at common law” before going on to say the following in paragraph 74: “[...] there is nothing in the wording of s.56(2) to suggest any legislative intent to limit its application so as to exclude s.140A. Moreover, the words in s.140A(1)(c) "any other thing done (or not done) by, or on behalf of, the creditor" are entirely apposite to include antecedent negotiations falling within the scope of s.56(1)(c) and which are deemed by s.56(2) to have been conducted by the supplier as agent of the creditor. Indeed the purpose of s.56(2) is to render the creditor responsible for such statements made by the negotiator and so it seems to me wholly consistent with the scheme of the Act that, where appropriate, they should be taken into account in assessing whether the relationship between the creditor and the debtor is unfair.”1 So, the Supplier is deemed to be Lender’s statutory agent for the purpose of the pre- contractual negotiations. However, an assessment of unfairness under Section 140A isn’t limited to what happened immediately before or at the time a credit agreement and related agreement were entered into. The High Court held in Patel (which was recently approved by the Supreme Court in the case of Smith), that determining whether or not the relationship complained of was unfair had to be made “having regard to the entirety of the relationship and all potentially relevant matters up to the time of making the determination” – which was the date of the trial in the case of an existing credit relationship or otherwise the date the credit relationship ended. The breadth of the unfair relationship test under Section 140A, therefore, is stark. But it isn’t a right afforded to a debtor simply because of a breach of a legal or equitable duty. As the Supreme Court said in Plevin (at paragraph 17): “Section 140A […] does not impose any obligation and is not concerned with the question whether the creditor or anyone else is in breach of a duty. It is concerned with […] whether the creditor’s relationship with the debtor was unfair.” Instead, it was said by the Supreme Court in Plevin that the protection afforded to debtors by Section 140A is the consequence of all of the relevant facts. The Law on Misrepresentation The law relating to misrepresentation is a combination of the common law, equity and statute – though, as I understand it, the Misrepresentation Act 1967 didn’t alter the rules as to what constitutes an effective misrepresentation. It isn’t practical to cover the law on misrepresentation in full in this decision – nor is it necessary. But, summarising the relevant pages in Chitty on Contracts (33rd Edition), a material and actionable misrepresentation is an untrue statement of existing fact or law made by one party (or his agent for the purposes of 1 The Court of Appeal’s decision in Scotland was recently followed in Smith.

-- 5 of 20 --

passing on the representation, acting within the scope of his authority) to another party that induced that party to enter into a contract. The misrepresentation doesn’t need to be the only matter that induced the representee to enter into the contract. But the representee must have been materially influenced by the misrepresentation and (unless the misrepresentation was fraudulent or was known to be likely to influence the person to whom it was made) the misrepresentation must be such that it would affect the judgement of a reasonable person when deciding whether to enter into the contract and on what terms. However, a mere statement of opinion, rather than fact or law, which proves to be unfounded, isn’t a misrepresentation unless the opinion amounts to a statement of fact and it can be proved that the person who gave it, did not hold it, or could not reasonably have held it. It also needs to be shown that the other party understood and relied on the implied factual misrepresentation. Silence, subject to some exceptions, doesn’t usually amount to a misrepresentation on its own as there is generally no duty to disclose facts which, if known, would affect a party’s decision to enter a contract. And the courts aren’t too ready to find an implied representation given the challenges acknowledged throughout case law. The Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010 (the ‘Timeshare Regulations’) The relevant rules and regulations that the Supplier in this complaint had to follow were set out in the Timeshare Regulations. I’m not deciding – nor is it my role to decide – whether the Supplier (which isn’t a respondent to this complaint) is liable for any breaches of these Regulations. But they are relevant to this complaint insofar as they inform and influence the extent to which the relationship in question was unfair. After all, they signal the standard of commercial conduct reasonably expected of the Supplier when acting as the creditor’s agent in marketing and selling membership of the Owners Club. The Regulations have been amended in places since the Time of Sale. So, I refer below to the most relevant regulations as they were at the time(s) in question: • Regulation 12: Key Information • Regulation 13: Completing the Standard Information Form • Regulation 14: Marketing and Sales • Regulation 15: Form of Contract • Regulation 16: Obligations of Trader The Timeshare Regulations were introduced to implement EC legislation, Directive 122/EC on the protection of consumers in respect of certain aspects of timeshare, long-term holiday products, resale and exchange contracts (the ‘2008 Timeshare Directive’), with the purpose of achieving ‘a high level of consumer protection’ (Article 1 of the 2008 Timeshare Directive). The EC had deemed the 2008 Timeshare Directive necessary because the nature of timeshare products and the commercial practices that had grown up around their sale made it appropriate to pass specific and detailed legislation, going further than the existing and more general unfair trading practices legislation.2 2 See Recital 9 in the Preamble to the 2008 Timeshare Directive.

-- 6 of 20 --

The Consumer Protection from Unfair Trading Regulations 2008 (the ‘CPUT Regulations’) The CPUT Regulations put in place a regulatory framework to prevent business practices that were and are unfair to consumers. They have been amended in places since they were first introduced. And it’s only since 1 October 2014 that they imposed civil liability for certain breaches – though not misleading omissions. But, again, I’m not deciding – nor is it my role to decide – whether the Supplier is liable for any breaches of these regulations. Instead, they are relevant to this complaint insofar as they inform and influence the extent to which the relationship in question was unfair as they also signal the standard of commercial conduct reasonably expected of the Supplier when acting as the creditor’s agent in marketing and selling membership of the Owners Club. Below are the most relevant regulations as they were at the relevant time(s): • Regulation 3: Prohibition of Unfair Commercial Practices • Regulation 5: Misleading Actions • Regulation 6: Misleading Omissions • Regulation 7: Aggressive Commercial Practices • Schedule 1: Paragraphs 7 and 24 The Unfair Terms in Consumer Contracts Regulations 1999 (the ‘UTCCR’) The UTCCR protected consumers against unfair standard terms in standard term contracts. They applied and apply to contracts entered into until and including 30 September 2015 when they were replaced by the Consumer Rights Act 2015. Below are the most relevant regulations as they were at the relevant time(s): • Regulation 5: Unfair Terms • Regulation 6: Assessment of Unfair Terms • Regulation 7: Written Contracts • Schedule 2: Indicative and Non-Exhaustive List of Possible Unfair Terms The Consumer Rights Act 2015 (the ‘CRA’) The CRA, amongst other things, protects consumers against unfair terms in contracts. It applies to contracts entered into on or after 1 October 2015 – replacing the Unfair Terms in Consumer Contracts Regulations 1999. Part 2 of the CRA is the most relevant section as at the relevant time(s). County Court Cases on the Sale of Timeshares 1. Hitachi v Topping (20 June 2018, Country Court at Nottingham) – claim withdrawn following cross-examination of the claimant. 2. Brown v Shawbrook Bank Limited (18 June 2020, County Court at Wrexham) 3. Wilson v Clydesdale Financial Services Limited (19 July 2021, County Court at Portsmouth) 4. Gallagher v Diamond Resorts (Europe) Limited (9 February 2021, County Court at Preston) 5. Prankard v Shawbrook Bank Limited (8 October 2021, County Court at Cardiff)

-- 7 of 20 --

Relevant Publications The Timeshare Regulations provided a regulatory framework. But as the parties to this complaint already know, I am also required to take into account, when appropriate, what I consider to have been good industry practice at the relevant time – which, in this complaint, includes the Resort Development Organisation’s Code of Conduct dated 1 January 2010 (the ‘RDO Code’). 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. And having done that, I remain of the opinion that this complaint should be upheld, because the Supplier breached Regulation 14(3) of the Timeshare Regulations by marketing and/or selling FCM to Mr B 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. Because Mr B has accepted my provisional decision, and the Lender does not intend to challenge it, I don’t think it’s necessary for me to address all of the Lender’s comments following the provisional decision, though I confirm I have read and considered these carefully. 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 B’s complaint, it isn’t necessary to make formal findings on all of them. This includes the allegations that: • The Supplier misrepresented the FCM and the Lender ought to have accepted and paid the claim under Section 75 of the CCA. • The decision to lend being irresponsible because the Lender did not carry out the right creditworthiness assessment. because, even if those aspects of the complaint ought to succeed, the redress I’m proposing puts Mr B in the same or a better position than he would be if the redress was limited to misrepresentation/breach of contract etc. Section 140A of the CCA: did the Lender participate in an unfair credit relationship? Having considered the entirety of the credit relationship between Mr B 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;

-- 8 of 20 --

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 B 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 B’s FCM 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 FCM 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 B says that the Supplier did exactly that at the Time of Sale – saying the following during the course of this complaint: “In August 2016 we were in Turkey and approached by a sales representative from (the Supplier) asking about our holiday. He said that we could buy some fractional points and we would own a share in a property. We were taken to have breakfast and shown a new development they had. They said that the contract would end in 2033 and we would be able to sell our share and get a profit. …I feel we were basically duped into buying a produce which would end in 2033 and we would be able to sell this and make a profit which is not the case… Therefore, on 18 August 2016 we purchased 4240 fractional points which supported 4 weeks for £7986.” Mr B alleges, therefore, that the Supplier breached Regulation 14(3) at the Time of Sale because there were two aspects to his FCM; holiday rights and a profit on the sale of the Allocated Property. The term “investment” 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 B’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 FCM 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 FCM was marketed or sold to Mr B 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 FCM offered him the prospect of a financial gain (i.e., a profit) given the facts and

-- 9 of 20 --

circumstances of this complaint. There is evidence 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 B, the financial value of his share in the net sales proceeds of the Allocated Property along with the investment considerations, risks and rewards attached to them. There were, for instance, disclaimers in the contemporaneous paperwork that state that FCM was not sold to Mr B as an investment. For example: • The information statement at paragraph 11 explained that the vendor, and any sales or marketing agent and their related businesses, were not licensed investment advisers authorised by the Financial Conduct Authority to provide investment or financial advice. And any information provided was not intended as a source of investment advice. • Also, The Member’s Declaration document signed by Mr B, explained that the purchase of the Fraction was for the primary purpose of holidays and is not specifically for direct purposes of a trade in and that the Supplier makes no representation as to the future price or value of the Fractional Rights which are personal rights and not interests in real estate (all as explained in the information statement). In its response to Mr B’s complaint, the Lender has highlighted these disclaimers as being important factors to consider when deciding what happened at the Time of Sale. However, weighing up what happened in practice is, in my view, rarely as simple as looking at the contemporaneous paperwork. That is especially so in a case, such as this, where Mr B would have been shown the documents after he’d already gone through an oral sales presentation and agreed at that stage to take out membership. And there are a number of strands to Mr B’s allegation that the Supplier breached Regulation 14(3) at the Time of Sale, including (1) that membership of the Fractional Club was expressly described as an “investment” in several different contexts and (2) that membership of the Fractional Club could make him a financial gain and/or would retain or increase in value. 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 B 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 FCM During the course of the Financial Ombudsman Service’s work on complaints about the sale of timeshares, the Supplier has provided training material used to prepare its sales representatives – including:

-- 10 of 20 --

1. a document called the 2013/2014 Sales Induction Training (the ‘2013/2014 Induction Training’); 2. screenshots of a Electronic Sales Aid (the ‘ESA’); and 3. a document called the “FPOC2 Fly Buy Induction Training Manual” (the ‘Fractional Club Training Manual’) Neither the 2013/2014 Induction Training nor the ESA I’ve seen included notes of any kind. However, the Fractional Club Training Manual includes very similar slides to those used in the ESA. And according to the Supplier, the Fractional Club Training Manual (or something similar) was used by it to train its sales representatives at the Time of Sale. So, it seems to me that the Training Manual is reasonably indicative of: (1) the training the Supplier’s sales representatives would have got before selling FCM; and (2) how the sales representatives would have framed the Supplier’s multimedia presentation (i.e., the ESA) during the sale of FCM to prospective members – including Mr B. The “Game Plan” on page 23 of the Fractional Club Training Manual indicates that, of the first 12 to 25 minutes, most of that time would have been spent taking prospective members through a comparison between “renting” and “owning” along with how membership of the Fractional Club worked and what it was intended to achieve. Page 32 of the Fractional Club Training Manual covered how the Supplier’s sales representatives should address that comparison in more detail – indicating that they would have tried to demonstrate that there were financial advantages to owning property, over 10 years for example, rather than renting:

-- 11 of 20 --

Indeed, one of the advantages of ownership referred to in the slide above is that it makes more financial sense than renting because owners “are building equity in their 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 the mortgage secured against it, one of the advantages of ownership over renting was portrayed in terms that played on the opportunity ownership gave prospective members of the Fractional Club to accumulate wealth over time. I acknowledge that the slides don’t include express reference to the “investment” benefit of ownership. But the description alludes to much the same concept. It was simply rephrased in the language of “building equity”. And with that being the case, it seems to me that the approach to marketing FCM was to strongly imply that ‘owning’ fractional points was a way of building wealth over time, similar to home ownership. Page 33 of the Fractional Club Training Manual then moved the Supplier’s sales representatives onto a cost comparison between “renting” holidays and “owning” them. Sales representatives were told to ask prospective members to tell them what they’d own if they just paid for holidays every year in contrast to spending the same amount of money to “own” their holidays – thus laying the groundwork necessary to demonstrating the advantages of FCM: With the groundwork laid, sales representatives were then taken to the part of the ESA that explained how FCM worked. And, on pages 41 and 42 of the Fractional Club Training Manual, this is what sales representatives were told to say to prospective members when explaining what a ‘fraction’ was:

-- 12 of 20 --

“FPOC = small piece of […] World apartment which equals ownership of bricks and mortar […] Major benefit is the property is sold in nineteen years (optimum period to cover peaks and troughs in the market) when sold you will get your share of the proceeds of the sale SUMMARISE LAST SLIDE: 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? How would you feel if there was an opportunity of doing that? […] LINK: Many people join us every day and one of the main questions they have is “how can we be sure our interests are taken care of for the full 19 years? As it is very important you understand how we ensure that, I am going to ask Paul to come over and explain this in more details for you. […] “Handover: (Manager’s name) John and Mary love FPOC and have told me the best for them is…………………………..Would you mind explaining to them how their interest will be protected over the next 19 year[s]?” (My emphasis added) The Fractional Club Training Manual doesn’t give any immediate context to what the manager would have said to prospective members in answer to the question posed by the sales representative at the handover. Page 43 of the manual has the word “script” on it but otherwise it’s blank. However, after the Manual covered areas like the types of holiday and accommodation on offer to members, it went onto “resort management”, at which point page 61 said this: “T/O will explain slides emphasising that they only pay a fraction of maintaining the entire property. It also ensures property is kept in peak condition to maximise the return in 19 years[’] time. […] CLOSE: I am sure you will agree with us that this management fee is an extremely important part of the equation as it ensures the property is maintained in pristine condition so at the end of the 19 year period, when the property is sold, you can get the maximum return. So I take it, like our owners, there is nothing about the management fee that would stop you taking you holidays with us in the future?...” (My emphasis added) By page 68 of the Fractional Training Manual, sales representatives were moved on to the holiday budget of prospective members. Included in the ESA were a number of holiday comparisons. It isn’t entirely clear to me what the relevant parts of the ESA were designed to show prospective members. But it seems that prospective members would have been shown that there was the prospect of a “return”. For example, on page 69 of the Fractional Club Induction Training Manual, it included the following screenshots of the ESA along with the context the Supplier’s sales representatives were told to give to them:

-- 13 of 20 --

[…] “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 got a small part of your initial outlay, 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 Training Manual, the language did leave open the possibility that the

-- 14 of 20 --

return could be equal to if not more than the initial outlay. Furthermore, the slides above represent FCM 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 B) who were looking to buy holidays anyway, the comparison the slides make between the costs of FCM 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. I also acknowledge that there was no comparison between the expected level of financial return and the purchase price of FCM. However, if I were to only concern myself with express efforts to quantify to Mr B 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 Mr B 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: “[…] 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.” 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

-- 15 of 20 --

“[...] 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.” I think the Supplier’s sales representatives were encouraged to make prospective Fractional Club members consider the advantages of owning something and view membership as an opportunity to build equity in an allocated property rather than simply paying for holidays in the usual way. That was likely to have been reinforced throughout the Supplier’s sales presentations by the use of phrases such as “bricks and mortar” and notions that prospective members were building equity in something tangible that could make them some money at the end. And as the Fractional Club Training Manual suggests that much would have been made of the possibility of prospective members maximising their returns (e.g., by pointing out that one of the major benefits of a 19-year membership term was that it was an optimum period of time to see out peaks and troughs in the market), I think the language used during the Supplier’s sales presentations was likely to have been consistent with the idea that FCM was an investment. Overall, therefore, as the slides I’ve referred to above seem to me to reflect the training the Supplier’s sales representatives would have got before selling FCM and, in turn, how they would have probably framed the sale of the Fractional Club to prospective members, they indicate that the Supplier’s sales representative was likely to have led Mr B to believe that membership of the Fractional Club 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 Mr B either implausible or hard to believe when he says he was told: “…….we could buy some fractional points and we would own a share in a property. We were taken to have breakfast and shown a new development they had. They said that the contract would end in 2033 and we would be able to sell our share and get a profit. …I feel we were basically duped into buying a produce which would end in 2033 and we would be able to sell this and make a profit which is not the case….” On the contrary, in the absence of evidence to persuade me otherwise, I think that’s likely to be what Mr B was led by the Supplier to believe 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 Mr B 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 B 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.

-- 16 of 20 --

It also 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 B and the Lender that was unfair to him and warranted relief as a result, whether the Supplier’s breach of Regulation 14(3) led him to enter into the Purchase Agreement and the Credit Agreement is an important consideration. I’ve noted that the Lender has said in its response to the view, that the sales notes from the time of the sale were the most credible documents, as they are from the direct sale. But it thought it lacked sufficient detail to infer the buyer was making an investment. However, I can see from the sales notes supplied by the Supplier that they record: “Very nice people, like the fractional side of the membership, that’s why they traded in their 4001 Vac club points for this 4 weeks fraction. Very happy with it.” I’ve a number of observations with regard to this note. The first is that it wasn’t supplied with the Lender’s original business file. I agree that the note is a contemporaneous record, and whilst I draw no inference in this case from its non-disclosure, I’m surprised and disappointed that it hasn’t been previously supplied by the Lender, particularly as it is a piece of evidence, that it clearly considers to be relevant to the subject matter of this complaint. I do think the note provides a valuable insight into Mr B’s motivation for purchasing the FCM, when considered alongside the other available evidence. I’ll explain why. Prior to purchasing the FCM, Mr B had a Vacation club membership with the Supplier. And when he purchased the FCM, and after trading in his existing Vacation club points, he acquired an additional 239 points at a cost of £7,986. But, looking at Mr B’s reservation record, the length of time he took for holidays didn’t change from what he had taken whilst a Vacation club member. I asked the Lender to supply details of the number of points Mr B used for each holiday reservation. That information wasn’t provided, and in the absence of that information, it doesn’t look to me from the information I do have, that the small number of additional points acquired when the FCM was purchased, were utilised to purchase holidays that were any different from what Mr B had purchased prior to the upgrade. On my reading of Mr B’s testimony, the prospect of a financial gain from FCM was an important and motivating factor when he decided to go ahead with his purchase. The main feature of FCM that differentiated it from Mr B’s previous Vacation club membership, was that it provided a share in the allocated property. And as I’ve summarised above, the contemporaneous sales note records Mr B as saying; “like the fractional side of the membership.” And it seems to me taking into account what I have said above, that the sales note supports what Mr B has said about being told he would own a share in the property that would provide him with a profit. That doesn’t mean he was not interested in holidays. The reservation record demonstrates that he quite clearly was. And that is not surprising given the nature of the product at the centre of this complaint and his past history with the Supplier. But as Mr B says (plausibly in my view) that FCM was marketed and sold to him at the Time of Sale as something that offered him 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 his existing membership. And with that being the case, I think the Supplier’s breach of Regulation 14(3) was material to the decision he ultimately made.

-- 17 of 20 --

Mr B 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 FCM was an appealing investment opportunity. And as he faced the prospect of borrowing and repaying a not insubstantial 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. The Lender’s responses to the view The Lender has also said that Mr B’s evidence had limited reference to the breach in regulation being alleged. In addition, it says the information on the referral to this service, has been used in similar complaints. As a result, it says it causes it to question the credibility of the statement. I have carefully considered what the Lender has said. Firstly, I don’t think the use of similar wording to other complaints made by the PR, necessarily undermines the credibility of what Mr B has said in this case. Complaints of the type made by Mr B, can have very similar complaint points. So, I don’t think it’s surprising or inappropriate for Mr B’s complaint to be presented and articulated in a similar way to other similar complaints. Also, as the Lender will be aware, this service is informal. We don’t require complainants to particularise their concerns in the way that is needed in court proceedings. And we don’t have the same procedural requirements as the courts. As a result, and taking into account what I have said above, I don’t find it surprising that Mr B’s recollections are not as detailed as the Lender may expect. The key issue for me is whether there is a core of acceptable evidence from Mr B within the evidence provided in support of his complaint, that doesn’t undermine or contradict, what he’s said about what the Supplier said and did to market and sell FCM as an investment. And for the reasons I’ve set out above, I’m satisfied that there is. Also, in my opinion, whilst Mr B may not have used the word investment in his statement, the use of the word “profit,” shows that he expected to make a financial gain rather than simply get some money back at the end of his membership. On balance, I find there is a consistent and believable recollection that FCM was sold as an investment, when considered alongside the other evidence. Conclusion Given the facts and circumstances of this complaint, I think the Lender participated in and perpetuated an unfair credit relationship with Mr B 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.

-- 18 of 20 --

Fair Compensation Having found that Mr B would not have agreed to purchase FCM 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 Mr B 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 FCM (i.e., not entered into the Purchase Agreement), and therefore not entered into the Credit Agreement, provided Mr B agrees to assign to the Lender his Fractional Points or hold them on trust for the Lender if that can be achieved. Mr B was an existing Vacation Club member and his membership was traded in against the purchase price of FCM. Under his Vacation Club membership, he had 4001 of Vacation Club Points. And, like FCM, he had to pay annual management charges as a Vacation Club member. So, had Mr B not purchased FCM, he would have always been responsible to pay an annual management charge of some sort. With that being the case, any refund of the annual management charges paid by Mr B from the Time of Sale as part of his FCM should amount only to the difference between those charges and the annual management charges he would have paid as an ongoing Vacation Club member. So, here’s what I think needs to be done to compensate Mr B with that being the case – whether or not a court would award such compensation: (1) The Lender should refund Mr B’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 difference between Mr B’s FCM charges paid after the Time of Sale and what his Vacation Club annual management charges would have been had he not purchased FCM. (3) The Lender can deduct: i. The value of any promotional giveaways that Mr B used or took advantage of; and ii. The market value of the holidays* Mr B took using his Fractional Points if the Points value of the holiday(s) taken amounted to more than the total number of Vacation Club Points he would have been entitled to use at the time of the holiday(s) as an ongoing Vacation Club member However, this deduction should be proportionate and relate only to the additional Fractional Points that were required to take the holiday(s) in question. For example, if Mr B took a holiday worth 2,550 Fractional Points and he would have been entitled to use a total of 2,500 Vacation Club Points at the relevant time, any deduction for the market value of that holiday should relate only to the 50 additional Fractional Points that were required to take it. But if he would have been entitled to use 2,600 Vacation Club Points, for instance, there shouldn’t be a deduction for the market value of the relevant holiday. (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 B’s credit file in connection with the Credit Agreement reported within six years of this decision.

-- 19 of 20 --

(6) If Mr B’s FCM is still in place at the time of this decision, as long as he agrees to hold the benefit of his interest in the Allocated Property for the Lender (or assign it to the Lender if that can be achieved), the Lender must indemnify him against all ongoing liabilities as a result of his FCM. *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 B 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 final decision For the reasons I’ve set out above, my decision is to uphold Mr B’s complaint about Shawbrook Bank Limited. It needs to calculate and pay Mr B compensation using the methodology above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr B to accept or reject my decision before 27 August 2025. Simon Dibble Ombudsman

-- 20 of 20 --