Shawbrook Bank Limited · DRN-5793417

The complaint Mr and Mrs D’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 them 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 and Mrs D purchased membership of a timeshare (the ‘Fractional Club’) from a timeshare provider (the ‘Supplier’) on 8 March 2017 (the ‘Time of Sale’). They entered into an agreement with the Supplier to buy 2720 fractional points at a cost of £8,691 (the ‘Purchase Agreement’). Fractional Club membership was asset backed – which meant it gave Mr and Mrs D more than just holiday rights. It also included a share in the net sale proceeds of a property named on their Purchase Agreement (the ‘Allocated Property’) after their membership term ends. Mr and Mrs D were existing Fractional Club members. After trading in their existing membership for £25,900 towards the purchase price of £34,591, they paid for their Fractional Club membership by taking out finance of £8,691 from the Lender in their joint names. (the ‘Credit Agreement’). Mr and Mrs D – using a professional representative (the ‘PR’) – wrote to the Lender on 17 June 2022 (the ‘Letter of Complaint’- LOC) to complain about: 1. Misrepresentations by the Supplier at the Time of Sale giving them 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 them 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 them under the Credit Agreement was unaffordable for them. (1) Section 75 of the CCA: the Supplier’s misrepresentations at the Time of Sale Mr and Mrs D say that the Supplier made a number of pre-contractual misrepresentations at the Time of Sale – namely that the Supplier: 1. told them that Fractional Club membership had a guaranteed end date when that was not true. 2. told them that they were buying an interest in a specific piece of “real property” when that was not true. 3. told themthat Fractional Club membership was an “investment” when that was not true. 4. told them that the Supplier’s holiday resorts were exclusive to its members when that

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was not true. Mr and Mrs D say that they have 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, they have a like claim against the Lender, who, with the Supplier, is jointly and severally liable to Mr and Mrs D. (2) Section 75 of the CCA: the Supplier’s breach of contract Mr and Mrs D say that the Supplier breached the Purchase Agreement because there is no guarantee that they will receive their share of the net sale proceeds of the Allocated Property. Mr and Mrs D also say that they found it difficult to book the holidays they wanted, when they wanted. As a result of the above, Mr and Mrs D say that they have a breach of contract claim against the Supplier, and therefore, under Section 75 of the CCA, they have a like claim against the Lender, who, with the Supplier, is jointly and severally liable to Mr and Mrs D. (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 and Mrs D say that the credit relationship between them and the Lender was unfair to them under Section 140A of the CCA. In summary, they include the following: 1. Fractional Club membership was marketed and sold to them 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 their Fractional Club membership and/or (ii) the obligation to pay annual management charges for the duration of their membership were unfair contract terms under the Unfair Terms in Consumer Contracts Regulations 1999 (the ‘UTCCR’) 1 3. They were pressured into purchasing Fractional Club membership 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 and Mrs D of any commissions that may have been paid. The Lender dealt with Mr and Mrs D’s concerns as a complaint and issued its final response letter on 25 September 2022, rejecting it on every ground. Mr and Mrs D 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. The Investigator thought that the Supplier had marketed and sold Fractional Club membership as an investment to Mr and Mrs D at the Time of Sale in breach of Regulation 1 The relevant legislation at the Time of Sale was The Consumer Rights Act 2015 (‘CRA’).

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14(3) of the Timeshare Regulations. And given the impact of that breach on their purchasing decision, the Investigator concluded that the credit relationship between the Lender and Mr and Mrs D was rendered unfair to them for the purposes of section 140A of the CCA. 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 (PD) explaining why I thought the complaint should be upheld. Mr and Mrs D accepted my PD. In response, the Lender said it did not intend to challenge my decision to uphold given the specific facts of Mr and Mrs D’s complaint. It said it would provide redress documentation for Mr and Mrs D to consider. It went on to say it would like to share a few observations on points in the PD that it did not agree with, which it thought raised concerns with the approach being taken by me. It asked that its response be provided to me to consider the matters it raised in the assessment of future complaints. 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 at the centre of the complaint in question was paid for using restricted-use credit that was regulated by the Consumer Credit Act 1974. As a result, the purchase(s) was 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 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

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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 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

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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.” 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.”2 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 2 The Court of Appeal’s decision in Scotland was recently followed in Smith.

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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 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

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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.3 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). 3 See Recital 9 in the Preamble to the 2008 Timeshare Directive.

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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) 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 Fractional Club membership to Mr and Mrs D as an investment, which, in the circumstances of this complaint, rendered the credit relationship between them and the Lender unfair to them 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 and Mrs D’s complaint, it isn’t necessary to make formal findings on all of them. This includes the allegations that: 1. Misrepresentations were made by the Supplier at the Time of Sale giving them a claim against the Lender under Section 75 of the CCA, which the Lender failed to accept and pay. 2. Breaches of contract by the Supplier giving them a claim against the Lender under Section 75 of the CCA, which the Lender failed to accept and pay. because, even if those aspects of the complaint ought to succeed, the redress I’m currently proposing puts Mr and Mrs D in the same or a better position than they would be if the redress was limited to misrepresentation/breach of contract. I also want to make it clear that I have considered and noted the points raised by the Lender in response to my PD. As it has asked that I consider those points in the assessment of future complaints and has said that it did not intend to challenge my decision to uphold given the specific facts of Mr and Mrs D’s complaint, I won’t comment in this decision, on the points it has raised.

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Section 140A of the CCA: did the Lender participate in an unfair credit relationship? Having considered the entirety of the credit relationship between Mr and Mrs D 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 and Mrs D 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 and Mrs D’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 and Mrs D say that the Supplier did exactly that at the Time of Sale – saying the following during the course of this complaint: “They told us that fractional property ownership was an investment in property. So, we would be buying a share of a holiday apartment that would be sold and we would get a profit.” Mr and Mrs D allege, therefore, that the Supplier breached Regulation 14(3) at the Time of Sale because: (1) There were two aspects to their Fractional Club membership: holiday rights and a profit on the sale of the Allocated Property. (2) They were told by the Supplier that they would get their money back or more during the sale of Fractional Club membership. 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 and Mrs D’s share in the Allocated Property clearly constituted an investment as it offered them the prospect of a financial return – whether or not, like all investments, that was more than what they 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

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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 and Mrs D 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 them as an investment, i.e. told them or led them to believe that Fractional Club membership offered them the prospect of a financial gain (i.e., a profit) given the facts and 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 and Mrs D, the financial value of their share in the net sales proceeds of the Allocated Property along with the investment considerations, risks and rewards attached to them. I say this, because documentation the Supplier provided to Mr and Mrs D as part of the sales pack, shows there were, for instance, disclaimers in the contemporaneous paperwork that state that FRACTIONAL CLUB MEMBERSHIP was not sold to Mr and Mrs D 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 and Mrs D, 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). • However, weighing up what happened in practice is, in my view, rarely as simple as looking at the contemporaneous paperwork. And there are a number of strands to Mr and Mrs D’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 them 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 and Mrs D or led them to believe during the marketing and/or sales process that membership of the Fractional Club was an investment and/or offered them 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’.

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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 to customers like Mr and Mrs D – which includes a document called the “Fractional Property Owners Club Fly Buy Manual 2017” (the ‘2017 Fractional Training Manual’). As I understand it, a version of the 2017 Fractional Training Manual was actually used from November 2016 onwards 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 and Mrs D appear to have purchased. It is not entirely clear whether they 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 and Mrs D Fractional Club membership; and (2) how the sales representatives would have framed the sale of Fractional Club membership to them. 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 Mr and Mrs D 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 only 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:

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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” 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. 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:

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“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. 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 and Mrs D) 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 and Mrs D) 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 and Mrs D the financial value of the proprietary interest they were 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)).”4 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. 4 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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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: “[…] 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 and Mrs D), 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 and Mrs D 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 them either implausible or hard to believe when they say: “They told us that fractional property ownership was an investment in property. So, we would be buying a share of a holiday apartment that would be sold and we would get a profit. They never guaranteed the amount we would get back, but they did say we would make money on a good investment like this. They kept saying it was like buying a house, bricks and mortar investment.” On the contrary, in the absence of evidence to persuade me otherwise, I think that’s likely to be what Mr and Mrs D were 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?

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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 and Mrs D 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. 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 and Mrs D and the Lender that was unfair to them and warranted relief as a result, whether the Supplier’s breach of Regulation 14(3) led them to enter into the Purchase Agreement and the Credit Agreement is an important consideration. I’ve noted that in its response to the investigator’s opinion, the Lender has argued that the letter of claim is identical to other cases presented by the PR, and it says the use of a template casts doubt on whether the claim in this case is individual in nature, or is being made by the PR in a broad and general nature. I have carefully considered what the Lender has said. Firstly, I don’t think the use of similar wording or similar complaint points, made in similar other complaints made by the PR, necessarily undermines the credibility of what Mr and Mrs D have said in this case. Complaints of the type made by Mr and Mrs D, can have very similar complaint points. So, I don’t think it’s surprising or inappropriate for Mr and Mrs D’s complaint to be presented and articulated in a similar way to other similar complaints. The Lender has also questioned the legitimacy of what Mr and Mrs D have said in their witness statement and that it hasn’t been signed. And they say that the reference to other Timeshare providers in the statement, in essence undermines the credibility of what they have said. I understand the concerns the Lender has raised about the different Timeshare providers referred to in the witness statement. And I think it’s important to understand the context in which the statement was taken. So, I asked the PR to explain the references to other Timeshare providers and the referencing to terminating contracts with other Timeshare providers. It has explained that the statements were taken as a result of a preliminary interview with Mr and Mrs D, to help understand their witness evidence. And the individuals who took statement such as the one in this case, were part of the PR’s former Termination team. It also said the statements were initially gathered to help support contract cancellation with the Timeshare provider. This explanation provides context as to how the statement was provided and the original purpose it was intended for. And I don’t think the original purpose it was obtained for, negates its use in respect of the claims for compensation brought by Mr and Mrs D in this complaint. It addresses Mr and Mrs D’s recollections of the sale in 2017 and is relevant information in respect of this claim. And now that I understand the context in which the statement was made and references to the other Timeshare providers referred to, I don’t think any of this undermines the credibility of the witness statement provided. As the Lender will be aware, this service is informal. We don’t require complainants to follow the formalities in the way any evidence is presented, that is needed in court proceedings. And we don’t have the same procedural requirements as the courts. Also, in my experience, it’s not unusual where a client is professionally represented, for any witness statement to be prepared by that representative based on the client’s instructions and recollections. The key issue for me is whether there is a core of acceptable evidence from Mr and Mrs D within the evidence provided in support of their complaint, that doesn’t undermine or

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contradict, what they have said about what the Supplier said and did to market and sell FRACTIONAL CLUB MEMBERSHIP as an investment. And for the reasons I’ve set out above, I’m satisfied that there is. On my reading of Mr and Mrs D’s testimony, the prospect of a financial gain from Fractional Club membership was an important and motivating factor when they decided to go ahead with their purchase. And, on balance, I find there is a consistent and believable recollection that the Fractional Club membership was sold as an investment, when considered alongside the other evidence. That doesn’t mean they were not interested in holidays. Their own testimony and holiday record demonstrates that they quite clearly were. And that is not surprising given the nature of the product at the centre of this complaint. But as Mr and Mrs D say (plausibly in my view) that Fractional Club membership was marketed and sold to them at the Time of Sale as something that offered them more than just holiday rights, on the balance of probabilities, I think their purchase was motivated by their 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 their previous membership. And with that being the case, I think the Supplier’s breach of Regulation 14(3) was material to the decision they ultimately made. Mr and Mrs D have not said or suggested, for example, that they would have pressed ahead with the purchase in question had the Supplier not led them to believe that Fractional Club membership was an appealing investment opportunity. And as they faced the prospect of borrowing and repaying a substantial sum of money while subjecting themselves to long- term financial commitments, had they not been encouraged by the prospect of a financial gain from membership of the Fractional Club, I’m not persuaded that they would have pressed ahead with their 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 and Mrs D 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 and Mrs D would not have agreed to purchase Fractional Club membership (‘FC Membership 1’) 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 them back in the position they would have been in had they not purchased FC Membership 1 (i.e., not entered into the Purchase Agreement), and therefore not entered into the Credit Agreement, provided Mr and Mrs D agree to assign to the Lender their Fractional Points or hold them on trust for the Lender if that can be achieved. Mr and Mrs D were existing Vacation Club members, and their membership was traded in against the purchase price of Fractional Club membership. Under their Vacation Club membership, they had 2,590 Vacation Club Points. And, like Fractional Club membership, they had to pay annual management charges as a Vacation Club member. So, had Mr and

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Mrs D not purchased Fractional Club membership, they 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 and Mrs D from the Time of Sale as part of their Fractional Club membership should amount only to the difference between those charges and the annual management charges they would have paid as ongoing Vacation Club members. As Mr and Mrs D acquired an additional 130 holiday points when they purchased Fractional membership, I think the Lender needs to refund 4.78% of the annual management charge they paid from the Time of Sale. (They went from 2,590 points as Vacation Club members to 2,720 points as Fractional Club members.) On 6 March 2019 (the ‘Time of Upgrade’), Mr and Mrs D upgraded their FC Membership 1 by trading in their existing Fractional Points, paying an additional £8,860 and entering a new purchase agreement for a total of 3,290 Fractional Points (‘FC Membership 2‘). A statement of account that’s been provided by the Lender suggests the money Mr and Mrs D borrowed to pay for FC Membership 1 was repaid in January 2019. Formally, the new purchase agreement superseded the old one, but in my view, it really just supplemented Mr and Mrs D’’s FC Membership 1, rolling over their existing Fractional Points into the new membership. And I don’t think the upgrade ended the unfairness under the Credit Agreement and related Purchase Agreement that stemmed from the acts and/or omissions of the Supplier at the Time of Sale given the facts and circumstances of this complaint. So, I think that there were ongoing effects of unfairness from Mr and Mrs D’s original purchase of FC Membership 1 and the Credit Agreement for which the Lender is answerable. However, Mr and Mrs D paid for the upgrade with their own funds. And the Lender isn’t legally answerable for any acts or omissions that took place during the sales presentation that led to the upgrade. I’m therefore not persuaded the Lender should have to answer for the financial consequences specifically associated with the 570 additional Fractional Points Mr and Mrs D purchased on 6 March 2019. So, in my view, the Lender needs to refund the proportion of the management charges payable after the Time of Upgrade that relate to the 130 Fractional Points they acquired at the Time of Sale – which is 3.95% of the annual management charges paid after the Time of Upgrade. So, here’s what I think needs to be done to compensate Mr and Mrs D with that being the case – whether or not a court would award such compensation: (1) The Lender should refund Mr and Mrs D’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 4.78% of the Fractional Club annual management charges Mr and Mrs D paid between the Time of Sale and the Time of Upgrade. The Lender should also refund 3.95%of the FC Membership 2 annual management charges they paid after the Time of Upgrade. (3) The Lender can deduct: i. The value of any promotional giveaways that Mr and Mrs D used or took advantage of at the Time of Sale; ii. Before the Time of Upgrade, the market value of the holidays* Mr and Mrs D took using their Fractional Points if the Points value of the holiday(s) taken amounted to more than the total number of Vacation Club Points they would have been

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entitled to use at the time of the holiday(s) as ongoing Vacation Club members. 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 and Mrs D took a holiday worth 2,650 Fractional Points and they were entitled to use a total of 2,590 Vacation Club Points at the relevant time, any deduction for the market value of that holiday should relate only to the 60 additional Fractional Points that were required to take it. But if they took a holiday worth less than 2,590 Fractional Points, for instance, there shouldn’t be a deduction for the market value of the relevant holiday. And, similarly: iii. After the Time of Upgrade, the market value of the holidays* Mr and Mrs D took using their Fractional Points if the Points value of the holiday(s) taken amounted to more than 3,160 points – which is the total number of Vacation Club Points and the additional 570 Fractional Points they acquired at the Time of Upgrade, which they would have been entitled to use at the time of the holiday(s). However, this deduction should be proportionate. For example, if Mr and Mrs D took a holiday worth 3,200 Fractional Points and they were entitled to use a total of 3,160 points at the relevant time, any deduction for the market value of that holiday should relate only to 40 additional Fractional Points that were required to take it. But if they took a holiday worth less than 3,160 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 and Mrs D’s credit file(s) in connection with the Credit Agreement reported within six years of this decision. (6) If Mr and Mrs D’s FC Membership 2 is still in place at the time of this decision, the Lender must ask the Supplier to reduce the number of Fractional Points they hold by 130 Fractional Points. If the Supplier agrees to do that, then Mr and Mrs D must agree to hold the remaining Fractional Points for the benefit of the Lender (or assign them to the Lender if that can be achieved). What’s more, the Lender must indemnify Mr and Mrs D against 3.95% of 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 and Mrs D took using their 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 their usage.

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**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 My decision is to uphold Mr and Mrs D’s complaint about Shawbrook Bank Limited. It needs to calculate and pay Mr and Mrs D compensation using the methodology set out in the section above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs D and Mr D to accept or reject my decision before 1 October 2025. Simon Dibble Ombudsman

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