The High Court decision in the case of Link Financial Ltd v Teresa North Wilson, involving a Club la Costa agreement and finance provided by GE Money can assist timeshare consumers who purchased a timeshare with the assistance of a “linked loan”.
Many consumers purchase a timeshare they can ill afford. They are told it is an investment, or at the very least is an “asset” that retains a value. It is against this notion of an “asset” that they are persuaded by a timeshare salesman to borrow money, often from a mainstream lender who has an agreement with the developers to provide finance to the consumer for the specific purpose of purchasing a timeshare that they, in reality, would not have bought had they had to fund the purchase from their own resources.
A common tale is that after purchase, maintenance fees escalate and the consumer defaults. The timeshare developer, or the management company, can then forfeit the timeshare. The “asset” is taken away leaving the consumer with a loan to pay and no “asset” to use to offset against the liability. That facts/findings from the Wilson case are as follows: Mrs. Wilson attended a timeshare presentation and purchased a membership in a holiday club operated by Club la Costa. In order to finance the purchase of this product, at a cost of £20,000, Mrs. Wilson entered into a loan agreement with acquired the timeshare product. In doing so, she entered into a fixed sum loan agreement with GE Money (“GE”). Mrs. Wilson stopped paying her GE loan. The debt, which was disputed by Wilson, was assigned to Link Financial Ltd (“Link”).
Link then sought to pursue the disputed debt, and Wilson defended the proceedings on a number of grounds. During the course of the proceedings the court looked carefully at the loan agreement and the underlying agreement with Club la Costa. The agreement with Club la Costa provided that “if Wilson did not make any payment due under the contract within 14 days’ notice”, her membership could be terminated and she would forfeit all monies paid to acquire her membership. Wilson failed to pay the maintenance fee charges, and her membership in the holiday club was terminated.
In the proceedings Wilson argued that the triparty relationship between her, Club la Costa and GE Money constituted an unfair relationship under s140 of the Consumer Credit Act 1974 (s140) because of the terms contained in the contracts which allowed the “asset” being her membership in the Club to be taken from her for missing annual maintenance charges, leaving her with the liability on the GE Loan but no residual asset to offset against the same. At first instance the court held there was no “unfair relationship”, placing a great deal of weight on the fact that there had been full compliance with the provisions of the Timeshare Act 1992, that Wilson was well educated, appeared to understand the agreements that she had signed and had mislead the lender as to her true income when applying for the loan.
The decision of the lower court was however overturned on appeal to the High Court. The High Court allowed Wilson’s appeal, finding that the term in the contract that allowed her holiday club membership to be forfeited for non-payment of maintenance fees was unfair and gave rise to an unfair relationship. The Court was of the view that Wilson should have been allowed to offset the capital value her Club la Costa holiday club membership to fully or partly reduce the liability to GE (which was subsequently assigned to Link). As there was no expert evidence available as to the inherent value of the Club la Costa product, the court took a broad brush approach and ordered that Wilson should be released from any further liabilities in connection with the GE/Link loan.
The case is extremely interesting as it is equally applicable to loans used to fund traditional timeshare purchases (rather than merely holiday club memberships), as it is common for these products to have forfeiture clauses contained within them.
If you are seeking further information or advice about any of the above, please contact John on 01207654365.
Disclaimer: This briefing is for guidance purposes only. We accept no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client’s own particular circumstances.