Leanne.damary@asic.gov.au Leanne Damary Senior Lawyer ...

24 January 2017

By email: Leanne.damary@.au

Leanne Damary Senior Lawyer Investment Managers and Superannuation Australian Securities and Investments Commission Level 5, 100 Market Street Sydney NSW 2000

Dear Ms Damary,

Submission in response to Consultation Paper 272 ? Remaking ASIC class orders on time-sharing schemes

Consumer Action Law Centre (Consumer Action) and Financial Rights Legal Centre (Financial Rights) are pleased to make this submission to the Australian Securities and Investments Commission's (ASIC) proposal to remake ASIC class orders as set out in Consultation Paper 272. While the submission has been drafted by Consumer Action, Financial Rights has had the benefit of reviewing the submission and has signed on as a cosignatory. Any view expressed as the view of Consumer Action is endorsed by Financial Rights for the purposes of this submission.

This submission is focused on issues that our respective organisations have observed through our casework involving timeshare schemes. We have extracted below only those questions which we are responding to.

Our comments are detailed more fully below.

Consumer Action Law Centre

Level 6, 179 Queen Street Telephone 03 9670 5088

Melbourne Victoria 3000

Facsimile 03 9629 6898

ABN 37 120 056 484 ACN 120 056 484

info@.au .au

About Consumer Action

Consumer Action Law Centre is an independent, not-for profit consumer organisation based in Melbourne. We work to advance fairness in consumer markets, particularly for disadvantaged and vulnerable consumers, through financial counselling, legal advice and representation, and policy work and campaigns. Delivering assistance services to Victorian consumers, we have a national reach through our deep expertise in consumer law and policy and direct knowledge of the consumer experience of modern markets.

Over the past ten years we have advised and/or acted on behalf of a significant number of consumers who have had problems with timeshare schemes.

About Financial Rights

The Financial Rights Legal Centre (formerly known as the Consumer Credit Legal Centre NSW) is a community legal centre that specialises in helping consumer's understand and enforce their financial rights, especially low income and otherwise marginalised or vulnerable consumers. We provide free and independent financial counselling, legal advice and representation to individuals about a broad range of financial issues. Financial Rights operates the Credit & Debt Hotline, which helps NSW consumers experiencing financial difficulties. We also operate the Insurance Law Service which provides advice nationally to consumers about insurance claims and debts to insurance companies.

Key Points of our response

We consider that: an opt-in regime should apply to timeshares rather than a cooling-off period; consumers should be able to more easily terminate their timeshare arrangement and any associated finance arrangement if they determine that it is unsuitable; the term of timeshare agreements should be more limited; and an increase in the volume of information provided to consumers is unlikely to be of any significant benefit, but there are some areas where more accurate disclosure may assist more sophisticated consumers in making their decisions.

Discussion

Our detailed comments in connection with each question to which we are responding are set out below.

B. Remaking ASIC Class Orders

Incorporating the template cooling-off statement under PF 208

B5Q1 Do you agree with our proposal to incorporate the template cooling-off statement under PF 208 into the new instrument for entities that are dealing in interests or operating a registered time-sharing scheme? If not, please give reasons.

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It is the position of Consumer Action that neither cooling off periods nor additional disclosure constitute effective forms of consumer protection, as discussed in more detail under question B6Q7 below.

Therefore, Consumer Action does not agree that there is any material benefit in including a template cooling-off statement.

Consumer Action strongly supports an opt-in arrangement whereby in order for any legally binding arrangement to exist, the consumer must give written notice to the timeshare operator that they elect to opt-in to the arrangement. Such notice would only be effective if it is sent after a set period after the day on which the consumer attends the initial timeshare presentation or the day on which they are provided with any additional information or the answers to any questions which they may have asked. A set period of two business days after whichever event applies may be appropriate.

B5Q2 Do you think a different template or approach would better assist consumers to understand their cooling-off rights? If so, please provide your suggestions

There may be merit in including a form of opt-in statement. If including such a prescribed form is considered to assist as a consumer protection measure, then the design, layout, signing and witnessing requirements for that statement must be critically considered.

The requirements around such a notice must ensure that it is not a measure which is easily circumvented by time-share operators. The template and the surrounding processes and submission requirements around it should be set up in such a way as to ensure as far as possible that consumers must be pro-active in order to submit the opt-in form a certain period after they have been presented with the sales material for consideration.

Consumer Action considers that the form and surrounding processes must be designed so that the time share operators cannot circumvent the opt-in step by (for example) having the consumer sign the form within the high pressure sales environment, and either post-date it or direct the consumer to post it later.

Incorporating AFS licence conditions under PF 209

B6Q1 Do you agree with our proposal to include the conditions for AFS licensees that operate registered time-sharing schemes in the new instrument? If not, please provide reasons.

Consumer Action agrees with this proposal. However, Consumer Action recommends amending the obligations to align with and support the reforms recommended in this submission.

B6Q2 Do you agree with our proposal to also continue to impose obligations in relation to the provision of a PDS, application form and cooling-off rights on AFS licensees that deal in interests in time-sharing schemes? If not, please provide reasons.

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Consumer Action considers that there should be some changes to the obligations imposed, as set out below.

B6Q3 Do you agree with the amendments proposed to the existing obligations? If not, please provide reasons.

Consumer Action does not consider that there is any material benefit in increasing the level of disclosure, except as specifically noted elsewhere in this submission.

Consumer Action recommends that the modified conditions imposed in connection with cooling-off rights be amended to reflect an opt-in arrangement. The conditions should provide among other things that the opt-in notice is not effective unless for example it is received after a certain timeframe has elapsed following the presentation and provision of the relevant information to the consumer.

B6Q4 Is any transitional period required to comply with the amendments to the existing obligations? If so, please provide reasons.

Consumer Action considers that any reform which increases the protections for consumers should begin operating immediately.

B6Q5 Please describe your experience with how time-sharing interests are sold. Please give details about the steps involved, including details of any financing arrangements facilitated by the responsible entity to acquire an interest.

In our clients' experience, the sale of timeshare frequently involves very high pressure sales and conduct which could be regarded as unconscionable and/or misleading or deceptive. No assessment appears to be made as to the suitability of the product for the relevant consumer despite the fact that the product is relatively expensive and may often be financed with a relatively high interest loan. Our clients' understanding of how the scheme works is often limited with minimal or incomplete explanations having been provided by the timeshare sellers.

Consumer Action refers to the casework examples which are annexed to this submission.

B6Q6 Do the sales practices involve any unsolicited meetings or telephone calls? If so, should any additional restrictions or obligations be imposed on licensees in relation to these practices to ensure that consumers understand what they are being offered and are not misled?

From our casework, the seminars and meetings attended by consumers may be unsolicited depending on the circumstances. In the common circumstance of a consumer attending a timeshare seminar in response to a request and the promise of some form of reward, it is often difficult to reconcile that meeting (i.e. attending the timeshare presentation) with the requirement that it be in response to a positive, clear and informed request from the consumer, noting the requirements of s992AA of the

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Corporations Act 2001 (Cth) and the views of ASIC in relation to `unsolicited' meetings as expressed in Regulatory Guide 38.

Consumer Action would argue that in circumstances where an incentive is offered for attending a timeshare seminar, then it cannot be considered to genuinely be in response to a positive request. Further, Consumer Action considers that it is likely that most requests are not sufficiently clear and informed given the numerous cases we have seen of consumers being caught off guard when attending the seminars.

Regardless of whether the sale falls within the definition of an unsolicited sale, consumers are often incentivised to attend by being offered some sort of reward and the general view of consumers is that the length, intensity and pressure applied during these seminars is significantly greater than is reasonable or had been expected. Consumers are often overwhelmed by these sales practices.

Action has been taken in the past against timeshare operators for misleading and deceptive conduct and unconscionable conduct. For example, see . Despite monitoring and enforcement by the regulators, the problems of misrepresentation, or at least the selective provision of advice by salespersons, continues.

B6Q7 In relation to the current cooling-off rights: (a) Do you think the cooling-off rights based on consumers having to opt out to cool off are working?

In the experience of Consumer Action, cooling off simply does not work.

Drawing on the door to door sales analogy, it is noted that the introduction of the Australian Consumer Law (ACL) attempted to curb door to door sales across Australia in 2011 by restricting allowable times and mandating a ten day cooling off period, but these protections have been shown to be ineffective. It is suggested that the ten day cooling off period in that case may actually have exacerbated poor outcomes, by giving salespeople a tool to reassure wavering consumers when seeking to close a sale. Salespeople know full well that only the most resilient and proactive consumers will overcome the "endowment" effect and actually act on the cooling off period, so while the cooling off period can be useful for consumers, it can also (counterintuitively) work in favour of making inappropriate sales. Consumer Action notes that this applies particularly to the most vulnerable and disadvantaged consumers, who are least likely to assert their rights and act on a cooling off period.

On a related point, our casework also reveals that consumers who have attempted to exercise their cooling off rights even within the cooling off period are often met with resistance, with timeshare operators asserting

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