Barclays Bank was recently ordered to repay interest on timeshare loans in Malta, a punishment that was widely celebrated by borrowers and consumer watch groups alike. The company also faces further investigation that may result in even more payments to holders. We’ll look at how this happened, what borrowers can expect in the coming months, and how this all ties into larger lending practices.
The Facts of the Case
The actual facts of the case involve a number of different parties and organizations, which has made it difficult for the Financial Conduct Authority (FCA) to untangle. It’s hard to determine who knew what and how that information was communicated between players.
We do know that Barclays partnered with a timeshare operator known as Azure Services from April of 2014 to April of 2016. Azure Services was a subsidiary of Azure Resorts, though the former company did not have the same privileges as the latter.
It seems Azure Resorts had been licensed to broker loans by the FCA, but the employees who drew up the deals were not working for Azure Resorts — they were working for Azure Services. While Azure Services did eventually receive approval from the FCA, it did not do so until April of 2016. Since Azure Services had not received approval from the FCA during that two-year time period, the terms of the deal were called into question.
Borrowers were represented by M1 Legal, a law firm based in Malaga. The firm worked with FCA to provide context behind these loans, detailing morally questionable behavior on the part of Azure Services to convince people to sign up for these loans.
The amount of money purported to be repaid and waived is approximately £26 million, according to M1 Legal. However, this figure has been disputed by a spokesperson from Barclays, who stated that the number was grossly inflated. It’s worth noting that the spokesperson did not provide another estimate though.
It’s unclear exactly how Barclays will need to atone for working with Azure Services, but steps have already been taken to give borrowers more leverage. The FCA made borrowers aware of the lending discrepancy by sending out a letter to everyone who received a loan within that timeframe.
The letter detailed that Barclays was required to give back interest that had already been paid on loans made to borrowers. In addition to the interest it was ordered to pay back, Barclays is also canceling future interest that would otherwise be charged to more than 1,400 loans. If M1 Legal’s estimates of £26 million are true, Barclays would be giving back about half the value of all loans made within that time period — an incredible percentage in every sense of the word.
Barclays is a UK lender and investor, helping clients and partners manage money and strengthen assets across the board. However, there’s a lot to learn from the FCA’s investigation. In addition to paying back the interest, Barclays is also required to have an independent assessor review the timeshare loans and determine whether they were affordable.
One of the most important things for any lender to do is verify whether or not the borrower will be able to make payments. But as basic as this step is, too many lenders allow greed to get in the way. Ultimately, lenders determine that the risk of default is not strong enough to risk turning away clients who simply don’t have the assets for the size of the loan.
Should the bank fail to show that the loans were affordable, the FCA is requiring Barclays to cancel all loans and reimburse customers for all payments plus an extra 8% interest. It seems clear that the FCA wants to make an example of Barclays so that other banks are less likely to cut corners.
Consumer claims organizations have had timeshare companies on their radar for a very long time. These groups claim that billions of pounds are spent on these kinds of timeshare loans, financially harming everyday people who don’t realize what they’re getting themselves into.
Interest rates vary depending on the lender but are often more than 9%. In one example from the Malta timeshares, the financial agreement was 9.5% on a loan of about £20,000, resulting in more than £17,000 in interest over the course of 15 years.
No one is denying that there needs to be some degree of personal responsibility taken on the part of the borrower. However, many customers face financial ruin if they’re either hit with unexpected expenses or were unable to pay back the loan in the first place.
These consumer groups want to see more accountability when it comes to both the operators and the banks that underwrite these loans. The FCA apparently wants to promote the same thing, which is why we’re seeing Barclays fall under such intense scrutiny.
High-Pressure Sales Tactics
If you’ve never been through a timeshare presentation, you might already know that the companies do everything in their power to entice you to sit through one. Free airfare, free hotel rooms, and free entertainment are really just the tip of the iceberg.
Many people will look at timeshare promotions as the chance to take advantage of all these ‘gifts’. Many of these attendees may start with little or even no interest of purchasing anything. But there’s a reason why timeshare operators continue to offer these too-good-to-be-true deals.
The idea is to get people to fall in love with a premiere destination spot before making the pitch. And as much as people might want to resist, these pitches are designed to pressure people. After having the chance to relax, people are badgered, sometimes for hours, about the wonders of timeshares.
The salesperson might start with a high figure and then end with something that is far more reasonable. To say no again and again — especially after being handed a free trip — can be more stressful to people than they realize. This seemingly win-win situation can quickly turn into anything but.
In the case of the loans offered by Azure Services, one borrower commented that his sales presentation lasted for five hours. His loan was for £24,600 even though his household income was less than £35,000. After being placed on sick pay due to his child’s illness, his income dropped to just £195 per week. His timeshare obligations would have nearly eaten up an entire week’s sick pay. And although £11,000 was eliminated by a judge, the borrower stated that nothing was worth the destruction of his credit score.
Official Comments and Results
The companies in question have said little about the matter, though they have made comments on several items of the investigation. In addition to disputing the amount of money being paid back or waived, the company has also denied that they did not complete adequate affordability checks, a fact that will be verified by the independent assessor.
However, Barclays did state that the company did not provide its standard of service during the two years that Azure Services made its loan. This may be a nod to the fact that the company did not do its due diligence on differentiating Azure Resorts from Azure Services. Barclays ended its partnership with the organization in 2018.
When it comes to whether the customers should have to repay the loans, Barclays has stated that they believe it is reasonable to require customers to do so.
Azure Resorts Ltd. and Azure Services Ltd. started liquidation proceedings in April of 2020. On the company’s homepage, Azure Resorts posts information about its accreditation to assure customers of its lending tactics. Unsurprisingly though, Azure Services Ltd has not responded to requests for comment.
The Promise of Timeshares
Timeshare presentations are essentially solid as a practical fantasy. The idea is to streamline your vacation time, making it more affordable to travel to the most beautiful places in the world. Plus, timeshare holders have the chance to really get to know an area, forming relationships and getting to know the best parts that surround the property.
But as nice as that all sounds, the reality rife for complications. Not only are the upfront costs high, which is why so many people take out timeshare loans in the first place, but the borrower is usually taking on maintenance fees too. These costs can increase over time, a possibility that is usually baked into the fine print of these agreements and never given the attention it rightly deserves.
Plus, timeshares are often hard to sell. In fact, the market is usually flooded with sale opportunities, some of which are basically being given away. And if for whatever reason you can’t make it to your destination, which happens more often than you might realize, you’re still required to pay for it.
While we don’t know exactly what happened between Azure Services and its customers, it seems clear that borrowers were taken advantage of to some extent.
What’s to Come
From financial recessions to individual tragedies, the consequences of poor lending practices stretch far and wide. Unfortunately, these questionable processes often seem to shift from year to year, as opposed to change for the benefit of the borrowers and the public.
Hopefully, we’ll see the FCA’s decisions for Barclay influence other banks to take more precautions so they can help their customers and stave off investigations like the one that Barclays is going through right now.
When it comes to additional punishments, it will be worth keeping an eye on what the FCA does — especially if it was determined that the loans were not affordable. Having to repay back everything plus an interest rate would be a stunning blow.
How to Protect Yourself
There are some people who can fly overseas, stay in a fancy hotel, and have all their meals and entertainment covered by a timeshare operator. When the presentation part of the trip rolls around, then can sit through hours and hours of persuasion, blocking it all out and just saying no again and again.
When the presentation wraps up, they don’t feel stressed at all. They can simply fly back home having gotten everything they need from the trip and nothing they didn’t. But these people are few and far between. Even just the exhaustion of saying no can take all the pleasure out of a free trip.
There are also people who love their timeshares, finding it a cost-effective way to take advantage of their leisure time. Instead of having to plan a new trip every year, they simply go to a location where they don’t have to arrange for where to stay. Some people might not even take a vacation if it weren’t for their timeshare! Yet in this case, it would only be worth it if you knew exactly how much money you were giving up for that convenience.
Whether it’s you or someone you love, it’s important to be cautious when you’re looking into any major investment. You don’t need to be an economics professor to know that if it sounds too good to be true, then it probably is. And while the FCA is certainly taking action to protect customers, you can’t always look to these organizations to save you.