Mitsubishi HC Capital UK plc · DRN-6249149

The complaint Mr D’s complaint is, in essence, that Mitsubishi HC Capital UK plc (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 a claim under Section 75 of the CCA. While Mr D was previously represented by a professional representative (‘PR’), my understanding is that he is currently representing himself. What happened I issued a provisional decision on Mr D’s complaint on 19 February 2026, in which I set out the background to this matter and my provisional findings on it. A copy of that provisional decision is appended to and forms part of this final decision, so it’s not necessary for me to go over all the details again. But to summarise the events leading up to this point briefly: • Mr D was a long-term customer of a timeshare provider (the “Supplier”), having made a number of purchases from it (or predecessor companies) from 2008 or 2009 onwards, accumulating 10,000 “points” in the Supplier’s “European Collection”. In March 2015 and September 2015, Mr D converted his European Collection points, 5,000 points at a time, into a new product being promoted by the Supplier which I’ll call the “Fractional Club”. • On 20 September 2015 (the “Time of Sale”), Mr D converted his remaining 5,000 points in the European Collection into Fractional Club points, for an agreed fee (the “Purchase Agreement”). The Fractional Club points cost £11,350, reduced to £6,350 after trading in Mr D’s remaining European Collection holdings. Fractional Club membership differed from the European Collection in that it was asset-backed as well as giving holiday rights. This meant it gave Mr D a share in the net sale proceeds of a property named on his Purchase Agreement (the “Allocated Property”) at the end of the membership. The term of Mr D’s membership was 15 years. • Mr D paid for his purchase by taking finance of £6,350 from the Lender (the “Credit Agreement”) in his name only, though the purchase was a joint purchase. • Mr D later complained to the Lender, in May 2019, about what were essentially various mis-selling concerns in relation to the Purchase Agreement and Credit Agreement. Broadly speaking, these were: o That the Supplier had made certain misrepresentations to him causing him to enter the Purchase Agreement and giving him a claim against the Lender under Section 75 of the CCA. o That various improper acts or omissions by the Supplier or Lender had rendered his credit relationship with the Lender unfair to him within the meaning of Section 140A of the CCA.

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o That the Lender had granted the Credit Agreement irresponsibly. The Lender didn’t agree with the complaint, which was subsequently referred to the Financial Ombudsman Service. In my provisional decision, I said I thought the complaint should be upheld. The full reasoning can be found in the appended provisional decision, but again to summarise: • On the balance of probabilities, I thought the Supplier had likely said or implied to Mr D at the Time of Sale that Fractional Club membership was an investment in the sense that it was something that could or would allow him to realise a financial gain. • This was in breach of Regulation 14(3) of the Timeshare Regulations, which prohibited timeshare providers from marketing or selling timeshares as investments. • I considered the Supplier’s improper sale of the product in breach of the relevant regulations had played a material role in Mr D’s decision to enter the Purchase Agreement and related Credit Agreement, and that this had rendered his credit relationship with the Lender unfair to him, warranting remedial action. I acknowledged that Mr D had likely also entered the Purchase Agreement because he wanted a shorter term contract with the Supplier, but that the investment motivation was nonetheless material. The remedy I was minded to direct the Lender to put in place is set out in the appended document, but broadly speaking it involved unwinding the purchase as far as was practicable, including refunds of payments made towards the Credit Agreement and timeshare related fees, with any benefits from the purchase netted off against the overall refund. I considered compensatory interest should be paid on any refunds, and that the Lender should take steps to correct Mr F’s credit file (where necessary) and remove his ongoing liability for the timeshare. I asked the parties to respond to my provisional decision. The Lender said it disagreed with the decision. It disagreed with my interpretation of a witness statement from Mr D that I’d relied on in my provisional decision. I could summarise its points as follows: • It felt the evidence relating to the purchase made in September 2015 was very limited and there was a lack of credible evidence that the Supplier had sold the timeshare to him as an investment on that occasion. • Mr D only said he had been subjected to the same representations as had been made to him in March 2015, which were that he was told it was a good investment, that he could leave his timeshare relationship with the Supplier quicker, and that his management fees wouldn’t rise. He had not mentioned being told about making a profit or financial gain. • Some of Mr D’s allegations – albeit in relation to the March 2015 purchase – were somewhat incredible, casting doubt on the reliability of his recollections overall. He had said he’d been told that buying points in the Fractional Club would allow him to make a profit on all the products he’d bought from the Supplier over the years. Given this would have required a profit of tens of thousands of pounds to be made, the Lender thought it implausible that such a claim would have been made by the Supplier’s sales staff. • It considered Mr D’s testimony was somewhat confusing and contradictory, further undermining its credibility. For example, Mr D had said of the March 2015 sale that

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he was informed the Fractional Club product was a way to turn his points into fractions and be out of his timeshare within three years, but Mr D also acknowledged that the term of the membership was 15 years. Mr D had also stated he had an underlying hope that he could find a way out of his relationship with the Supplier, suggesting his motivation at the Time of Sale was the shorter term membership, not making an investment. • Mr D had signed paperwork at the Time of Sale which contained a disclaimer that the purchase shouldn’t be made as a property or financial investment. The complaint has now been returned to me to decide. 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. Having done so, I’ve arrived at the same conclusions I did in the appended provisional decision, and for the same reasons. I note the Lender has not disputed my analysis of how the Supplier sold Fractional Club membership as set out in the appended provisional decision, and my conclusion that: “Ultimately, I can’t be certain of what was shown to Mr D, or what specifically any sales representatives may have said to him, any more than the Supplier or the Lender can. But I think the analysis above and the existence of unofficial sales or training materials, highlights that there was the potential for the Fractional Club product to be sold in a way which did not accord with the Supplier’s official policy. And I don’t think the Supplier would have needed to have deviated very far from a simple description of how the Fractional Club product worked in terms of the sale of the fractional asset at the end of the term, to have fallen foul of Regulation 14(3).” My conclusions regarding the Supplier’s sales process are unchanged. The Lender’s disagreement is focused on Mr D’s witness statement and the fact that he signed paperwork containing a disclaimer. I dealt with the matter of the disclaimer in the provisional decision – acknowledging the existence of disclaimers and noting that determining what had happened at the Time of Sale was not as simple as looking at the paperwork. I don’t think there’s much more I can add to this. Regarding the witness statement, I think it’s likely to be a credible account of Mr D’s recollections dating to the Time of Sale, for the reasons given in the appended provisional decision. The Lender has referred to things which it thinks undermines the credibility of the statement, but I’m not convinced that they do. For example, I don’t find Mr D’s allegations relating to the making of a profit which included expenditure on previous purchases, to be incredible. Other than stating that it doesn’t think the Supplier’s salespeople would have deviated from its official policies (a point dealt with above and in the appended provisional decision), it’s unclear to me why the Lender thinks this kind of statement could not plausibly have been made. I don’t see the kind of contradictions the Lender does in the statement either. While I acknowledge Mr D refers to being told he could get out of the timeshare within a few years, when he is aware the membership was for 15 years, he is clearly talking about different ways of exiting the membership, so there is no contradiction there. And I don’t think Mr D’s

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expressed hope to be able to exit the timeshare sooner is inconsistent with him also being motivated by the prospect of making a financial gain or profit. Indeed, what he says in his statement indicates that he believed he could sell the membership before the end of the 15 year term at a profit. This is consistent with the dual motivation I set out in the appended provisional decision – that Mr D was materially motivated by both obtaining a shorter term contract with the Supplier, and in making a financial gain. I’ve considered the Lender’s remaining points carefully, but they don’t change my findings on the key questions in this case. I remain of the view that the Supplier marketed or sold the Fractional Club membership to Mr D at the Time of Sale as an investment, in breach of Regulation 14(3) of the Timeshare Regulations, and that this materially motivated his purchasing decision and rendered the credit relationship between him and the Lender, unfair to him. Fair Compensation The following directions are copied from the appended provisional decision, as my views on what would constitute fair compensation haven’t changed: Having found that Mr D would not have agreed to purchase Fractional Club membership 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 him back in the position he would have been in had he not purchased the Fractional Club membership (i.e., not entered into the Purchase Agreement), and therefore not entered into the Credit Agreement, provided he and any joint purchaser agree to assign to the Lender their Fractional Points or hold them on trust for the Lender if that can be achieved. Mr D was an existing European Collection member and the remaining 5,000 points of this membership was traded in against the purchase price of Fractional Club membership. Mr D was also an existing Fractional Club member, having 5,000 points in that club. So Mr D had access to 10,000 points prior to the Time of Sale. Like Fractional Club membership, he had to pay annual management charges as a European Collection member, and it is my understanding that these charges were the same per point as in the Fractional Club. So, had he not purchased Fractional Club membership, he would have always been responsible to pay an annual management charge of some sort – most likely no different to what he paid after his purchase. With that being the case, any refund of the annual management charges paid by Mr D from the Time of Sale as part of his Fractional Club membership should amount only to the difference between those charges and the annual management charges he would have paid as an ongoing member of the European Collection (with 5,000 points) and the Fractional Club (with 5,000 points). So, here’s what I think needs to be done to compensate Mr D with that being the case – whether or not a court would award such compensation: (1) The Lender should refund Mr 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 the difference between Mr D’s Fractional Club annual management charges paid after the Time of Sale and what his annual management charges (across the European Collection and Fractional Club) would have been had he not purchased the additional 5,000 points in the Fractional

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Club membership at the Time of Sale. (3) The Lender can deduct: i. The value of any promotional giveaways that Mr D used or took advantage of; and ii. The market value of the holidays* Mr D took using his Fractional Points if the Points value of the holiday(s) taken amounted to more than the total number of Points he would have been entitled to use at the time of the holiday(s) as an ongoing member of the European Collection and Fractional Club. 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 D took a holiday worth 2,550 Fractional Points and he would have been entitled to use a total of 2,500 Points with his previous membership holdings 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 Points under his previous holdings, for instance, there shouldn’t be a deduction for the market value of the relevant holiday. As Mr D’s holiday rights did not change as a result of him entering the Purchase Agreement, I would not expect there to be any deduction for holidays taken. (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 D’s credit file in connection with the Credit Agreement reported within six years of this decision. (6) If Mr D’s Fractional Club membership is still in place at the time of this decision, as long as he and any joint purchaser agree to hold the benefit of their 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 the 5,000 points he purchased in the Fractional Club at the Time of Sale. This does not extend to any existing holdings he had in the Fractional Club prior to the Time of Sale. *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 D 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 explained above, and in the appended provisional decision, I uphold this complaint and direct Mitsubishi HC Capital UK plc to take the actions outlined in the “Fair

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Compensation” section above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr D to accept or reject my decision before 21 April 2026. Will Culley Ombudsman

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COPY OF PROVISIONAL DECISION I’ve considered the relevant information about this complaint. Having done so, I’ve arrived at broadly the same conclusions as our Investigator, but I’ve explained my reasons in more detail. I’m issuing this provisional decision to give the parties to the complaint an opportunity to provide further submissions. The deadline for both parties to provide any further comments or evidence for me to consider is 19 February 2026. Unless the information changes my mind, my final decision is likely to be along the following lines. If Mitsubishi HC Capital UK PLC trading as Novuna Personal Finance accepts my provisional decision, it should let me know. If Mr D also accepts, I may arrange for the complaint to be closed as resolved at this stage without a final decision. The complaint Mr D’s complaint is, in essence, that Mitsubishi HC Capital UK plc (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 a claim under Section 75 of the CCA. What happened Mr D had been a customer of a particular timeshare provider (the ‘Supplier’) from about 2009 onwards, and had made a number of purchases over the years. While this complaint relates only to his final purchase from the Supplier in September 2015, I think it’s important to set out the history briefly for the purpose of putting things in their proper context. Mr D recalls first being introduced to the Supplier in 2008 (the Supplier says it was 2009), where he purchased “points” in one of the Supplier’s holiday clubs (the ‘European Collection’). These points could be exchanged annually for holiday accommodation. By March 2015, Mr D had made other purchases which meant he had 10,000 points in the European Collection. In March 2015, he converted 5,000 of his European Collection points to a new product being offered by the Supplier – the ‘Fractional Club’. I understand Mr D paid for his from his own resources rather than any loan arranged by the Supplier. The purchase which is the subject of this complaint took place on 20 September 2015 (the ‘Time of Sale’). On this day, Mr D entered into an agreement with the Supplier to buy a further 5,000 points in the Fractional Club at a cost of £11,350 (the ‘Purchase Agreement’). He traded in his remaining European Collection points, leaving him with 10,000 points in the Fractional Club and £6,350 to pay. Fractional Club membership was different to European Club membership in that it was asset backed – which meant it gave Mr D 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. The term of Mr D’s membership was 15 years. Mr D paid for the Fractional Club membership by taking finance of £6,350 from the Lender in his name only, although the timeshare itself was a joint purchase (the ‘Credit Agreement’). The loan was repayable over 124 months at £94.64 per month.

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Mr D – using a professional representative (‘PR’) – wrote to the Lender in May 2019 (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. 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. 3. Irresponsible lending by the Lender. (1) Section 75 of the CCA: the Supplier’s misrepresentations at the Time of Sale Mr D says that the Supplier made a number of pre-contractual misrepresentations at the Time of Sale – namely that the Supplier: 1. told him that Fractional Club membership had a guaranteed end date when that was not true because the sale of the Allocated Property could be delayed. 2. told him that he was buying an interest in a specific piece of “real property” when that was not true. 3. told him that Fractional Club membership was an “investment” that would allow him to make a profit on all the money he had put into the Supplier over the years, when that was not true because it was unlikely to achieve a return of that level. 4. told him that the Supplier’s holiday resorts were exclusive to its members when that was not true. 5. told him that he’d be able to sell the product at any time on a healthy secondary market, enabling him to be free of his timeshare within three years, when this wasn’t true either. Mr D 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 him. (2) Section 140A of the CCA: the Lender’s participation in an unfair credit relationship The Letter of Complaint and an accompanying witness statement from Mr D set out several matters which I’ve interpreted as being reasons why he thinks 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. Fractional Club membership 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’).1 2. That various terms in the Purchase Agreement and related paperwork were unfair contract terms under the Unfair Terms in Consumer Contracts Regulations 1999 (the ‘UTCCR’). 3. He was pressured into purchasing Fractional Club membership by the Supplier. 4. The decision to lend was irresponsible because the Lender didn’t carry out the right creditworthiness assessment. 5. The Credit Agreement was arranged by a credit broker which lacked the required 1 Mr D does not make the specific allegation that the sale of the timeshare to him as an investment breached the rules on selling timeshares, thus rendering his credit relationship with the Lender unfair to him. However, as Mr D and PR complained about the Supplier having told him the product was an investment in multiple places in the Letter of Complaint and witness statement, and bearing in mind the inquisitorial remit of the Financial Ombudsman Service, I think it’s reasonable to consider the allegation from this angle.

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regulatory permissions to arrange loans. The Lender dealt with Mr D’s concerns as a complaint and issued its final response letter in October 2020, rejecting it on every ground. Mr D then referred the complaint to the Financial Ombudsman Service. While the case was waiting to be assessed, PR informed us it was no longer Mr D’s representative. I understand from Mr D that he may now have a new representative, however that representative has yet to come forward to tell us it is representing him, nor has any new information been submitted since PR came off the record. After a delay, the case 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 D at the Time of Sale in breach of Regulation 14(3) of the Timeshare Regulations. And given the impact of that breach on his purchasing decision, the Investigator concluded that the credit relationship between the Lender and Mr D was rendered unfair to him 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. 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, in many ways. no different to that shared in several hundred published ombudsman decisions on very similar complaints – which can be found on the Financial Ombudsman Service’s website. And with that being the case, it is not necessary to set out that context in detail here. What I’ve provisionally 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 currently think 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 D 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. 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 D’s complaint, it isn’t necessary to make formal findings on all of them. This includes the allegations that the Supplier made misrepresentations to Mr D or lent to him irresponsibly. And that’s because, even if those aspects of the complaint ought to succeed, the redress I’m currently proposing puts Mr D in the same or a better position than he would be if the redress was limited to what he’d have been entitled to if any of those aspects of the complaint were successful. Section 140A of the CCA: did the Lender participate in an unfair credit relationship?

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Having considered the entirety of the credit relationship between Mr 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 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 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 D says that the Supplier did exactly that at the Time of Sale – saying the following during the course of this complaint, firstly of the March 2015 sale: “If we decided not to sell, the property would be sold in 15 years anyway and the profits would be divided amongst Fractional Property owners which would mean that we would make a profit on all the products that [we] had purchased including all the points that we had purchased previously.” Mr D says that in September 2015 the Supplier made the same representations to him that it had made during the March 2015 sale, and that he “…decided to purchase more fractional ownership points due to the fact that we were told that this was a good investment and we would exit timeshare quicker.” Mr D alleges, therefore, that the Supplier breached Regulation 14(3) at the Time of Sale because he was told by the Supplier that, when the Allocated Property was sold at the end of the term he would make a profit on not just the purchase in question, but on all the purchases he had made from the Supplier over the years, and that it was a “good investment”. 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.

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Mr D’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 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 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 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 him as an investment, i.e. told him or led him to believe that Fractional Club membership offered him 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 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. There were, for instance, disclaimers in the contemporaneous paperwork that state that Fractional Club membership was not sold to Mr D as an investment. Indeed, the Lender, when responding to our Investigator’s assessment, emphasised that it considered the paperwork dating to the Time of Sale was very clear that Fractional Club membership should not be considered to be an investment. 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 D’s allegation that the Supplier breached Regulation 14(3) at the Time of Sale, including that membership of the Fractional Club was expressly described as an “investment” and that membership of the Fractional Club could make him a financial gain when it was sold. 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 D 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 Fractional Club membership I’ve seen a variety of internal materials produced by the Supplier and dating to around the time it began selling Fractional Club membership. I think, in general, these materials indicate that the Supplier was concerned at a senior leadership level to avoid breaching Regulation 14(3). I’ve seen copies of Sales Policies, for example, which warned staff that promoting the Fractional Club product as an investment, or discussing resale values with potential purchasers, was considered unacceptable. I’ve also seen evidence that the Supplier did not consider promoting the residual value of the Allocated Property to be a part of its sales strategy. The documents I’ve seen indicate that the Supplier’s management considered the

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strategy should be to market the product as something that could be used to go on holiday, but with a shorter term than other types of membership it offered. On the other hand, it’s apparent from the materials I’ve considered that the Supplier was aware that the sale of the fractional asset at the end of the term was a benefit to a potential purchaser. For instance, I’ve seen presentation slides dating to September 2012 which, in my view, implied that the Supplier’s brand and other positive attributes would contribute to enhancing the value of the fractional asset at the end of the membership term. I am aware the Supplier now denies that these slides were ever used to promote the Fractional Club to potential customers2, but based on the communications the Financial Ombudsman Service has received from the Supplier, it’s apparent that there were members of staff at the Supplier who had different recollections of how the slides were used. Additionally, I’m aware of other materials the Supplier or its agents or representatives are alleged to have used to promote the Fractional Club product, and which appeared explicitly to refer to it as an investment. The Supplier has previously told this service that these materials were not officially sanctioned and, if they had been used, it would have been in a very limited capacity. In this case, PR provided us with a copy of a different set of training materials relating to the Fractional Club which I have not seen previously, and which again expressly appear to describe it as an investment. I stress that I make no suggestion that these materials were shown to Mr D, and indeed he doesn’t refer to being shown literature of this nature specifically. Ultimately, I can’t be certain of what was shown to Mr D, or what specifically any sales representatives may have said to him, any more than the Supplier or the Lender can. But I think the analysis above and the existence of unofficial sales or training materials, highlights that there was the potential for the Fractional Club product to be sold in a way which did not accord with the Supplier’s official policy. And I don’t think the Supplier would have needed to have deviated very far from a simple description of how the Fractional Club product worked in terms of the sale of the fractional asset at the end of the term, to have fallen foul of 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 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, Mrs Justice Collins Rice said the following: 2 The Supplier has not, to my knowledge, denied the slides were ever used to train staff, only that they were shown to potential customers. 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

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“[…] 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.” I have no doubt that the Supplier’s sales representatives would have promoted other aspects of the Fractional Club product to Mr D, such as the fact it would give him a shorter membership term compared to his European Collection membership4. But the share in the net sale proceeds of the Allocated Property was one of the key differences and benefits of the product over the European Collection product and, given what Mr D says in his witness statement, and my analysis above, I think it’s more likely than not that the Supplier crossed the line into stating or implying to Mr D that the product was an investment that could lead to him realising a financial gain, thus breaching Regulation 14(3) of the Timeshare Regulations. I appreciate the Lender has various concerns about Mr D’s witness statement which it has set out in a response to our Investigator. I do not share the majority of these concerns. To take some examples – I acknowledge that there are some errors of recall, such as Mr D potentially confusing 2008 and 2009, and not recalling the name of the salesperson for the purchase he made that year, but these are minor details relating to events which took place six or seven years prior to the Time of Sale. I hardly think they are a reason to cast significant doubt on Mr D’s recollections dating to the Time of Sale. The Lender also suggests that it can’t be the case that the Supplier made the same representations to Mr D in March and September 2015, because the sales took place in different locations and different salespeople were involved. But I think it’s possible assuming the Supplier’s salespeople were trained to sell the product in broadly the same way, that broadly the same representations could have been made at different times by different people. 4 European Collection membership generally ran until 2054, but members could exit early at the age of 75 (the Supplier’s policy from mid-2013 was that its representatives were required to inform members about this, if they enquired about leaving their membership). For Mr D, that would have been in 19 years. Fractional Club membership ran for 15 years, meaning he would have received a 4- year reduction in term.

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Overall, I’m inclined to accept Mr D’s witness statement as being a reasonably accurate set of recollections of what happened at the Time of Sale and what he recalls of his state of mind at that time. Was the credit relationship between the Lender and the Consumer 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 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 it 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 D 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 mentioned earlier that the shorter term of the Fractional Club membership would have been a potential selling point for Mr D (albeit in reality the shortening of the term was not that significant). This comes across in his witness statement. The Lender has said this is why it thinks Mr D bought the product, not because he thought it was an investment. But it’s possible for a person to have more than one important, or material, reason for making a decision. Other than the shorter term and the share in the net sale proceeds of the Allocated Property, it’s difficult to see what benefits there were for Mr D in buying Fractional Club membership. He was simply converting his European Collection points into Fractional Club points. As far as I’m aware, he gained no additional holiday rights or benefits, nor did he obtain any reduction in management fees. I’m aware the Fractional Club came with a “Wish to Rent” programme – but there’s no evidence this was something which was a particular attraction for Mr D. Even if it was, I would note that it wouldn’t be incompatible with viewing the product as an investment, given it was a scheme for generating a speculative return through the membership. And on my reading of Mr D’s testimony, the prospect of a financial gain from Fractional Club membership was an important and motivating factor when he decided to go ahead with his purchase. That doesn’t mean he was not interested in the shorter term. His own testimony demonstrates that he was. But as Mr D says (plausibly in my view) that Fractional Club membership was marketed and sold to him at the Time of Sale as something that offered him more than just a shorter term, 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. Indeed, that is one of the reasons why he said he proceeded on the day. And with that being the case, I think the Supplier’s breach of Regulation 14(3) was material to the decision he ultimately made.

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Mr D 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 Fractional Club membership was an appealing investment opportunity. And as he faced the prospect of borrowing and repaying a substantial 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. Conclusion Given the facts and circumstances of this complaint, I think the Lender participated in and perpetuated an unfair credit relationship with Mr 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 D would not have agreed to purchase Fractional Club membership 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 him back in the position he would have been in had he not purchased the Fractional Club membership (i.e., not entered into the Purchase Agreement), and therefore not entered into the Credit Agreement, provided he and any joint purchaser agree to assign to the Lender their Fractional Points or hold them on trust for the Lender if that can be achieved. Mr D was an existing European Collection member and the remaining 5,000 points of this membership was traded in against the purchase price of Fractional Club membership. Mr D was also an existing Fractional Club member, having 5,000 points in that club. So Mr D had access to 10,000 points prior to the Time of Sale. Like Fractional Club membership, he had to pay annual management charges as a European Collection member, and it is my understanding that these charges were the same per point as in the Fractional Club. So, had he not purchased Fractional Club membership, he would have always been responsible to pay an annual management charge of some sort – most likely no different to what he paid after his purchase. With that being the case, any refund of the annual management charges paid by Mr D from the Time of Sale as part of his Fractional Club membership should amount only to the difference between those charges and the annual management charges he would have paid as an ongoing member of the European Collection (with 5,000 points) and the Fractional Club (with 5,000 points). So, here’s what I think needs to be done to compensate Mr D with that being the case – whether or not a court would award such compensation: (7) The Lender should refund Mr 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. (8) In addition to (1), the Lender should also refund the difference between Mr D’s Fractional Club annual management charges paid after the Time of Sale and what his annual management charges (across the European Collection and Fractional Club) would have been had he not purchased the additional 5,000 points in the Fractional Club membership at the Time of Sale.

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(9) The Lender can deduct: iii. The value of any promotional giveaways that Mr D used or took advantage of; and iv. The market value of the holidays* Mr D took using his Fractional Points if the Points value of the holiday(s) taken amounted to more than the total number of Points he would have been entitled to use at the time of the holiday(s) as an ongoing member of the European Collection and Fractional Club. 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 D took a holiday worth 2,550 Fractional Points and he would have been entitled to use a total of 2,500 Points with his previous membership holdings 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 Points under his previous holdings, for instance, there shouldn’t be a deduction for the market value of the relevant holiday. As Mr D’s holiday rights did not change as a result of him entering the Purchase Agreement, I would not expect there to be any deduction for holidays taken. (I’ll refer to the output of steps 1 to 3 as the ‘Net Repayments’ hereafter) (10) 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. (11) The Lender should remove any adverse information recorded on Mr D’s credit file in connection with the Credit Agreement reported within six years of this decision. (12) If Mr D’s Fractional Club membership is still in place at the time of this decision, as long as he and any joint purchaser agree to hold the benefit of their 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 the 5,000 points he purchased in the Fractional Club at the Time of Sale. This does not extend to any existing holdings he had in the Fractional Club prior to the Time of Sale. *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 D 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 provisional decision For the reasons explained above, I’m currently minded to uphold this complaint and direct Mitsubishi HC Capital UK Plc to take the actions set out in the “Fair Compensation” section of this provisional decision.

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Will Culley Ombudsman

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