Shawbrook Bank Limited · DRN-5908747

The complaint Mr and Mrs R 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’), (2) deciding against paying claims under Section 75 of the CCA and (3) providing a loan to pay for an Unregulated Collective Investment Scheme. What happened Mr and Mrs R purchased membership of a timeshare (the ‘Signature Club’) from a timeshare provider (the ‘Supplier’) on 26 April 2017 (the ‘Time of Sale’). They entered into an agreement with the Supplier to buy 1,420 fractional points at a cost of £12,869 (the ‘Purchase Agreement’) after trading in their existing timeshare membership (the ‘Fractional Club’). Signature Club membership was asset backed – which meant it gave Mr and Mrs R 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 R paid for their Signature Club membership by taking finance of £12,869 from the Lender (the ‘Credit Agreement’). Mr and Mrs R contacted the Financial Ombudsman Service to ask for help on 10 April 2021. They said they had been unable to use timeshares for holidays other than on one occasion, but their circumstances had changed due to the Covid-19 pandemic, and they could no longer afford to keep up with the loan repayments and management charges. They wanted to cancel the membership and reduce the loan repayments. We contacted the Lender on their behalf, and the Lender provided a final response rejecting the complaint on 9 June 2021. However, the Lender invited Mr and Mrs R to contact it to discuss their financial situation. Mr and Mrs R – using a professional representative (the ‘PR’) – wrote to the Lender on 22 September 2021 (the ‘Letter of Complaint’) to raise a number of different concerns. As those concerns haven’t changed since they were first raised, and as both sides are familiar with them, it isn’t necessary to repeat them in detail here beyond the summary above. The Lender dealt with Mr and Mrs R’s concerns as a complaint and issued its second final response on 13 October 2021, rejecting it on every ground. Mr and Mrs R then referred the complaint to the Financial Ombudsman Service. It was assessed by an Investigator who, having considered the information on file, rejected the complaint on its merits.

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Mr and Mrs R disagreed with the Investigator’s assessment and asked for an Ombudsman’s decision – which is why it was passed to me. The PR later provided additional information including the evidence from Mr and Mrs R which is referred to below. I issued a provisional decision explaining that I was planning to uphold the complaint. The PR responded on behalf of Mr and Mrs R to say that they accepted my provisional decision. The Lender responded to say that, although it disagreed with some aspects of the decision, it would not challenge my decision to uphold the complaint. In light of this, my final decision is the same as my provisional one and I uphold this complaint. 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 no different to that shared in several hundred ombudsman decisions on very similar complaints. And with that being the case, it is not necessary to set it out here. But if either side would like me to confirm what I think that context is, they can let me know in response to this provisional decision. 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. I’ve decided to uphold this complaint because the Supplier breached Regulation 14(3) of the Timeshare Regulations by marketing and/or selling Signature Club membership to Mr and Mrs R 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 this complaint, it is not necessary to make formal findings on all of them because, even if one or more of those aspects ought to succeed, the redress I am currently proposing puts Mr and Mrs R in the same or a better position than they would otherwise be in. 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 R 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;

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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; and 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 R and the Lender. The Supplier’s alleged breach of Regulation 14(3) of the Timeshare Regulations The Lender does not dispute, and I am satisfied, that Mr and Mrs R’s Signature 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 Signature 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 R say that the Supplier did exactly that at the Time of Sale – saying, in summary, that they were told by the Supplier that Signature Club membership was an investment from which they could profit. The term “investment” is not defined in the Timeshare Regulations. But for the purposes of this provisional decision, and 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. Mr and Mrs R share in the Allocated Property could constitute 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 it is important to note at this stage that the fact that Signature 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 Signature Club. They just regulated how such products were marketed and sold. To conclude, therefore, that Signature Club membership was marketed or sold to Mr and Mrs R 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 Signature Club membership offered them the prospect of a financial gain (i.e., a profit) given the facts and circumstances of this complaint.

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There is evidence in this complaint that the Supplier made efforts to avoid specifically describing membership of the Signature Club as an ‘investment’ or quantifying to prospective purchasers, such as Mr and Mrs R, 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 Signature Club membership was not sold to Mr and Mrs R as an investment. However, weighing up what happened in practice is, in my view, rarely as simple as looking at the contemporaneous paperwork. And for reasons I’ll now come on to, given the facts and circumstances of this complaint, I think the Supplier is likely to have breached Regulation 14(3) of the Timeshare Regulations. How the Supplier marketed and sold the Signature Club membership Over the course of the Financial Ombudsman Service’s work on complaints involving Fractional timeshare sales, the Supplier provided training material called “2015 SPAIN FRACTIONALS AT SIGNATURE SUITE COLLECTION SALES TRAINING MANUAL FOR FPOC AND VACATION CLUB OWNERS” (‘the Manual’) used to train its sales agents in the selling of the product purchased by Mr and Mrs R. As I understand it, the Manual was still in use at the time Mr and Mrs R made their purchase. It’s not entirely clear whether Mr and Mrs R would have been shown the slides included in the Manual, as they have not referred to them specifically in their evidence, but it seems to me to be reasonably indicative of: 1. The training the Supplier’s sales agent would have got before selling Mr and Mrs R their Signature Club; and 2. how the sales agent would have framed the sale of Signature Club to them. Having looked through the Manual, I am first drawn to the slide on page 11, which is the first slide that covers the Fractional membership and its purpose. This slide asks the sales agent to “set the scene” by summarising the key events in the Supplier’s history to date. It says: “In recent years our members requested shorter term products so to fulfil that demand we created our Fractional Property Owners Club (FPOC) which is a shorter term product with a fixed asset attached providing an exit in 19 years and money back”. This slide suggests the sales agent was likely to have explained to prospective buyers that purchasing the FPOC product would allow them to own a physical asset – a fraction of a real property – and that it demonstrated to potential customers, like Mr and Mrs R, that there was a significant financial advantage to gaining that membership that set it apart from other available memberships that only provided customers with holiday rights. Indeed, there is evidence that Mr and Mrs R have said consistently that FPOC membership was sold to them as an investment and that this was one reason why they purchased it. They said: In a webform when contacting Timeshare Advice Line on 11 March 2021: “You are helping my friend, my timeshare was also missold. [The Supplier] promised me luxury holidays and a profit they just want to take our money but don’t tell the truth.” In a Timeshare Advice Line Questionnaire on 23 March 2021:

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“2 fractional contracts – represent good investment. Have hols & get money back – big draw. Better invest w upgrade – better profit. Invest big selling point for him.” In a note made by the PR during a phone call on 26 March 2021: “Ap 2016… Upgrade [to] fractional… Why? Better apt – investment – sell it like normal house sale – get profit” In a statement provided to the Financial Ombudsman Service on 20 December 2023: “They told us we should upgrade to a Fractional Timeshare to get better accommodation and better resort. They said it was an investment and that at some time later we could sell it like a normal house sale and that we would get the profit.” So, at the Time of Sale, Mr and Mrs R owned an FPOC membership they say they were induced into purchasing because the Supplier told them they could expect to make a profit upon the sale of an allocated property. Because of this, I think it’s unlikely Mr and Mrs R would have agreed to purchase the Signature membership if they hadn’t been persuaded by the Supplier that this would be a better investment than their existing fractional membership. And this is consistent with evidence from Mr and Mrs R where they say: In a webform when contacting Timeshare Advice Line on 11 March 2021: “You are helping my friend, my timeshare was also missold. [The Supplier] promised me luxury holidays and a profit they just want to take our money but don’t tell the truth.” In a Timeshare Advice Line Questionnaire on 23 March 2021: “2 fractional contracts – represent good investment. Have hols & get money back – big draw. Better invest w upgrade – better profit. Invest big selling point for him.” Noted by the PR during a phone call on 26 March 2021: “2017 free wk… Why? Upgrade – seminar – better accom + invest” In a statement provided to the Financial Ombudsman Service on 20 December 2023: “In 2017 we went on another free CLC holiday to Spain. It was the same process as before with CLC convincing us to upgrade again for better holidays and investment.” Lastly, I’ve considered the slides copied below, which are found on page 106 of the Manual:

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These slides appear in a part of the presentation titled “In House Game Plan for Vacation Club Owners”. Mr and Mrs R were existing ‘FPOC’ or Fractional Club owners, so I don’t think they were shown these slides. But I think these slides are indicative of how the Supplier’s sales agents would likely have described the Signature Club membership to prospective customers at that time. And the slides include the Supplier’s use of the word “investment” as a reason to purchase the membership. I think it’s unlikely the sales agent would have remained silent on the investment element of the Signature Club membership, given its importance when distinguishing Signature Club membership from other types of holiday product that were available at the Time of Sale. And I find Mr and Mrs R’s recollection of being told that upgrading was a better investment to be plausible.

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I acknowledge that there may not have been a comparison between the expected level of financial return and the purchase price of Signature Club membership. However, if I were to only concern myself with express efforts to quantify to Mr and Mrs R 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)).” 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. Having considered the training materials I’ve seen from the Supplier in the round, I note that there does not appear to be any attempt to minimise or explicitly reject the notion that the Signature Club membership contained an investment element. Nor have I seen anything that contradicts or clashes with what Mr and Mrs R have said about the way the membership was sold to them. So, overall, I think the Supplier’s sales agent, during Mr and Mrs R’s sale, was likely to have led them to believe that Signature Club 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 the testimony either implausible or hard to believe when Mr and Mrs R says he and Mrs R were told this purchase would give them a monetary gain in the future. On the contrary, in the absence of evidence to persuade me otherwise, I think that’s likely to be what they were led by the Supplier to believe 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? 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 R and the Lender under the Credit Agreement and related Purchase Agreement as the case law on Section 140A makes it clear that regulatory breaches do not automatically create unfairness for the purposes of that provision. Such breaches and their consequences (if there are any) must be considered in the round, rather than in a narrow or technical way. Indeed, it seems to that, if I am to conclude that a breach of Regulation 14(3) led to a credit relationship between Mr and Mrs R 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.

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On my reading of Mr and Mrs R’s evidence (as set out above), the prospect of a financial gain from Signature Club membership was an important and motivating factor when they decided to go ahead with their purchase. That doesn’t mean they were not interested in holidays. Their own testimony demonstrates that they were. And that is not surprising given the nature of the product at the centre of this complaint. But as Mr and Mrs R say (plausibly in my view) that Signature Club membership was marketed and sold to them at the Time of Sale as something that offered them more than just holiday rights and that the prospect of a profit was a big draw for them, on the balance of probabilities, I think their purchase was motivated by their share in the Allocated Property and the possibility of a profit. 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 R 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 Signature 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 Signature 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 R 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 R would not have agreed to purchase Signature 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 them back in the position they would have been in had they not purchased the Signature Club membership (i.e., not entered into the Purchase Agreement), and therefore not entered into the Credit Agreement, provided Mr and Mrs R 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 R was an existing Fractional Club member (‘FC Membership’) and their membership was traded in against the purchase price of Fractional Club membership in question (‘Signature Club Membership’). Under FC Membership, they had 870 Fractional Points. And, like Signature Club Membership, they had to pay annual management charges as part of FC Membership. So, had Mr and Mrs R not purchased Signature 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 R from the Time of Sale as part of Signature Club Membership should amount only to the difference between those charges and the annual management charges they would have paid as part of FC Membership.

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I’m conscious that, under FC Membership, Mr and Mrs R were entitled to a share in an allocated property. It isn’t clear if, in light of that fact, they want FC Membership reinstated nor, in turn, whether that can be achieved to the satisfaction of both parties to it. If they want FC Membership reinstated, they can let me know in response to this provisional decision. So, here’s what I think needs to be done to compensate Mr and Mrs R with that being the case – whether or not a court would award such compensation: (1) The Lender should refund Mr and Mrs R’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 the annual management charges paid after the Time of Sale under Signature Club Membership and what Mr and Mrs R’s annual management charges would have been under FC Membership had they not purchased Signature Club Membership. (3) The Lender can deduct: i. The value of any promotional giveaways that Mr and Mrs R used or took advantage of; and ii. The market value of the holidays* Mr and Mrs R took using Signature Club Membership if the Points value of the holiday(s) taken amounted to more than the total number of Fractional Points they would have been entitled to use at the time of the holiday(s) as ongoing FC Membership 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 R took a holiday worth 2,550 Fractional Points after the Time of Sale and they would have been entitled to use a total of 2,500 Fractional Points under FC Membership 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 they would have been entitled to use 2,600 Fractional Points under FC Membership, 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 R’s credit files in connection with the Credit Agreement reported within six years of this decision. (6) If Mr and Mrs R Signature Club membership is still in place at the time of this decision, as long as they 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 them against all ongoing liabilities as a result of their Signature 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 R took using their Fractional Points,

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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. **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 I’ve explained, I uphold this complaint. Shawbrook Bank Limited should put things right by paying fair compensation to Mr and Mrs R as set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs R and Mr R to accept or reject my decision before 24 November 2025. Phillip Lai-Fang Ombudsman

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