By Jeff Weir, RedWeek’s Chief Correspondent
Just when you might have thought things were finally settling down at Diamond Resorts, all hell broke loose all over again as 2016 morphed into the New Year. Here’s an update on what’s been happening with Diamond since our first installment of the Diamond Chronicles last September. There are three major developments, and they’re all related, so we’ll present them in chronological order. They cover a span of 37 days.
#1:ARIZONA AG ACCEPTS $800,000 FINE FROM DIAMOND TO SETTLE INVESTIGATION OF ALLEGED CONSUMER FRAUD VIOLATIONS
Two days before Christmas, Arizona Attorney General Mark Brnovich announced the settlement of a long-running investigation into Diamond’s business practices. Without admitting wrongdoing (a common phrase in legal settlements), Diamond agreed to pay an $800,000 fine to settle the case, including $650,000 that will be made available as restitution to eligible Diamond owners, and $150,000 in court costs to cover the AG’s expenses. Diamond also agreed to offer a “relinquishment” program that allows qualifying owners to return their timeshares to Diamond with no further financial obligations.
But that’s just the beginning of the story. As with all things Diamond, the devil is in the details of the AG’s case. Here are the highpoints, or lowpoints, as publicly announced by the Arizona AG.
The investigation was prompted by hundreds of consumer complaints about deceptive sales practices, oral misrepresentations, and false statements made during sales presentations. The complaints covered Diamond employees’ statements about annual increases in maintenance fees, the availability of resale and buy-back programs, the timeshare resale market, owners’ ability to rent their intervals, and member discounts on other travel options (including using points to pay maintenance fees).
Here are key snippets (among dozens) from the settlement agreement:
- “The Arizona Attorney General’s Office alleged that Diamond employees’ actions and statements violated the Arizona Consumer Fraud Act.”
- “Diamond denies that it has violated the ACFA and enters into this [settlement] solely for the purposes of efficient resolution of the matter.”
- “At times, certain vacation counselors told some consumers that increases to maintenance fees are minimal, when the DRUSC (Diamond’s U.S. Collection) Association is permitted to increase maintenance fees up to 25 percent per year.”
- “Some consumers alleged that Diamond failed to honor their requests to cancel the purchase and security agreement within seven calendar days following its execution.”
- “Some consumers claimed they felt rushed to sign the purchase documents before carefully reviewing them, and that they signed purchase documents with Diamond because they felt it was the only way to extricate themselves from what they perceived as a high-pressure sales situation.”
- “Certain vacation counselors represented to some consumers, directly or indirectly, that consumers could sell their membership if, at any time, they decided that they no longer wanted their membership. However, some consumers have been unable to sell their membership on the secondary market. Certain other consumers have been unable to give their membership away…”
- “At times, certain vacation counselors represented to some consumers that Diamond would buy back their membership within the first two years after purchase if the consumer became dissatisfied, but the purchase documents disclosed that Diamond does not offer a buy-back program.”
- “The state believes that some of the actions and statements by certain Diamond employees, including vacation counselors, sales managers, and quality assurance officers, constitute deception, deceptive or unfair business practices, fraud, false pretenses, false promises, misrepresentations, or concealment, suppression or omission of material facts in violation of the ACFA.”
You get the idea. Many of these types of allegations have dogged Diamond since its inception in 2007, when it bought Sunterra’s bankrupt timeshare business. Now under new ownership and new management (by former Starwood executives), Diamond has been trying to put as much distance between itself and the former regime as possible, but leftover issues, such as the Arizona case, keep undermining Diamond’s bid to rebrand the company as a kinder, gentler version of its old self.
If you’re interested in reading more, go here for the full account of the AG’s case.
As part of the Arizona settlement, Diamond agreed to change or enhance its sales, training, and other business practices to ensure compliance with the ACFA. It also agreed to adopt a host of measures to improve disclosures to potential buyers during sales presentations. In essence, most of the measures amount to assurances that Diamond sales personnel will not make oral promises to buyers that deviate from the language of the purchase contracts. Diamond also promised to have quality assurance officers interview potential buyers prior to signing any contracts to make sure they are aware of the details. Finally, Diamond promised to investigate any complaints of future misconduct within 30 days while launching a Secret Shopper program to monitor its employees’ performance.
The restitution-and-relinquishment programs are a new wrinkle in timeshare conflict regulation that will be closely watched nationwide. The Arizona relinquishment program will be available to Diamond buyers who purchased timeshares after 2011 and before Jan. 22, 2017. To be eligible, buyers will also have to file a complaint with the Arizona AG’s office within 120 days AFTER an Arizona court formally approves the settlement (this will happen in late April or early May). The relinquishment remedy process is very detailed, so potential participants are advised to consult the Arizona AG for complete filing details. The restitution program, meanwhile, will be administered by the AG’s office for owners who have filed complaints with the agency. There is no information, at this early stage, about the amount or volume of restitution payments the state will distribute.
FYI, Diamond plans to roll out a national relinquishment (deed-back) program, called Transitions, later this year. It has been in the works for months and is already being quietly tested, according to Diamond’s public relations firm.
Read more about the Arizona consumer filing requirements.
#2: DIAMOND ANNOUNCES A NATIONAL ‘CONSUMER SERVICE’ PROGRAM PROMOTING ETHICAL SALES PRACTICES, TRANSPARENCY, ACCOUNTABILITY
On Jan. 23rd — exactly 30 days after the Arizona settlement was announced —Diamond publicly introduced a brand new nationwide ethics program, called Clarity, that would govern future sales practices and provide protections for new and existing Diamond customers. The Diamond press release announcing Clarity included self-serving statements about Diamond’s commitment to customers (“we already excel in customer satisfaction, but we are constantly looking for ways to do even better”) and promised future sales experiences that would provide transparency, accountability, and quality assurances for customers.
While not triggered by the Arizona legal settlement, the Clarity program is a natural follow on, since it covers much of the same issues — but from the company’s point of view. It also represents an industry first, since no other company has publicly issued anything close to the ethical promises included in Clarity.
“Diamond’s Clarity consists of a series of operational procedures and enhancements, new training and compliance procedures and protocols, and other consumer-friendly changes to the sales process,” Diamond said. These enhancements will be memorialized in a single document that will be given to potential buyers at the beginning of every sales presentation.
The changes are part of what Diamond calls its new “Promise” to customers. Promise includes four operational programs that may be noticeable at sales presentations.
Diamond will increase training of all sales personnel, including quarterly training exercises, to ensure compliance with sales procedures. Finally, the company will place Consumer Engagement Observers at sales presentations to monitor interactions and provide feedback “to achieve constant improvement.”
Michael Flaskey, Diamond’s chief operating officer, said Clarity was “revolutionary in its simplicity” and further proof that Diamond is “doubling down on our promise to put our members first. With the launch of Diamond Clarity, we are continuing to improve industry best practices.”
The American Resort Development Association (ARDA), the industry’s lobbying arm and promoter of industry best practices, praised Diamond for evaluating its sales practices and attempting to enhance the customer experience for members and potential buyers.
Diamond hired a Los Angeles-based public relations firm to promote Clarity’s commitment to ethical practices. But, in one of its first actions, the firm rejected RedWeek’s request to interview Flaskey. (The mere fact that Diamond is now using an outside PR firm to deal with the news media, however, is a remarkable change for a company that, during the past two years, has been highly inaccessible and defensive when contacted by RedWeek representatives.)
In addition to the press release, Diamond emailed information about Clarity to existing owners (including this reporter). The email reads, in part, “As part of this initiative we will strengthen our existing sales policies and procedures and challenge our competitors to adopt similar policies in an effort to raise industry sales standards across the board.”
Here’s an example of Diamond’s promise to members who attend future sales presentations: “We will provide clear, concise and consistent information at our presentations so that you can easily decide whether committing to vacation is the right decision for you and your family. You will receive a summary of maintenance fees charged to members of the Collection associations for each loyalty level over the past five years.”
View the complete announcement.
On its website, Diamond also promised to fully inform buyers about resale restrictions, using points to pay for travel or maintenance fees, and banking or borrowing points.
As with any major corporate change, Diamond’s Clarity program proceed will succeed or fail based upon its execution and, most importantly, its acceptance by Diamond’s sales teams. Given Diamond’s reputation as one of the most aggressive timeshare sales companies in the business — and its recent legal issues in Arizona — the internal adoption issues may prove very challenging.
#3: $1 BILLION CLASS-ACTION LAWSUIT FILED AGAINST DIAMOND ALLEGING ELDERLY ABUSE, FRAUD AND FALSE PROMISES TO BUYERS.
On Jan. 29, a mere six days after Diamond rolled out Clarity, an Arizona couple did what a lot of Diamond owners on RedWeek’s forums have long advocated. Ilona and Lester Thomas Harding, on behalf of themselves and other Diamond owners, filed a $1 billion class-action lawsuit in Nevada’s U.S. District Court, alleging elder abuse among a raft of deceptive sales practices.
The 55-page complaint outlines a litany of supposed malpractices committed by Diamond’s sales people when they upsold the Hardings — not once, not twice, but five times over three years — to buy points they could never use.
Their tale starts on Jan. 29, 2013, in Scottsdale, when the Hardings agreed to attend a Diamond dinner that was advertised as a 90-minute update session for people who owned Monarch timeshares. According to the lawsuit, “at or around midnight, after six grueling hours, Diamond was finally able to wear down the Hardings and convince them that they needed to purchase a DRI membership — Vacations for Life — to a couple in their 70s.”
Diamond sales reps told the Hardings that “their Monarch membership would eventually become useless.” They trusted the agents, then agreed to buy 10,500 Club points in Diamond’s U.S. Collection. They received a credit of $22,812 for surrendering their Monarch membership, but still paid $7,895 out of pocket, plus $319 in closing costs. Their first-year maintenance fees were $1,700.
Shortly after becoming full-fledged members of Diamond’s Club, the Hardings discovered what many other timeshare owners (at any club) have also encountered: they could not get reservations at resorts they wanted in California and Washington.
Despite that disappointment, the Hardings agreed seven months later to attend a second Diamond sales presentation while traveling on DRI points in Orlando. At the August 2013 presentation, Diamond sales reps encouraged them to buy a “Silver Sampler Package” that included some free nights in Hawaii. “Even though the Hardings repeatedly told the DRI sales agents that they were not interested in upgrading, DRI’s sales agents were relentless,” the complaint says.
Several hour later, “the Hardings succumbed to the cumulative sales pressure.” They paid $15,905 to upgrade their membership and get those free Hawaii nights.
In May 2014, the Hardings flew to Hawaii to take advantage of their free lodgings. Upon arrival, they learned that, in order to use the rooms, they would have to attend another mandatory sales update or pay full price for the rooms.
The Hawaii sales agents encouraged the Hardings to get out of the U.S. Collection and upgrade their membership to the Hawaii Collection so they could become “Silver-level” members of Diamond’s travel club. After many hours, “the Hardings broke down” and capitulated. They traded in their U.S. membership and”“paid DRI an additional $10,222 for the purported privilege of joining the Hawaii Collection.” As a result of the upgrade, their maintenance fees rose to $2,257.
After heading home, the Hardings discovered, again, that they could not book rooms at their favored resorts in California and Washington. The upgrade did not translate into reservations.
A mere three months later, in August 2014, while traveling in Palm Springs, the Hardings attended another supposedly mandatory owner update because they were not Diamond “Gold-level” members. There, DRI sales agents “convinced the Hardings that they had made a big mistake by joining the Hawaii Collection” because the Hawaii properties had much higher maintenance fees than the U.S. Collection and “was notorious for making special assessments on its members.” According to the lawsuit, “DRI then offered the Hardings an opportunity to get out of the Hawaii Collection by once again upgrading their membership and rejoining the U.S. Collection at an even higher and more expensive level than they were at previously.”
Despite their prior experiences, the Hardings trusted the sales agents, who represented themselves as licensed real estate brokers “who had a duty to tell the truth and disclose all material facts that a consumer would deem important.”
The outcome? The Hardings paid $13,905 to upgrade back to the U.S. Collection.
More than a year later, in December 2015, the Hardings agreed to attend one final sales presentation while staying at Diamond’s Polo Towers in Las Vegas. Nevada. Sales agents offered them a 15,000-point bonus if they upgraded to a full Gold status membership. One benefit of becoming a Gold member, they were told, is that they would never have to attend another sales presentation. After seven hours of allegedly intense pressure, the Hardings agreed to buy the upgrade — even though they didn’t have the cash to buy it. Diamond offered to finance the purchase. Diamond gave them a $36,120 mortgage (at 12.27 percent interest) and a Barclay credit card to charge the down payment of $5,970. In addition to agreeing to pay $524 per month, over 10 years, for the mortgage, the Hardings saw their maintenance fees increase one more time — to $5,173.
All told, the Hardings paid Diamond $75,000 for upgrades at five presentations over three years and also surrendered their Monarch membership to Diamond (valued by Diamond at $22,812). But they still couldn’t get their preferred reservations.
In January 2016, the Hardings, who live off social security payments and modest savings, ran into a financial wall. They paid their 2016 maintenance fees, but then tried to sell their timeshare points. They contacted “surrender” companies that wanted to charge them thousands of additional dollars. Over time, they discovered that there was no viable resale market for their DRI membership. They also found out, after corresponding with Diamond, that they couldn’t even give it away.
“The Hardings finally realized that they had been scammed by DRI,” the lawsuit says.
Months later, after contacting an attorney, the Hardings sent a formal demand letter to DRI on Oct. 11, 2016 to opt-out of the otherwise automatic arbitration provision in their contract. They also demanded a 100 percent refund of all their payments to DRI. Diamond never responded to the demand letter.
The class-action lawsuit claims that Diamond used similar coercive sales tactics to pressure thousands of vulnerable older customers (defined as over 60) to buy Diamond memberships without fully disclosing the risks of ownership, such as the potential inability to make reservations. The Harding’s decision to “opt-out” of arbitration is crucial to their legal case, because the arbitration clause bans class-actions and private attorney general actions to resolve contract disputes with Diamond.
Predictably, because of the newness of the lawsuit, Diamond offered no substantive comments about it. The company’s PR representative said, “Diamond Resorts is still looking into the facts surrounding the lawsuit. Therefore, it has no comment at this time.”
Robert Tarics, one of the Harding’s attorneys, was equally circumspect.
“We are very proud to represent the Hardings and look forward to having our day in court,” Tarics said. “We’ll answer any questions once the case is over. However, in general, we hope this case will reform and clean up some of the abuses that exist generally in the timeshare industry.”
The Hardings, meanwhile, are trying to make ends meet in Arizona while their potentially landmark case heads to some preliminary hearings on the arbitration clause and the certification of the class. As a result of their experience with Diamond, Tom Harding, 74, has had to forsake retirement and go back to work part-time as an electrical inspector. Mrs. Harding, 76, remains retired from her former work as a licensed substance abuse counselor.
The Harding case, like other class-actions filed before it, faces many legal obstacles, including Diamond’s proven penchant for litigation (see our stories on Tahoe Beach and Ski Club for one example of Diamond’s legal muscle).
However, most timeshare cases like this never get near a courtroom. Confidential out-of-court timeshare settlements are much more commonplace. The last timeshare case to go to court, in November 2016, ended with a California jury awarding $20 million in punitive damages to a former Wyndham sales rep who got fired after she blew the whistle on sales tactics she found objectionable. Less than two weeks later, and one-day after the New York Times ran a long story on the case, Wyndham’s longtime CEO was fired.
RedWeek.com will keep owners posted on all developments in future installments of the Diamond Chronicles.
