By Jeff Weir, RedWeek’s Chief Correspondent<\/p>\n
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.\u00a0 There are three major developments, and they’re all related, so we’ll present them in chronological order.\u00a0 They cover a span of 37 days.<\/p>\n
Two days before Christmas, Arizona Attorney General Mark Brnovich announced the settlement of a long-running investigation into Diamond’s business practices.\u00a0 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. \u00a0Diamond also agreed to offer a “relinquishment” program that allows qualifying owners to return their timeshares to Diamond with no further financial obligations.<\/p>\n
But that’s just the beginning of the story.\u00a0 As with all things Diamond, the devil is in the details of the AG’s case.\u00a0 Here are the highpoints, or lowpoints, as publicly announced by the Arizona AG.<\/p>\n
The investigation was prompted by hundreds of consumer complaints about deceptive sales practices, oral misrepresentations, and false statements made during sales presentations.\u00a0 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).<\/p>\n
Here are key snippets (among dozens) from the settlement agreement:<\/p>\n
You get the idea.\u00a0 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\u2019s bid to rebrand the company as a kinder, gentler version of its old self.<\/p>\n
If you’re interested in reading more, go here for the\u00a0full account of the AG’s case<\/a>.<\/p>\n 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.\u00a0 It also agreed to adopt a host of measures to improve disclosures to potential buyers during sales presentations.\u00a0 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.\u00a0 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.<\/p>\n The restitution-and-relinquishment programs are a new wrinkle in timeshare conflict regulation that will be closely watched nationwide.\u00a0 The Arizona relinquishment program will be available to Diamond buyers who purchased timeshares after 2011 and before Jan. 22, 2017.\u00a0 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).\u00a0 The relinquishment remedy process is very detailed, so potential participants are advised to consult the Arizona AG for complete filing details.\u00a0 The restitution program, meanwhile, will be administered by the AG’s office for owners who have filed complaints with the agency.\u00a0 There is no information, at this early stage, about the amount or volume of restitution payments the state will distribute.<\/p>\n FYI, Diamond plans to roll out a national relinquishment (deed-back) program, called Transitions, later this year.\u00a0 It has been in the works for months and is already being quietly tested, according to Diamond\u2019s public relations firm.<\/p>\n Read more about the Arizona consumer filing requirements<\/a>.<\/p>\n On Jan. 23rd<\/sup> — 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.\u00a0 The Diamond press release announcing Clarity included self-serving statements about Diamond’s commitment to customers (\u201cwe already excel in customer satisfaction, but we are constantly looking for ways to do even better\u201d) and promised future sales experiences that would provide transparency, accountability, and quality assurances for customers.<\/p>\n 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.\u00a0 It also represents an industry first, since no other company has publicly issued anything close to the ethical promises included in Clarity.<\/p>\n \u201cDiamond\u2019s 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,\u201d Diamond said.\u00a0 These enhancements will be memorialized in a single document that will be given to potential buyers at the beginning of every sales presentation.<\/p>\n The changes are part of what Diamond calls its new “Promise” to customers.\u00a0 Promise includes four operational programs that may be noticeable at sales presentations.<\/p>\n Diamond will increase training of all sales personnel, including quarterly training exercises, to ensure compliance with sales procedures. Finally,\u00a0the company will place Consumer Engagement Observers at sales presentations to monitor interactions and provide feedback “to achieve constant improvement.”<\/p>\n 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.\u00a0 With the launch of Diamond Clarity, we are continuing to improve industry best practices.”<\/p>\n 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.<\/p>\n 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.\u00a0 (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.)<\/p>\n In addition to the press release, Diamond emailed information about Clarity to existing owners (including this reporter). \u00a0The 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.”<\/p>\n Here’s an example of Diamond\u2019s 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.\u00a0 You will receive a summary of maintenance fees charged to members of the Collection associations for each loyalty level over the past five years.”<\/p>\n View the complete announcement<\/a>.<\/p>\n 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.<\/p>\n 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.\u00a0 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.<\/p>\n On Jan. 29, a mere six days after Diamond rolled out Clarity, an Arizona couple did what a lot of Diamond owners on RedWeek\u2019s forums have long advocated.\u00a0 Ilona and Lester Thomas Harding, on behalf of themselves and other Diamond owners, filed a $1 billion class-action lawsuit in Nevada\u2019s U.S. District Court, alleging elder abuse among a raft of deceptive sales practices.<\/p>\n The 55-page complaint outlines a litany of supposed malpractices committed by Diamond\u2019s sales people when they upsold the Hardings — not once, not twice, but five times over three years — to buy points they could never use.<\/p>\n 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.\u00a0 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.”<\/p>\n Diamond sales reps told the Hardings that \u201ctheir Monarch membership would eventually become useless.\u201d They trusted the agents, then agreed to buy 10,500 Club points in Diamond\u2019s U.S. Collection.\u00a0 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.\u00a0 Their first-year maintenance fees were $1,700.<\/p>\n Shortly after becoming full-fledged members of Diamond\u2019s 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.<\/p>\n Despite that disappointment, the Hardings agreed seven months later to attend a second Diamond sales presentation while traveling on DRI points in Orlando.\u00a0\u00a0 At the August 2013 presentation, Diamond sales reps encouraged them to buy a “Silver Sampler Package” that included some free nights in Hawaii.\u00a0 \u201cEven though the Hardings repeatedly told the DRI sales agents that they were not interested in upgrading, DRI\u2019s sales agents were relentless,\u201d the complaint says.<\/p>\n Several hour later, \u201cthe Hardings succumbed to the cumulative sales pressure.\u201d\u00a0 They paid $15,905 to upgrade their membership and get those free Hawaii nights.<\/p>\n In May 2014, the Hardings flew to Hawaii to take advantage of their free lodgings.\u00a0 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.<\/p>\n 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\u2019s travel club.\u00a0 After many hours, “the Hardings broke down” and capitulated.\u00a0 They traded in their U.S. membership and”\u201cpaid DRI an additional $10,222 for the purported privilege of joining the Hawaii Collection.”\u00a0 As a result of the upgrade, their maintenance fees rose to $2,257.<\/p>\n After heading home, the Hardings discovered, again, that they could not book rooms at their favored resorts in California and Washington.\u00a0 The upgrade did not translate into reservations.<\/p>\n 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.\u00a0 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.”<\/p>\n 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.”<\/p>\n The outcome?\u00a0 The Hardings paid $13,905 to upgrade back to the U.S. Collection.<\/p>\n More than a year later, in December 2015, the Hardings agreed to attend one final sales presentation while staying at Diamond\u2019s Polo Towers in Las Vegas. Nevada.\u00a0 Sales agents offered them a 15,000-point bonus if they upgraded to a full Gold status membership.\u00a0 One benefit of becoming a Gold member, they were told, is that they would never have to attend another sales presentation.\u00a0 After seven hours of allegedly intense pressure, the Hardings agreed to buy the upgrade — even though they didn\u2019t have the cash to buy it.\u00a0 Diamond offered to finance the purchase.\u00a0 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.\u00a0 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.<\/p>\n 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).\u00a0 But they still<\/i> couldn’t get their preferred reservations.<\/p>\n In January 2016, the Hardings, who live off social security payments and modest savings, ran into a financial wall.\u00a0 They paid their 2016 maintenance fees, but then tried to sell their timeshare points.\u00a0 They contacted “surrender” companies that wanted to charge them thousands of additional dollars.\u00a0 Over time, they discovered that there was no viable resale market for their DRI membership.\u00a0 They also found out, after corresponding with Diamond, that they couldn’t even give it away.<\/p>\n \u201cThe Hardings finally realized that they had been scammed by DRI,\u201d the lawsuit says.<\/p>\n 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.\u00a0 They also demanded a 100 percent refund of all their payments to DRI. \u00a0Diamond never responded to the demand letter.<\/p>\n 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.\u00a0 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.<\/p>\n Predictably, because of the newness of the lawsuit, Diamond offered no substantive comments about it.\u00a0 The company’s PR representative said, “Diamond Resorts is still looking into the facts surrounding the lawsuit.\u00a0 Therefore, it has no comment at this time.”<\/p>\n Robert Tarics, one of the Harding\u2019s attorneys, was equally circumspect.<\/p>\n “We are very proud to represent the Hardings and look forward to having our day in court,” Tarics said.\u00a0 “We\u2019ll answer any questions once the case is over.\u00a0 However, in general, we hope this case will reform and clean up some of the abuses that exist generally in the timeshare industry.”<\/p>\n 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.\u00a0 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.\u00a0 Mrs. Harding, 76, remains retired from her former work as a licensed substance abuse counselor.<\/p>\n 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<\/a> for one example of Diamond\u2019s legal muscle).<\/p>\n However, most timeshare cases like this never get near a courtroom.\u00a0 Confidential out-of-court timeshare settlements are much more commonplace.\u00a0 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. \u00a0Less than two weeks later, and one-day after the New York Times ran a long story on the case<\/a>, Wyndham\u2019s longtime CEO was fired.<\/p>\n RedWeek.com will keep owners posted on all developments in future installments of the Diamond Chronicles.<\/p>\n","protected":false},"excerpt":{"rendered":"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.\u00a0 There are…","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"yst_prominent_words":[],"class_list":["post-14","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"acf":[],"_links":{"self":[{"href":"https:\/\/blog-origin.redweek.com\/blog\/wp-json\/wp\/v2\/posts\/14","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blog-origin.redweek.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog-origin.redweek.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog-origin.redweek.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/blog-origin.redweek.com\/blog\/wp-json\/wp\/v2\/comments?post=14"}],"version-history":[{"count":8,"href":"https:\/\/blog-origin.redweek.com\/blog\/wp-json\/wp\/v2\/posts\/14\/revisions"}],"predecessor-version":[{"id":3352,"href":"https:\/\/blog-origin.redweek.com\/blog\/wp-json\/wp\/v2\/posts\/14\/revisions\/3352"}],"wp:attachment":[{"href":"https:\/\/blog-origin.redweek.com\/blog\/wp-json\/wp\/v2\/media?parent=14"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog-origin.redweek.com\/blog\/wp-json\/wp\/v2\/categories?post=14"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog-origin.redweek.com\/blog\/wp-json\/wp\/v2\/tags?post=14"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/blog-origin.redweek.com\/blog\/wp-json\/wp\/v2\/yst_prominent_words?post=14"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}#2: DIAMOND ANNOUNCES A NATIONAL ‘CONSUMER SERVICE’ PROGRAM PROMOTING ETHICAL SALES PRACTICES, TRANSPARENCY, ACCOUNTABILITY<\/h3>\n
#3: $1 BILLION CLASS-ACTION LAWSUIT FILED AGAINST DIAMOND ALLEGING ELDERLY ABUSE, FRAUD AND FALSE PROMISES TO BUYERS.<\/h3>\n