The federal government is looking into Westgate Resorts — the largest privately-held seller of timeshares in the United States.
The Consumer Financial Protection Bureau demanded reams of information on Westgate's sales and marketing practices in October, documents posted online by the regulator show. BuzzFeed News is first to report on the legal order.
Westgate, like other timeshare companies, aggressively markets its properties. Tactics include free information sessions at vacation destinations where Westgate employees put on the hard-sell. The regulator is also looking into the financing for the purchases, which is provided by Westgate.
The Orlando-based Westgate contested the CFPB's legal order for documents — also known as a civil investigative demand — claiming the regulator did not have constitutional authority to investigate, that its document demands were too burdensome, and that the CFPB were looking at parts of the company that didn't relate to the selling of a consumer financial product. Westgate did, however, partially comply before requesting to modify the demand.
A civil investigative demand does not necessarily mean the company receiving it is the target of an investigation — the CFPB also uses them to gather information from companies related to another company being investigated. The scope of the demand contested by Westgate, however, shows that the CFPB is looking into many aspects of its operations.
Westgate said the CFPB is demanding "information and documents that go to the heart of non-financial matters in what is, in essence, a real estate development and management company that develops, markets, sells and operates timeshare resorts, where financing a consumer transaction is merely a piece of a much larger vertically integrated operation."
Westgate's core business is selling timeshares in its 28 resorts, many of which it built and developed. Westgate then markets partial ownership to buyers and finances the purchases by lending them money to buy the timeshare. Westgate also manages the resorts. Westgate has locations in popular vacation areas like Orlando and Las Vegas.
A CFPB spokesperson declined to comment, saying the Bureau could not comment on potential enforcement matters. Westgate's chief operating officer, Mark Waltrip, did not immediately respond to a request for comment.
Westgate has run into trouble with federal regulators before for its marketing practices. In 2009, Westgate and companies affiliated with it settled with the Federal Trade Commission for over $1 million for violating Do Not Call rules with its telemarketers. Last April, Westgate lost a lawsuit in Tennessee over its high pressure sales tactics resulting in a $500,000 judgment. A couple sued Westgate claiming that commitments made during the sale of a timeshare were not followed up on after they bought a unit in the Tennessee mountain town Gatlinburg — the couple won $500,000. Westgate claimed that the case was not representative of the company's operations.
Another timeshare operator, Diamond Resorts, has come under scrutiny recently, with a long New York Times article questioning aspects of its sales and marketing practices.
Westgate's founder and chief executive officer David Siegel became widely known outside the timeshare industry when he wrote a memo to his employees saying that "our present government believes that taking my money is the right economic stimulus for this country" and that if taxes were increased in a second Obama term "I will have no choice but to reduce the size of this company." Siegel founded Central Florida Investments, Westgate's parent company, in 1970.
Westgate says that its timeshares are a better value for vacationing families, claiming that timeshare buyers can get 25 years of one-week vacations for $25,000 along with the value of its timeshare ownership, while it would cost $84,000 at hotels
Siegel also appeared in the critically acclaimed documentary Queen of Versailles, which follows he and his family as they construct the largest residential estate in the United States in the midst of the 2008 financial crisis.
While Westgate is a privately held company, it is active in selling off its timeshare receivables as securities to investors. In November, Westgate sold $156 million worth of securities and has sold $2.75 billion since 1992. Loans included in a 2013 securitization deal had an average mortgage rate of 15% with a term of almost 10 years. Rates for ten year mixed residential mortgage loans are closer to 3%.
In October, Westgate sought to modify or even set aside the CFPB's subpoena, claiming that it was too broad, burdensome to comply with, and rested on uncertain constitutional authority.
Westgate's petition gives an idea of how broad the CFPB's inquiry is. Westgate said the CFPB "seek[s] a list and description of all methods of advertisement employed to solicit buyers of its timeshares," as well as data on the compensation of its sales staff and data on how often borrowers refinanced their mortgages.
The company claimed that the CFPB wanted to look into non-financial aspects of its operation, including the marketing, which Westgate says is mostly taking prospective buyers on tours of the resorts.
The CFPB said in a response to Westgate's petition that it had requested the identities of everyone who worked at Westgate since September 1, 2012, except for greeters. The regulator said that Westgate only then "provided the identities of those employees who processed mortgage applications, but withheld the identities of its sales employees who engaged in the offering and sales of the timeshare properties."
"Westgate has various means of marketing its timeshares, in most cases—
especially at the stage of simply bringing consumers to a property to take a tour—such marketing would not touch upon any financial aspects of the transaction," the company said in its request to the CFPB.
Westgate said the CFPB had requested "documents and information that precede the first contact with a consumer," and thus are not strictly related to financing the timeshare purchase.
Consumer complaint websites abound with accounts of tourists being invited to Westgate presentations with inducements like casino chips and free flights and then going through a mutli-hour, intense sales process.
The CFPB, in its denial of Westgate's petition, said that "Westgate has not shown that the sales process is completely separate from the financing of the timeshares," and the CFPB said it has obtained complaints that "suggest that sales representatives made statements directly relating to financing." The CFPB also argued that Westgate couldn't show its demands "would unduly hinder its day-to-day operations."
The CFPB also said that Westgate had withheld consumer complaints "that it deemed to be unrelated to its financing of timeshares."
In its decision to deny Westgate's request, the CFPB said that its enforcement staff had met with Westgate's lawyers in October and narrowed some of its requests.
Matthew Zeitlin is a business reporter for BuzzFeed News and is based in New York. Zeitlin reports on Wall Street and big banks.
Contact Matthew Zeitlin at email@example.com.
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