Credit Hire: Consumer Impact in Focus

With the new government vowing to crack down on the causes of insurance premium inflation, will the attention of regulators again be turned to the credit hire industry? Gary Herring, Partner and Head of Credit Hire, highlights the real-world consumer impact and questions whether the balance has shifted since the last major market investigation in 2014.

There is no doubt that the credit hire model has brought significant consumer benefits since its inception. As those on the claimant side of the industry will understandably be at pains to emphasise, if it never existed then many consumers would have been left without transport in the aftermath of a non-fault accident.

Whether that remains true in 2024 – and if so to what extent – may be open to debate.

But that debate aside, clearly nothing comes for free. With the benefit, there is a cost. In 2014 the Consumer and Markets Authority concluded that the former outweighed the latter. Fast forward to 2024, does that remain true?

The first and most obvious cost of credit hire to the consumer is the impact on insurance premiums. While the CMA in 2014 ultimately concluded that credit hire added just £8 to each motor premium written, the market has changed significantly since then and the calculations in 2024 are likely to be markedly different.

By way of illustration, the CMA calculated that the average credit hire invoice was just £1,105. Contrast that with Keoghs data on the average credit hire invoice in 2024, which shows a fivefold increase to £5,249.

This is likely to come as little surprise to the defendant side of the industry, not least given the increase in frequency of six-figure credit hire invoices which were, even only ten years ago, still very rare. The highest value credit hire invoice Keoghs has dealt with is £500,000, a claim which recently settled for a fraction of the amount claimed. In that claim, the CHO involved acted as little more than an intermediary, hiring the vehicle in from a coach rental company, while uplifting the daily rate by 300% – or £1,165 per day!

Similarly, credit hire rates have seen huge inflation since 2014, vastly outpacing increases in direct hire costs and indeed CPI. In 2013 the average daily credit hire rate was £69, whereas by 2024 this has tripled to £212.

Just as rates, durations and invoice values have seen eye-watering inflation since the CMA report, simultaneously a larger proportion of the market now operates outside the GTA and bilateral arrangements. What were once low-volume non-GTA players have seen exponential growth, with one particular non-GTA protagonist – who candidly describe themselves as “highly litigious” – having seen revenues triple in the five years between 2018 and 2023. Another prominent non-GTA player has seen even steeper growth, having quadrupled revenues between 2020 and 2023.

Therefore, while it is correct to acknowledge that most credit hire claims are still transacted amicably either within protocols or the GTA, the impact of the sizeable and growing minority of claims outside the GTA, which are far more likely to be subject to litigation, should not be underestimated.

In 2023 alone, based on Keoghs volumes and our approximate market share, we estimate there were over 60,000 claims for credit hire charges issued in the County Courts. Of those, we estimate that at least 7,200 proceeded to a trial or final hearing. The impact of this on court resources, particularly against the backdrop of a civil justice budget which is likely to come under ever more pressure in the coming years, is obvious.

A further consequence which may not be as immediately obvious, is the impact on the tens of thousands of consumers a year who find themselves caught as proxies in litigation between CHOs and insurers.

Firstly, due to the peculiarities of the law governing the recoverable measure of credit hire charges, consumers even at the pre-litigation stage, and certainly in litigation, are required to provide evidence of their financial means. One prominent non-GTA CHO’s “wrongheaded” policy of refusing to engage with this understandably bothersome, but plainly necessary, requirement was emphatically rebuked by the High Court last year in Holt v Allianz.

A further requirement of the litigation process is that the consumer must provide a witness statement, detailing the factual circumstances of the hire and, in particular, any facts relevant to the usual mitigation-related issues such as need, duration and impecuniosity.

A concerning feature of some modern-day credit hire litigation is the propensity for template witness statements to be put forward across volumes of claims, which make virtually identical points on factual matters where you would expect a degree of variation from case to case. For instance, there is often a section detailing the adamant insistence of the consumer’s understanding that they are liable for the hire charges, the reasons why a free vehicle from the defendant’s insurer was rejected, why a certain type of vehicle was needed and so on. This can be particularly prevalent in claims involving entities where the CHO and solicitors are both within the same corporate umbrella. Such template statements are often clearly designed to ‘tick the boxes’ in answering defences to the credit hire claim and to maximise prospects of recovery.

Perhaps unsurprisingly, therefore, we are tracking a frequent and ever-increasing number of instances where it can be shown that a witness statement put forward on behalf of the consumer is in some material respect not true. We have seen several examples of claimants taking the witness stand and distancing themselves from the contents of “their” witness statement, sometimes even alleging that there was pressure brought to bear by the CHO or solicitors to sign it.                                                                                                         

The implications of signing a witness statement which contains matters that are known to be untrue are significant. This is contempt of court with a penalty of a fine or, in severe cases, imprisonment. A consumer who puts their name to a statement without paying proper heed to its contents, as is commonplace, may find themselves in severe difficulty if any part of the statement is later shown to be inaccurate or false.

On the other hand, it is unsurprising that many individuals may not be fully engaged in the process given that, in this writer’s experience, a sizeable proportion of credit hirers are under the impression that the vehicle they were provided with was free, and/or a courtesy car from their insurer. ‘Ad spoofing’ is certainly no stranger to the world of credit hire, with surprisingly large CHOs accepting referrals of unwitting consumers via these means, who often believe they are dealing with their own insurer. While the effect of the hire contract having been misrepresented may be legally debatable, there is clearly a conflict between the common misunderstanding of the consumer as to the vehicle they have been given, and the standard words routinely appearing in witness statements churned out en masse by some of those acting for claimants.

These issues are not to be brushed aside as mere technicalities. They can have serious consequences to the severe detriment of the individuals unfortunate enough to be caught up in them.

Moreover, there appears to be an increasing propensity on the part of certain CHOs to take action against their own customers who either object to elements of the litigation they have become embroiled in or fail to engage adequately with it.

One stark example of this is the case of Mr X, who contacted Keoghs seeking assistance after receiving a bill for £30,000 from a well-known ‘one-stop shop’ CHO, consisting of hire charges as well as solicitor’s costs. Mr X was initially told that the vehicle was free and signed a document upon delivery of the vehicle containing a vastly lower rate than the one which was later relied upon by the CHO. After objecting to signing the witness statement prepared by his solicitors on the basis that it was not an accurate statement of the facts as he understood them, he was told that unless the statement was signed the claim would be jeopardised and he would be sent the bill for hire charges and legal costs. Faced with a choice between that and committing contempt of court, Mr X refused to sign the statement.

Another example, involving the same CHO, was a claimant who allegedly failed to engage with the solicitors appointed to act for him. They set out details of attempts to contact him and sought to cease acting, leaving the claim to be struck out. Mr Y’s evidence was that he was dyslexic and did not understand much of what was happening. There was confusion over the documents he was being asked to provide and as far as he understood, the vehicle he was provided with was a courtesy car. After the claim was struck out, the CHO duly dispatched a bill to Mr Y for £20,000. It was received by him, via special delivery, on Christmas Eve.

Whatever the rights and wrongs, and no matter what ‘side’ of the industry you are on, it is surely very difficult to find this anything other than abhorrent.

While the customer of a financial institution or debt collector is likely to have regulatory recourse in such circumstances, credit hire customers ordinarily do not. That is largely because credit hire agreements are exempt from the Consumer Credit Act and, therefore, outside the ambit of regulation by the FCA.

These issues were identified as posing potential for consumer harm by the Financial Ombudsman Service (FOS) in July 2023. While acknowledging that they had no jurisdiction to directly investigate CHOs, they reported a four-fold increase in complaints relating to credit hire and issued a press release warning consumers of the risks of unwittingly entering a credit hire agreement. A handful of investigations were published where they instead directed their attention to the referrers to the CHO, ordering redress where the referral had not been sufficiently clear as to the risks, the potential liabilities, or the fact that there is unlikely to be any recourse if things go wrong.

There is clearly a case to be made, therefore, that the tipping point has been reached regarding the benefits and harms of credit hire. Of course, others will argue vociferously to the contrary. But there are excesses propagated by a small but growing minority of the industry which few could deny have the potential to – and do – cause vulnerable consumers significant harm. On that basis alone, the case for regulatory curbs on these excesses has surely never been stronger.