Credit hire/credit repair became a significant customer service in the late 1980s. Back in the 1980’s or earlier, if you wanted to hire a car and recover the cost from a negligent driver’s insurer you had to pay for it up front, obtain a receipt and then spend weeks, if not months waiting to get your money back. That led to credit hire firms being established enabling innocent motorists involved in an accident to obtain a car on credit.

Firms supply the car hire to motorists on credit and pursue recovery, not only of the cost of the hire, but also their other uninsured losses as well from the negligent third party and their insurers.The main elements of the service are the provision of a replacement vehicle (credit hire) and arranging repairs (credit repair).

A special feature of the industry is that although the clients are individuals the income is in effect obtained from insurance companies.It met a need to help motorists involved in accidents where they were not to blame. CHOs provide replacement vehicles after accidents making sure innocent parties can stay mobile until their own vehicles are repaired or a cheque is received in the case of a write-off.

As a new service there was little by way of direct and specific legal guidance available on operations and costs. This, combined with the relatively small amounts of money involved and the large number of motor insurers, lead to insurers initially ignoring the emergence of a new industry. When insurers sought to counter the issues there were difficulties due to the number and disparate nature of the CHOs. As insurers had largely ignored the needs of motorists involved in accidents that were not their fault and this lead to the services of CHOs proving very attractive to claimants.

Insurers, however, disliked in principle having to pay for this new motor policyholder service and wanted to challenge the need for any payments. While the total size of the credit hire/repair industry was very small in relation to the claim payments made by insurers (well under 5%) this new type of claim and increased payouts united insurers to work together to seek to control these costs. They chose a variety of means including challenging the legal basis of what was being provided, refusing to pay claims to starve the CHOs of cash, and limiting the cost of individual claims.

The insurance industry spent heavily on legal challenges. They contested the validity of individual claims, adherence to the Consumer Credit Act, requirements to mitigate claims and many other areas. Once the legality of credit hire was established they tried to challenge the level of charges.
There was a concerted policy by insurers to starve CHOs of cash-flow and to tie them up in incessant litigation.

A key part of the insurers’ strategy was the launch by the Association of British Insurers of the General Terms of Agreement on 1 September 1999. CHOs had little involvement in the terms and conditions of the GTA. The GTA was initially piloted with just two national CHOs (Enterprise Rent-a-Car UK Ltd and National Car Hire Ltd). GTA rates were a reduction of over 10% on the prevailing rates being sought by CHOs and less that the courts would have awarded.

In summary, the GTA set the administration requirements over and above those necessary to pursue a claim on a purely legal basis to assist insurers to deal with claims under the scheme and the payment terms and amounts. The GTA therefore provides a centralised framework for agreement on the basis for settling claims. In the absence of this a vast number of bilateral agreements would need to be put in place to cover all of the market.

The stated intention of the GTA was to rein in the number of credit hire claims being brought before the Courts. In practice the key aspect of the GTA was really the approval of rates that insurers were willing to pay.

From June 2000, the GTA was extended to enable other CHOs to join (it was extended to cover credit repairs in February 2001). The rates and details were set by insurers and CHOs were invited to accept the GTA as a ‘voluntary’ agreement. Many CHOs had little or no choice but to accept, as they were starved of cash flow and many were in danger of bankruptcy. Indeed many CHOs went under through non-payment of claims.

When the GTA was opened up the acceptable GTA rate fell by around 25% but a £30 administration fee was included to cover some of the additional administration burden on the CHO from GTA requirements.

Following Competition Act concerns the protocol was notified to the OFT in late 2002 by the Association of British Insurers who administer the agreement on behalf of insurer and CHO subscribers.

The OFT investigated the GTA and published a decision on 22 April 2004 on the notification. This was most welcome as it removed the uncertainly of a decision not being published before the new competition regime comes into effect on 1 May.

The OFT decided that while the GTA is an anti-competitive agreement it is beneficial to consumers. As such it satisfies the requirements for an exemption under competition law, provided certain conditions are met.

The OFT has therefore granted an individual exemption from Chapter I prohibition of Competition Act to the GTA provided certain changes are made to the wording and operation of the GTA. The exemption will last for 5 years.

The OFT determined that although the collective approval of replacement vehicle hire rates through the GTA has the effect of fixing prices, the anti-competitive effects of the agreement are counter balanced by its benefits. The benefits noted included:

- less litigation between insurers and CHOs
- a better framework for transactions between insurers and CHOs
- greater certainty and security for consumers who use credit hire vehicles- restraining further increases in replacement vehicle hire rates and (indirectly) insurance premiums.

The decision was broadly in line with a preliminary decision published by the OFT in January. Since then there were written and oral representation on the preliminary decision, including from ABI and AMA. Extensive legal advice was sought by both Associations to assist in their representations.

The thrust of AMA representation was that there should be more joint ownership and control of the GTA by CHOs and insurers. The proposal to have an independent assessor setting rates was welcomed but AMA made representations that the appointment should not be made by the ABI but instead jointly by CHOs and insurers.

The OFT final decision on the GTA supported AMA representations on the running of the GTA and appointment of an independent assessor. The structure hasd to be incorporated into the GTA and the appointment of the assessor has to be made by the GTA Technical Committee, comprising representatives of CHOs and insurers.

The independent assessor was also required to subsume the fixed administration fee within the new daily rates that they will set. The system for annually revising rates has also to be managed by the independent assessor and this must be incorporated into the GTA.

The OFT stated that any amendments to the GTA or its operation which are proposed in order to comply with the OFT requirement must be agreed by them. The proposed changes must be implemented within three months from 22 April.

The ABI, however, appealed the OFT decision to the Competition Appeals Tribunial. The ABI believed that the OFT’s decision was wrong in law, which had implications beyond the current case.
The ABI was successful in its appeal. The OFT indicated that they considered the protocol was anti-competitive but they decided to close their file for administrative reasons.

Since then a GTA Technical Committee, comprising of insurer and CHO representatives (AMA has two members on the Committee and Tony Baker, Director General, AMA is the independent Secretary) has been working to improve understanding and reduce areas of uncertainty/conflict.

CHOs currently obtain business is obtained from referrals from insurance brokers, breakdown companies, garages and insurance companies.

CHOs operate ‘call centres’. Usually with one phone call, a CHO can make a decision on whether they can help the motorist. If they can, they will take over all the hassle involved in having an accident from liasing with the customer’s insurance company, to providing them with replacement transport, and perhaps organising repairs and helping them claim compensation for any injury or losses them may have suffered.

The CHO will usually notify the claimant’s insurance company on their behalf, or ask them to notify their insurer once the CHO has agreed they can help them. They need to know for information only as the claim is against the insurance company of the driver who caused the accident.

Claimants are legally entitled to the service a CHO provides after a non-fault accident, regardless of their vehicle insurance. The bill for any replacement vehicle a CHO provides, or the repairs they organise and fund, are sent to the insurance company of the driver who caused the accident.

Some CHOs may ask the claimant to pay a small amount for an insurance policy that guarantees that even if the insurance company of the driver to blame doesn’t settle the bill, they will not end up paying.

If the claimant’s vehicle is driveable, the CHO may organise a suitable repairer and repair date with them. They will then ask the claimant to take their vehicle to the agreed garage, where a replacement vehicle will be waiting for them. When the repairs are complete, they will simply need to drive the hire car to the garage and leave it there for collection and drive their own car away.

If their vehicle is un-drivable the CHO can arrange for a replacement vehicle to be delivered to their home, work or any other suitable address. The CHO can then organise for the un-drivable vehicle to be taken to a repairer.

Wherever possible, the customer is given replacement transport of a similar standard to their own, e.g. people carrier, motorbike, estate car, prestige car etc. All the customer has to do is show that they ‘need’ a similar standard vehicle.

At the present time there are probably about 100 live CHOs but the great majority are extremely small. AMA has 34 full members ranging in size from companies with a turnover of under £250,000 to over £400 million.

UK credit hire turnover in 2009 is estimated at £600-£650 million with a further £300 million in credit repair. The Association accounts for over 80% of the market by volume of business.