• Home / Insight / Credit Hire Fraud – threats and trends

    Credit Hire Fraud – threats and trends

    09/03/2013

    The size of the issue

    With the rapid rise in credit hire fraud (CHF) continuing, is CHF really on the increase or is the motor insurance market simply becoming more aware of the issue and identifying more cases as a result? The answer is both.

    CHF is definitely on the increase. It is seen as an easy target by organised criminal gangs and experienced professional enablers alike. All available data on both credit hire and CHF is extremely concerning.

    The insurance industry spends approximately £600m a year on credit hire. Fraud accounts for around 10% of that total, with the increased costs of investigating suspect claims and defending litigation often significantly increasing the cost of defending a “legitimate” credit hire claim.

    Equally as staggering is the number of Credit Hire Organisations (CHO) in the market. In files opened at Keoghs in 2012 we recorded 708 different CHOs, a 7% increase from 2010. In addition, 25% of Keoghs fraud ring operations have a CHO as a key attractor. Considering that there is no regulatory requirement for CHOs it presents a worrying picture of an industry rapidly spiralling out of control with no sign of abating.

    The impact of the Jackson reforms

    Will Jackson see an end to fraudulent activities by the non-ABI/GTA CHOs or will it lead them to use credit hire as a “stalking horse” by which to circumnavigate the ban on referral fees? The fear is that it will be the latter, with many predicting CHF will increase following the referral fee ban.

    The Jackson reforms will undoubtedly shift some of the focus onto credit hire and, as such, the market must be prepared for this threat. The referral of the credit hire industry to the Competition Commission (CC) is a significant step. Whereas Jackson LJ failed to include the credit hire industry in his reforms, the CC will focus heavily on it.

    This is a chance to highlight the errant, even abhorrent, processes that appear to have become endemic in the credit hire industry. Keoghs will be participating within the CC investigation and we hope that the process leads to an eradication of such practices and a permanent change in behaviour.

    What we are seeing in the market:

    Cancellation notices

    The requirement for the Credit Hire Agreement, an agreement for credit to the hirer, is well known on both sides of the fence. Nevertheless, it remains something of a battleground. Whilst the volume ABI/GTA signatories have put their house in order, it is our experience that the non-ABI CHOs are still “hit and miss” with regard to the existence of a compliant cancellation notice.

    The requirement for a cancellation notice is borne out of the nattily-titled Cancellation of Contracts Made in a Consumer’s Home or Place of Work etc. Regulations 2008. A summary is detailed below:

    • The regulations came into force 1 October 2008
    • It creates a cooling off period and statutory right of cancellation which must be in a specified format i.e. dated, legible, including a detachable slip
    • The effect of non-compliance is that the agreement is irredeemably unenforceable
    • It applies to consumers only
    • Agreement must be made during a visit from the trader to the claimant’s home or place of work (unless specifically requested by the claimant)

    The argument has seen some success (see Chen Wei v Cambridge Power and Light Ltd and Taylor v Chan). However, it is very much fact specific and intensive investigations are recommended before such an argument is raised and pursued. There is not a plethora of case law on the issue, nor even a definitive, leading case.

    Interestingly, in the recent case of Robertson v Swift, the court was somewhat critical of the Regulations, even going as far as to consider as part of their judgment whether or not the wording of the Regulations was ultra vires. Ultimately, Jackson LJ did not consider that the Directive was ulta vires but did mention in his judgment that perhaps the Department for Business, Innovation and Skills could review the Regulations and consider if changes are appropriate.

    Unsurprisingly, some members of the claimant credit hire community leapt upon LJ Jackson’s comments as some kind of court-led attack on the “fairness” of what are, admittedly, draconian sanctions for non-compliance. However, against the background of a case involving the provision of domestic removal services to a private individual, it is unlikely that the plight of the downtrodden CHOs were a priority.

    As the less “savvy” providers still play catch up with the various requirements put upon them as a provider of credit, the lack of a compliant cancellation notice is an issue in a significant proportion of files dealt with by our credit hire fraud team.

    A number of counter arguments are routinely raised by the claimant;

    “The contract was signed at the CHO’s offices.”

    If this is the case, then the regulations do not apply. This is, evidentially, a difficult argument to counter. If there is a delivery and collection charge levied by the hire company and the CHO office is some distance away from the claimant’s home, it becomes less likely that they signed it at the CHO office.

    The defendant can pursue a witness statement from someone at the CHO to confirm the position in the hope that they are not keen to sign something untrue. However, they don’t have to provide you with one, but neither should the claimant’s word be taken at face value without further investigation.

    We always review the case chronology and see when the ‘It was signed at the CHO offices,’ excuse appears – it is normally after the lack of a cancellation notice has been pointed out several times. If there is a delivery/collection fee levied and the CHO is miles away a late explanation can be presented as a last ditch effort of dubious probity.

    “The claimant is a taxi driver and therefore the Regulations do not apply.”

    With the number of claims involving taxi drivers on the increase this is a counter-argument that appears more frequently. Experienced CHOs and solicitors who have faced the argument before will have their response ready; usually arguing that the claimant taxi driver (who hired a vehicle to maintain his trade) is not a consumer as defined by the directive.

    They have a point, but there is a school of thought that says the definition of a consumer is too narrow in these circumstances. After all, taxi driver mitigation statements often state that the vehicle is also used for SDP purposes.

    However, where the claimant primarily used the hire vehicle as a taxi then the lack of a compliant cancellation notice is not an argument on which to proceed to trial but could be used as a negotiation point. The claimant’s true usage of the hire vehicle should also always be checked to include analysis of earnings and enquiries to the relevant licensing authority.

    Late production of the notice, or its questionable quality when compared with other contractual documents.

    Several recent cases have involved the production of cancellation notices very late in the day. Our arguments have focused on obtaining an adjournment to source the original documents, using expert witnesses to ascertain if the notices were produced at the same time as the hire agreements. On a number of occasions this has resulted in the claimant abandoning their claim.

    Most claimants (with the CHO in the background) will battle on, however, and some success has been achieved in having hire claims struck out based on this questionable evidence. In these circumstances the defence should always seek to inspect the original documents if there are concerns about the veracity of the documentation. This can be done by asking the CHO or their solicitors to send the originals or, alternatively, instructing an enquiry agent to attend at the CHO’s premises to inspect the documents and prepare a witness statement in relation to their findings. The cost of the latter may appear speculative but if it assists in the discontinuance or striking out of a credit hire claim then the benefits are apparent

    Fraser McAndry
    Author

    Fraser McAndry
    Partner

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