Financial Ombudsman Service warns of credit hire risks

As an alternative to consumers claiming on their own car insurance, claims or accident management companies (AMCs) can repair the car or help with a replacement vehicle under a credit agreement.

However even if the other party is at fault, if the AMC cannot recover costs from the other driver’s insurer, under the terms of the credit agreement they can recoup the costs from the consumer. Those bills can be extremely high and totally unexpected – leaving the consumer thousands of pounds out of pocket.

Rachel Lam, Ombudsman Director at the Financial Ombudsman Service, said:

Consumers and insurers can be subject to huge costs when credit hire is used. People have told us that they would never knowingly have chosen credit hire had they known the risks of having to pay the costs involved themselves.

Others believed they were still dealing with their own insurer, and it wasn’t made clear to them that they’d been passed to a credit hire provider in the first place.

We would urge industry to take an approach which is balanced, fair and transparent – putting consumers at the heart of their thinking.

The Financial Ombudsman Service is an independent free service established in law to resolve complaints where financial firms cannot settle them to the satisfaction of their customers. Each case is investigated fairly on its own merits.

Many motorists have told the Financial Ombudsman that the terms of their credit hire agreements were unclear – not only did they not know they could end up paying costs themselves, but they were unaware they were not using their own car insurance policy.

The Financial Ombudsman has also heard from consumers who are unhappy and frustrated with the repairs carried out by the credit hire company.

While the Financial Ombudsman is unable to look directly at the actions of an AMC, it can investigate complaints about the way insurers and brokers have referred consumers to credit hire agreements.

In many of the cases that the Financial Ombudsman sees, the referrals aren’t balanced and don’t give policy holders enough information to make an informed choice on whether to use credit hire and the implications this may have.

The Financial Ombudsman is working with the industry to improve referrals – making them fair, balanced and transparent. It believes industry should consider the wider implications of credit hire, including the impact on the ‘at fault’ driver’s insurer who can also be hit with significant bills. In a recent case, a £5,000 claim for damage to a car resulted in an insurer paying out almost £20,000 due to the hire car costs.

In a recent case, car owner Sophie (her name has been changed) called her insurer to make a claim following an accident that was another motorist’s fault. Whilst her insurer carried out her car repairs, for a courtesy car she was referred to a credit hire provider under a credit agreement.

Sophie only realised she could be liable when the credit hire company asked for her help recovering the £3,000 costs from the other motorist’s insurer, who had refused to pay. She was told if the relevant details were not forthcoming she would have to pay the bill herself.

Although the other insurer eventually agreed to pay, Sophie complained to the Financial Ombudsman Service – she was unhappy because, if the risks of credit hire had been explained properly by her insurer, she would never have asked for a courtesy car. The Financial Ombudsman found in her favour and told her insurer to pay her £350 for the distress and inconvenience caused.

Notes to editors

About the Financial Ombudsman Service

The Financial Ombudsman Service was set up by Parliament to resolve individual complaints between financial businesses and their customers on a fair and reasonable basis, as an alternative to the courts. It can look into problems involving most types of money matters. It is committed to sharing insight and experience to encourage fairness and confidence in financial services.