Credit Hire Agreement Explained

A credit hire agreement is the contract under which a non-fault driver hires a replacement vehicle on deferred payment terms, with the hire charges pursued from the at-fault driver's insurer instead of being paid up front. It sits at the heart of every credit hire claim: get the agreement right and the rate, period, need, mitigation and impecuniosity arguments play out on their merits, get it wrong and the claim fails on enforceability before any of those issues are reached.

This guide explains what a credit hire agreement is, how the Consumer Credit Act 1974 applies, why the FSMA Regulated Activities Order Article 60F exemptions matter, and how to defend the increasingly common enforceability attacks run by insurer firms such as Keoghs.

What is a credit hire agreement?

A credit hire agreement is the contract under which a credit hire organisation (CHO) supplies a non-fault driver with a replacement vehicle on credit. The defining feature is that the claimant does not pay at the point of supply. Payment is deferred and the CHO pursues the at-fault insurer for the hire charges through the claimant\'s subrogated tort claim.

That deferral is what makes the agreement a credit agreement, and what historically brought it within the Consumer Credit Act 1974. Without the deferral, it would be ordinary spot hire, governed only by the law of contract and bailment.

The Consumer Credit Act framework

The House of Lords in Dimond v Lovell [2002] 1 AC 384 confirmed that credit hire agreements are credit agreements within the meaning of the CCA 1974. Lord Hoffmann held that the agreement in that case was a regulated agreement and, because it failed to comply with prescribed form requirements, was unenforceable. The claimant recovered nothing for the hire.

Dimond changed the industry overnight. Every CHO redrafted its agreements. The modern position is that virtually all credit hire agreements are now drafted to fall within one of the FSMA Regulated Activities Order Article 60F exemptions, so they are not regulated agreements at all.

FSMA RAO Article 60F, the two exemptions

Article 60F of the Regulated Activities Order 2001 (as amended) carves out specific credit arrangements from the CCA regime. Two limbs matter in credit hire:

• Article 60F(2), credit of any amount provided to an individual wholly or predominantly for the purposes of a business. Used for sole traders, partnerships and other business-use claimants where the hire vehicle is genuinely needed for work.
• Article 60F(3), credit of less than £25,000, free of interest and other charges, repayable in 12 months or fewer in not more than four instalments. This is the workhorse exemption for consumer credit hire and covers the typical short-term hire scenario.

Identifying the correct exemption on the face of the agreement is the single most important drafting decision. The two limbs are mutually exclusive on any given facts, business use cannot also be consumer credit. Insurer attacks frequently turn on the wrong exemption being asserted.

Defending enforceability challenges

Keoghs-style enforceability challenges typically run one of three lines: (1) the agreement is regulated and non-compliant in form; (2) the wrong Article 60F exemption is claimed on the facts; or (3) the credit element exceeds £25,000 or the repayment terms exceed 12 months / four instalments, taking it outside 60F(3).

The defence is mechanical. Identify the exemption on the face of the agreement. Match the facts of the hire (business or consumer, total charge, repayment mechanism) to the exemption\'s requirements. Plead the exemption and the supporting facts in the reply. The leading first-instance authorities applying the FSMA RAO analysis are routinely cited in the platform\'s case law database.

Assignment and subrogation

Credit hire agreements typically include an assignment of the claimant\'s right to recover hire charges to the CHO. Clark v Ardington Electrical Services [2002] EWCA Civ 510 remains the leading authority on how assignments operate in this context and confirms that the CHO can sue in its own name where the assignment is properly drafted and notified.

Practical drafting points

• State the relevant FSMA RAO exemption on the face of the agreement.
• Identify the vehicle, the daily rate, the period mechanism and the credit terms expressly.
• Confirm in writing whether use is business or consumer, they cannot be both.
• Ensure repayment language for 60F(3) agreements does not exceed 12 months / four instalments.
• Record the date of supply, exemption analysis is fact-specific to the date of contract.
• Notify any assignment to the at-fault insurer in correspondence.

How CreditHire Assist helps

The TPI Correspondence Analyzer flags every enforceability challenge in incoming insurer letters and routes the reply through the correct Article 60F analysis. The case law database records the leading authorities on Dimond, Clark v Ardington and the FSMA RAO exemption applications. Every cited authority is verified, no fabricated case law.

Frequently asked questions