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Funding Credit hire and Credit repair
The Credit hire and credit repair industries and ancillary services provided to claimants in “no fault” accidents have traditionally been regarded as challenging sources of business for invoice financiers, but there are signs that financiers are becoming more comfortable with the risks involved.
It is fair to say that these industries have over recent years been subject to a number of measures by the Government in attempts to reduce overall insurance premiums, but they continue to display a sense of innovation.
From a funding point of the view starting point is always to identify the strength of the underlying debt, and provided that there is appropriate vetting for “no fault” claims by solicitors or others with appropriate experience this is not usually a major issue.
There are however potential difficulties with the Consumer Credit Act (“CCA”), and over the years there has been a series of successful challenges by insurers which have diluted the enforceability of debts, but most in the credit hire and credit repair industries are now aware of these issues so in effect: –
(1) credit hire agreements are normally drafted so that they cannot exceed the 89 day threshold which would involve regulation by the CCA; and
(2) credit repair should be documented by a written agreement which imposes liability on the no fault driver to be paid within the 364 days which would otherwise involve regulation by the CCA.
Nevertheless financiers need to bear in mind that although in practice claims are met by the third party insurer and normally paid direct to the claimant’s solicitors, who then pay the credit hire/credit repair provider, at the end of the day the debtor is the individual claimant and there remains a theoretical possibility that the financier would have to enforce against a large number of individual debtors.
For this reason initial payment percentages are traditionally much lower than those found in standard invoice finance agreements, and there tends to be more emphasis on personal guarantees and other security.
The other point worth making is that although most credit hire/repair providers have a much better understanding of the legal issues affecting the enforceability of their debts than was the case 5 or 10 years ago, invoice financiers contemplating this type of business should always take specialist advice since this is an area affected not only by frequent legislative developments but also by evolving case law in battles fought out to the bitter end between these providers and the insurance industry.