Credit union director disgraceful, says FSA
A credit union in South London may lose £670,000 of its members' money because a director used the funds to make a host of unlawful loans to a church.
The Rev Carmel Jones has been censured for his actions by the Financial Services Authority, which said his behaviour was "disgraceful".
The losses may now have to be borne by the 1,600 members of the Pentecostal Credit Union in Balham.
The church, which has not been named, was lent £1.2m in more than a decade.
"The previous directors made a number of mistakes in relation to the granting of loans and the credit union has suffered financially as a result," said the new chair of the credit union's directors, Leslie Laniyan.
"We apologise unreservedly to our members for these actions and thank them for exercising goodwill towards the Pentecostal Credit Union."
The credit union is still solvent with cash reserves of more than £2.5m.
It is trying to recover the money by suing the church in the courts.Unlawful loans
The FSA said the loans had been strictly against the rules, which said at the time that loans from a credit union could only be made to individual members and not to an organisation.
Before 2002, when the FSA took over the regulation of credit unions, Jones had been using the credit union's funds to help the unnamed church buy and repair properties.
But despite being told by the FSA to stop doing this, he continued, making 20 further loans to the church between May 2007 and July 2011, but disguising some of them as loans to credit union members.
The FSA made it clear that Jones' activities as the director of the credit union were unlawful, and that it and its members were now owed more than £670,000.
"None of the loan applications had the members' income verified, none of the members were issued with the full terms and conditions of the loans, and the Pentecostal Credit Union has been unable to prove that any of the loans were approved by its credit committee," the regulator said.
"Jones signed and approved 14 of the 20 loans in question, and in 12 cases signed the cheques for the loan money, none of which were made out to the individuals purportedly taking out the loans.
"In one case, the member had no idea a loan had been made in his name. Furthermore, there were two cases where the loan application document had been signed by a third party rather than the members themselves," the FSA added.Losses
The church in question still owes the outstanding money to the credit union, but stopped making repayments in 2009.
Mr Jones left his post as a director of the credit union in March this year. The rest of the old directors were removed in May and replaced by a new set.
Despite the seriousness of the rule breaches, Jones has not been fined the £60,000 penalty the FSA might have imposed, because he cannot afford to pay it.
The credit union itself has also not been fined, because this would have meant a further losses for its members.
A spokesman for the credit union said some of the outstanding money should be recovered, because the credit union had a legal charge over the properties which had been bought with its money.
But he acknowledged that the credit union would probably still suffer some loss, even after cash has come in from the sale of the church buildings.
Under the Financial Services Compensation Scheme, savers in credit unions each have £85,000 of their cash protected in the event of the credit union becoming insolvent.