LONDON (Reuters) - A London credit union and its chairman have escaped fines for breaking lending rules after the Financial Services Authority swapped financial penalties for a public rap to avoid hurting the union’s members.
Credit Unions are non-profit cooperatives, owned by local communities, which provide financial services such as current accounts, savings and loans.
The Financial Services Authority said The Pentecostal Credit Union Limited (TPCU), which has 1,600 members, issued loans worth 1.2 million pounds under members’ names but channelled the money to another church organisation.
Only individual members, rather than organisations, can borrow from credit unions, and the FSA said TPCU chairman Reverend Carmel Jones had previously been warned about this.
“The FSA would normally have imposed a fine for these serious breaches but has taken into account the important role of credit unions and the fact that any fine would impact TPCU’s members,” the FSA said on Monday.
It said there may be future cases in which it would be appropriate to fine a credit union.
The FSA said Jones had approved 14 of 20 unlawful loans, and in 12 cases signed cheques for loan money, none of which were made out to the individuals purportedly taking out the loans.
In one case, the TPCU member had no idea the loan had been made in his name, the FSA said, while in another the cheque was dated four days before the loan application was even made.
The loan repayments were stopped at the end of 2009 when the relationship between TPCU and the church organisation broke down. The FSA said the estimated amount outstanding on the loans is at least 670,000 pounds.
The FSA said Jones, who was banned from the industry and publicly censured, had been spared a 60,000 pound fine due to the financial hardship this would have imposed on him.
The FSA said in making this decision it had also taken into account the fact Jones, a disabled pensioner with limited income, did not gain financially from his actions, that he had voluntarily stepped down from the role and cooperated fully with the investigation.
With high street banks reining in lending due to higher capital requirements, the government is hoping to expand credit union membership to increase access to affordable credit.
Reporting by Kylie MacLellan; Editing by Mark Potter