The FSA has publicly censured The Pentecostal Credit Union for issuing loans worth £1.2m under its members’ names but channelling the money to a church.
Only individual members can borrow from credit unions, not organisations, and the director, Reverend Carmel Jones, has been banned from the industry for overseeing the practice.
The credit union is based in Balham, London, and has 1,600 members drawn from the congregations of Pentecostal Churches.
The FSA says it would normally impose a fine but has taken into account the “important role of credit unions” and the impact of any fine on TPCU’s members.
It says there may be future cases where it will be appropriate to fine a credit union but it considers this an “exceptional” case because TPCU cooperated fully with the investigation and replaced its entire management at the request of the FSA.
Before coming under FSA regulation in 2002, TPCU was making regular loans to the church organisation for property purchases and repairs.
After a routine assessment in 2003, the FSA warned it to stop this practice with immediate effect because the loans may not be legally enforceable.
In 2006, Jones wrote to the FSA proposing to reinstate the loan system with either insurance indemnity for its members or the establishment of a corporate entity of which they would be shareholders.
The FSA warned Jones that both of these suggestions were unlawful but between May 2007 and July 2011, TPCU made 20 loans to the church.
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 TPCU has been unable to prove that any of the loans were approved by its credit committee.
The FSA says TPCU’s failings exposed its members to an excessive risk of financial loss.
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.
The relationship between TPCU and the church organisation broke down at the end of 2009 and the loan repayments stopped. The estimated amount outstanding is in excess of £670,000.
FSA director of enforcement and financial crime Tracey McDermott says: “This is a disgraceful case of a credit union putting the interests of another organisation before those of its members. The FSA will not tolerate this conduct in the industry.
“Credit unions are vital institutions for the communities they serve and the members of The Pentecostal Credit Union deserved better.”
Jones has been declared unfit to hold his position and banned from the industry. He would have been fined £60,000 but for his financial circumstances.