Council bails out credit union with £1m grant

Despite the public spending squeeze, the council's executive board has agreed to channel 1m provided by regeneration agency Yorkshire Forward directly to the Leeds City Credit Union, which has 25,000 members.

Yorkshire Forward provided the council with the 1m for "financial inclusion" projects and the council decided to forward it all to the credit union, whose finances remain under investigation by West Yorkshire Police.

The council approved the grant after receiving a report which said it was essential to help to ensure the credit union's survival because its members are often denied access to mainstream bank accounts and could otherwise fall prey to loan sharks.

The credit union's former chief executive, Sue Davenport, was arrested on suspicion of fraud earlier this year. She was bailed and inquiries by the fraud squad are continuing.

After she resigned in 2008, it emerged the credit union has about 2m of so-called "toxic debt" which had previously gone unreported.

Total financial collapse was staved off last year with an emergency 4m bail-out from public funds.

As well as support from the Department for Work and Pensions, Leeds City Council loaned the credit union 2m.

The council has now agreed to write off virtually half of the loan – using the 1m from Yorkshire Forward, reducing the loan repayment to 1.1m – in what is essentially a 900,000 grant to the credit union.

The remaining 100,000 will help support the network of branches across Leeds until March next year. Unless further support is found the current seven branches could then be reduced to a single city centre presence.