Full investigation pledged into stricken credit union’s collapse

More than 5,700 savers have been affected after the North Yorkshire Credit Union was placed into liquidation last week after accruing outstanding debts of more than £400,000 since it was launched three years ago.

York Council’s cabinet and North Yorkshire County Council’s executive will both meet today when members are expected to agree contributions to an emergency financial package totalling £100,000 to establish a new credit union which is due to be operating later this month.

But calls have been made for a public inquiry to investigate the circumstances surrounding the collapse of the financially-stricken organisation after £300,000 of taxpayers’ money was used to set it up.

The Yorkshire Post has learned the credit union has been plunged into a deepening financial crisis over the last two years owing to a high level of bad debts on loans made to customers as well as increasing overheads and an over-dependence on one-off grants.

Sue Galloway, a former Lord Mayor of York and a veteran councillor who stood down at the last local elections, had been a saver with the credit union since 2006 after it initially covered York before being rolled out across the county. She represented the Westfield ward, one of the city’s most deprived areas, and revealed loan sharks had targeted residents – including one woman who took out a loan with exorbitant interest rates to pay for her mother’s funeral.

Mrs Galloway said: “Unfortunately we are now left not only with disappointed savers but with vulnerable people unable to get assistance from an organisation designed to help them and keep them out of the arms of loan sharks charging exorbitant interest rates. Both York Council and North Yorkshire County Council were investors in the credit union and nothing less than a public inquiry into the circumstances surrounding this collapse will satisfy ratepayers.”

Credit unions have been heralded as vital to providing a financial lifeline amid the economic slump as they are not-for-profit co-operatives in which members’ savings are used to provide cheap loans.

The North Yorkshire Credit Union, funded by a £200,000 start-up loan from the county council and a further £100,000 from York Council, has been overseen by the Financial Services Authority. Savings are protected by the Financial Services Compensation Scheme and investors who paid in a total of £1.9m have been reassured their money will be refunded through a compensation programme.

The South Yorkshire Credit Union, which has been operating for the last decade, is due to launch a new credit union in North Yorkshire once the £100,000 financial package has been agreed by the county council, York Council and Scarborough Borough Council. The Scarborough district has some of the county’s most deprived communities and saw a large number of investors in the previous credit union.

The county council’s deputy leader, Coun Carl Les, confirmed the full circumstances of the credit union’s collapse would be investigated. A report is due to be published by the Financial Services Authority, but he stressed the council could then launch its own inquiry.

He said: “We need to learn the lessons of the past but look to the future. The credit union has played a very significant role for many savers in North Yorkshire, and I would hope that we can get another organisation up and running as soon as possible.”

York Council’s leader, James Alexander, added: “The credit union is a key element of our financial inclusion strategy and it is essential that those in need have access to affordable loans, rather than only to legal and illegal loan sharks charging exorbitant rates of interest.”

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