Savers left in shock as credit union folds over debts

UP to 5,000 savers have been left reeling after North Yorkshire’s credit union collapsed under hundreds of thousands of pounds in unpaid debts accrued during the financial crisis.

The York-based union has been placed into liquidation, although bosses have moved to assure savers who have invested a total of £1.9m that their money will be repaid through a compensation scheme within days.

York councillor Janet Looker, chairwoman of the union’s board of directors, told the Yorkshire Post that it was owed more than £400,000 in outstanding debts, with many members unable to repay the money due to bankruptcy and job losses.

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It is understood advanced talks are under way for the South Yorkshire Credit Union to expand into the county.

Credit unions are not-for-profit co-operatives in which members’ savings are used to provide cheap loans.

Coun Looker said she was “devastated” at the closure at a time when it is needed most.

“What makes me so desperately dismayed is the very fact we have folded is the reason why people need us,” she said.

“Some of it was us not being sufficiently savvy as to who we were going to lend the money to, but most people it was because their financial circumstances had changed.

“Some of it was down to our over-enthusiasm for making loans to people without being sufficiently nasty about vetting them properly or getting behind them more aggressively when they started falling behind in their repayments.”

She added: “We have had bankruptcies or people who have lost their jobs.

“It reached the point in the summer where it was clear we were heading for the end.

“You can only go on so long and it was getting very difficult.”

The credit union, on Holgate Road, was established in 2006 and expanded to take in North Yorkshire in 2008.

It stopped issuing loans and accepting new members in October, although at the time it said it was due to a reorganisation of its services, with many members finding out about the liquidation only this week.

Coun Looker said members were deliberately kept in the dark to avoid a situation where worried investors attempted to withdraw their savings at once.

“We would have had a run on the bank, which we wouldn’t have been able to cope with,” she added.

“This way it will be managed through the compensation scheme.”

North Yorkshire Credit Union was placed into liquidation following a High Court order on Wednesday, with Chantrey Vellacott DFK appointed as liquidators.

“The collapse of North Yorkshire Credit Union is due to a combination of factors,” said appointed liquidator Kevin Murphy.

“This includes bad debt provisions in respect to loans to members of over £400,000 due to inadequate credit referencing and credit control, and also inadequate cost control, which is partly due to the resources required to service the large North Yorkshire region.

“Every member of the North Yorkshire Credit Union will get their money back in full within the next week, as they are protected by the Financial Services Compensation Scheme. It has been confirmed this process is automatic, so members do not need to act to get their money back.”

Mr Murphy added: “People with less than £1,000 will receive a letter to get cash over the counter at the Post Office, while anyone with more than £1,000 will receive a cheque.”