Troubled city credit union set for £1m handout

Leeds City Credit Union, which has about 25,000 members, will receive the money as a grant channelled through Leeds City Council – if its executive board approves the move next week.

As savage cuts are made in public spending, a report to the council says the grant is essential to help to ensure the survival of the credit union 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 West Yorkshire Police are continuing.

After she resigned in 2008, investigations into the credit union's finances revealed about 2m of so-called toxic debt which had previously gone unreported.

The credit union's accounts for the year ending September 2009 showed a 1.37m loss, following on from a 2.47m loss the previous financial year. Last year total financial collapse was staved off through an emergency 4m bail-out from public funds.

As well as support from the Department for Work and Pensions, the

credit union received a 2m loan from Leeds City Council.

It has now decided, subject to executive board approval, to write off virtually half of the loan by utilising 1m it has been given by Yorkshire Forward.

The loan repayment will be reduced to 1.1m – essentially a 900,000 grant to the credit union.

The remaining 100,000 will go towards providing funding to support the network of branches across Leeds until March next year. Unless further support is found the current seven-branch network could be reduced to just one city centre outlet.

The Government recently announced the abolition of regional regeneration agencies, prompting heated debate about their use of public money.

Leeds City Credit Union had approached Yorkshire Forward for financial support last year which was not then forthcoming.

Last night Yorkshire Forward defended its decision to make the 1m grant this year, via the council, and insisted it represented value for money.

Its assistant director of business, Alex McWhirter, said: "Financial exclusion is still a significant problem faced by many people in Leeds.

"Yorkshire Forward has invested in the Leeds City Council Financial Inclusion initiative to support better money and debt services and affordable credit and banking services, so that those who are currently financially excluded from society can be included.

"An evaluation has shown that this service has supported over 50,000 people and generated 8.40 for the regional economy, for every 1 we have invested.

"We are working with Leeds City Council on this initiative, including where investment is being directed, and are comfortable with the work undertaken and the positive social and economic outcomes we have seen so far."

The council report says the credit union has undertaken a risk assessment on its ability to repay the outstanding 1.1m loan and although there are "uncertainties", it does believe the money will be repaid.

The credit union's auditors classed it as a going concern earlier this year but it is only continuing to operate because the Financial Services Authority, which regulates financial institutions, has granted it a waiver to run below the normal capital ratio requirement.

The credit union's accounts for the year ending September 2009 showed a 1.37m loss, following on from a 2.47m loss the previous financial year but chief executive Chris Smyth said its recovery was now on course.

Leeds City Council did not respond to a request to comment.