The Financial Services Authority has publicly censured The Pentecostal Credit Union (TPCU) for issuing £1.2 million of loans under its members’ names but channelling the money to a church organisation.
The watchdog said this channelling was in ‘direct contravention’ of credit union rules, which state only individual members could borrow and not organisations.
As a result, the director Reverend Carmel Jones has been banned from the industry.
Balham-based TPCU has 1,600 members and previously made regular loans to the Church Organisation for property purchases and repairs, prior to coming under FSA regulation in 2002.
However, the FSA warned the TPCU to stop this practice with immediate effect after an assessment in 2003, because the loans may not have been legally enforceable.
In 2006, Jones wrote to the watchdog and proposed to reinstate the loan system, but with either insurance indemnity for its members, or the creation of a corporate entity, of which members would be shareholders.
Despite the FSA warning Jones that both of these ideas were ‘unlawful’, the TPCU made 20 loans to the Church Organisation between May 2007 and July 2011.
The FSA said the TPCU’s failings ‘exposed its members to an excessive risk of financial loss,’ and that Jones approved 14 of the loans in question, and signed the cheques for the loan money in 12 of these cases.
The relationship between TPCU and the Church Organisation then broke down at the end of 2009 and the loan repayments stopped, leaving an estimated £670,000 outstanding.
Tracey McDermott, FSA director of enforcement and financial crime, said: ‘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.’