The Financial Services Authority (FSA) has publicly censured The Pentecostal Credit Union Limited (TPCU) for issuing loans worth £1.2 million under its members’ names but channelling the money to a Church Organisation.
This was in direct contravention of credit union rules which stated that only individual members could borrow, not organisations. The director, Reverend Carmel Jones, has been banned from the industry for overseeing this practice.
TPCU is based in Balham, London, with its 1,600 membership drawn from congregations of Pentecostal Churches. Before coming under FSA regulation in 2002, TPCU was making regular loans to the Church Organisation for property purchases and repairs.
After a routine assessment in 2003, the FSA warned them to stop this practice with immediate effect because the loans may not be legally enforceable. In 2006, Jones wrote to the FSA proposing to reinstate the loan system with either insurance indemnity for its members or the establishment of a corporate entity of which they would be shareholders.
The FSA warned Jones that both of these suggestions were unlawful but between May 2007 and July 2011, TPCU made twenty loans to the Church Organisation. None of the loan applications had the members’ income verified, none of the members were issued with the full terms and conditions of the loans, and TPCU has been unable to prove that any of the loans were approved by its credit committee. TPCU’s failings exposed its members to an excessive risk of financial loss.
Jones signed and approved 14 of the 20 loans in question, and in 12 cases signed the cheques for the loan money, none of which were made out to the individuals purportedly taking out the loans.
In one case, the member had no idea a loan had been made in his name. In another, the repayments were £1,000 a month higher than the member’s stated monthly income, and a cheque issued for a third loan was dated four days before the loan application was made. Furthermore, there were two cases where the loan application document had been signed by a third party rather than the members themselves.
The relationship between TPCU and the Church Organisation broke down at the end of 2009 and the loan repayments stopped. The estimated amount outstanding is in excess of £670,000.
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.”
Jones’ conduct fell short of the standards of integrity required by the FSA’s approved person regime. He has been declared unfit to hold this position and banned from the industry. Jones would have been fined £60,000 but for his financial circumstances.
As for TPCU, the FSA would normally have imposed a fine for these serious breaches but has taken into account the important role of credit unions and the fact that any fine would impact TPCU’s members. There may be future cases where it will be appropriate to fine a credit union. The FSA considers this to be an exceptional case and has issued a public censure because TPCU cooperated fully with the investigation and replaced its entire management at the request of the FSA.
Notes for editors
- The Final Notices for The Pentecostal Credit Union Limited and Reverend Carmel Jones.
- The Credit Unions Sourcebook (“CRED”) applied to credit unions until 7 January 2012, after which it was replaced by the Credit Unions New Sourcebook. CRED 10.2.11 G(1) provides that a credit union could only make loans to members who are natural persons qualifying in accordance with section 1(2) of the Credit Unions Act 1979, or other credit unions. Although a credit union could make a loan to a member for a business purpose (CRED 10.2.11 G(2)) it could not make a loan to a member who merely intended to transmit that loan to another body. A credit union should not make loans to members who acted together to achieve an aggregate loan that exceeded the limits in CRED 10.3.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.
- The FSA will be replaced by the Financial Conduct Authority and Prudential Regulation Authority in 2013. The Financial Services Bill currently undergoing parliamentary scrutiny is expected to receive Royal Assent in late 2012 or early 2013, subject to the parliamentary timetable.